Focus: Investors' Safe Havens Amid Turbulent Markets

Updated 31 March 2020

Focus: Investors' Safe Havens Amid Turbulent Markets

What happened:

Markets were moderately up yesterday, and the risk sentiment continued for European stock markets into Tuesday.

The WHO said that the coronavirus disease (COVID-19) outbreak may be nearing its peak in Europe. This shifted the conversation from stimulus packages to where the global economy will be headed after the impact of the pandemic abates.

President of the St. Louis Federal Reserve James Bullard told Bloomberg that the US had debt capacity beyond the stimulus. He also cautioned that the US might see unemployment rise to 30 percent.

As China returns to work, the Purchasing Manager’s Index (PMI) rose to 52 in March. It is too early to be jubilant because the March PMI follows on that of February, which stood at 35.7. January and February also saw a 17 percent decline of exports year on year. Expect that number to worsen, as most of China’s export markets halted economic activity. The GDP of the world’s second largest economy is expected to fall for the first time since 1976.

Why it happened:

Black Rock’s Larry Fink thinks that markets have seen their lows, but that after the worst is over the global economy will look different. Investor sentiment, business practices and consumer sentiments will be reshaped substantially. This will have an impact on interconnectivity and supply chains. Morgan Stanley and JPMorgan also estimate that markets have reached their lows. Many disagree.

Volatility was immense since the outbreak. At the beginning of the month, the volatility index reached 85 — the highest in history. While oscillating, it came down, but it still stands above 65. When volatility is up, investors flock to safe havens.

The dollar saw big inflows, which abated somewhat when the $2 trillion package was announced. The Swiss franc and the yen, which are traditional safe havens, also saw big inflows. CNBC reported that the Swiss National Bank doubled its open market operations for 2020 to SFr 12 billion.

Ten-year US treasury yields fluctuated on a downward trajectory. Gold surged at the beginning of the month and dipped later because investors were in securities, such as exchange-traded funds. Access to the physical commodity was restricted amid the lockdown. It has recovered since then, standing at $1,640.65 per ounce mid-morning in Europe.

Where we go from here:

There is discussion on the shape of the recovery: V, U or L. Recovery may look different country to country depending on how strong the economy was going into the crisis and how well equipped its private and public sectors were at dealing with the impact. In all probability, U-shaped recoveries will be most prevalent, the question being the depth of the valley.

On a different note, as oil had its worst quarter in history, Saudi Aramco vouched to stand behind its $75 billion dividend commitment. The first instalment for its $70 billion purchase of SABIC is also due. Bloomberg reported that Aramco is considering to raise $10 billion by selling a stake in its pipeline unit.

 

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairman and CEO of business consultancy Meyer Resources.

Twitter: @MeyerResources


Lebanese MPs fail to reach agreement on draft amnesty law

Updated 29 May 2020

Lebanese MPs fail to reach agreement on draft amnesty law

  • The Free Patriotic Movement tried to amend the law by excluding “perpetrators of crimes against public funds and terrorist crimes” from the amnesty

BEIRUT: The Lebanese Parliament on Thursday failed to approve a draft law on general amnesty, after tensions rose during a vote and the Future Movement, led by former prime minister Saad Hariri, walked out of the legislative session.

“They want to bring us back to square one,” he said. “Every party has its own arguments, as if they want to score points.”

The Free Patriotic Movement tried to amend the law by excluding “perpetrators of crimes against public funds and terrorist crimes” from the amnesty. Minister of Justice Marie Claude Najm, who is affiliated with the FPM, asked for “amendments to the draft law so that it does not include those accused of tax evasion and violating maritime property.”

The draft law was referred to the parliament despite disagreements between parliamentary committees over the basic issue of who should and should not be included in the amnesty. The former government, led by Hariri, proposed a general amnesty law before it resigned last October in the face of mounting pressure resulting from public protests.

There were a number of protests during the legislative session, some opposing the adoption of the law entirely, while others were directed at specific provisions within it.

The draft law includes an amnesty for about 1,200 Sunni convicts, 700 of whom are Lebanese. Some are accused of killing soldiers in the Lebanese Army, possessing, transporting or using explosives, kidnap and participating in bombings.

It was also covers about 6,000 Lebanese Christians, most of whom fled to Israel following the withdrawal of occupying Israeli soldiers from southern Lebanon in 2000, as well as nearly 30,000 people from the Bekaa region, the majority of whom are from the Shiite community and wanted for drug trafficking, drug abuse, murder, kidnap, robbery and other crimes.

Hezbollah appeared to agree to a pardon for entering Israel, but object to a pardon for anyone who worked or communicated with the enemy or acquired Israeli citizenship.

Before the session, the Lebanese Order of Physicians highlighted overcrowding in Lebanese prisons, and this health risk this poses during COVID-19 pandemic.

“There are 20 prisons for men, four for women and one juvenile prison holding a total of 8,300 inmates, 57 percent of whom are in the Roumieh Central Prison,” the LOP said. It added that 57 percent of prisoners are Lebanese and 23 percent are Syrian, one third have been convicted while the rest are awaiting trial, and the overcrowding is so bad each prisoner has the equivalent of only one square meter of space. The organization described the situation as “a time bomb that must be avoided.”

In other business during the session, as part of anticorruption reforms required as a condition for receiving international economic aid, the Parliament approved a law to increase transparency in the banking sector, with responsibility for this resting with the Investigation Authority of the Lebanese Central Bank and the Anti-Corruption Commission.

It also endorsed a draft law to create a mechanism for top-level appointments in public administrations, centers and institutions. An amendment was added to prevent ministers from changing or adding candidates for the position of director general. The FPM opposed this, while Hezbollah and the Lebanese Forces voted in favor. Hariri accused the FPM of having a “desire to possess the entire country.”

MPs rejected a draft law to allow Lebanon to join the International Organization for Migration because, said MP Gebran Bassil, “it’s unconstitutional and facilitates the accession, integration and settlement process.” Lebanon hosts about 200,000 Palestinian and a million Syrian refugees.

The session sparked a wave of street protests. Some of them, led by the Syrian Social Nationalist Party and the Lebanese Communist Party, opposed the approval of a general amnesty that includes those who fled to Israel.

Protesters burned the Israeli flag in Sidon in protest against a law that “affects Israeli agents who sold their land, fought their people, and plotted against them.” They set up a symbolic gallows on which they wrote: “This is the fate of Zionist agents who fled execution.”

Others, including the families of Muslim detainees, staged demonstrations in support of the amnesty.