The Wall Street Journal - 07.03.2020 - 08.03.2020

THE WALL STREET JOURNAL. ** Saturday/Sunday, March 7 - 8, 2020 |B11

Gold prices edged higher

Friday, posting their best week

since February 2016 with inves-

tors seeking safe-haven assets

and fearing a prolonged slow-

down in the world economy.

Even though the precious

metal pared much of its Friday

advance, front-month gold fu-

tures still ended the day up

0.3% at $1,670.80 a troy ounce.

They rose 6.8% for the week

and are 0.1% below a recent

seven-year high. Gold prices

tend to advance when investors

are seeking alternatives to

stocks and other risky assets

during periods of market tur-

bulence, and when they expect

the Federal Reserve to lower

interest rates.

The recent gains have come

with government-bond yields

sliding along with global

stocks, demonstrating the anxi-

ety gripping markets as the

coronavirus outbreak disrupts

business activity in the U.S.

and other major economies.

There is a growing expectation

among investors that the Fed

will cut interest rates by an-

other half a percentage point,

after the central bank lowered

borrowing costs ahead of

schedule this week.

“Gold, together with bonds,

is exhibiting immunity toward

the virus that is currently

wreaking havoc across other fi-

nancial markets,” said Ole Han-

sen, head of commodity strat-

egy at Saxo Bank. He said

investors have little reason to

fear they are missing out by

owning gold, which pays no in-

terest, because the coronavirus

epidemic has pushed U.S. Trea-

sury yields, adjusted for infla-

tion, further below zero.

A weakening dollar, which

makes the precious metal and

other commodities cheaper to

investors outside the U.S., is

also helping boost gold. The

WSJ Dollar Index, which tracks

the strength of the dollar

against the euro, yen and other

currencies, has fallen steadily

this week.

“Everything is set up for a

positive gold environment,”

said Paul Wong, an analyst at

precious-metals investment

firm Sprott Asset Management.

The strength of gold prices,

which were just below a seven-

year high Friday, has made

gold miners metal a rare bright

spot in global stock markets.

Shares in South African miners

AngloGold Ashanti Ltd. and

Gold Fields Ltd. each surged

more than 20% this week in Jo-

hannesburg.

Gold has risen 10% in 2020,

surging alongside Treasurys

and outpacing stocks with in-

vestors anxious about an eco-

nomic slowdown.

MARKETS

pacts with his Russian counter-

part, Alexander Novak, ahead

of OPEC+ meetings. The tete-a-

tetes ensured that meetings

went relatively smoothly, ac-

cording to OPEC delegates.

The connection afforded

Russia an enormous amount of

clout in international energy

and political circles. The coun-

try stood on equal footing with

Saudi Arabia and often had

veto power over the cartel’s de-

cisions. Friday’s fallout puts

into question the influence

Saudi allowed Russia within the

OPEC+, said Helima Croft, the

commodities chief strategist at

Canadian broker RBC.

That interplay changed when

Mr. Falih was replaced by

Prince Abdulaziz Bin Salman

last September.

In reaction to the market

turbulence, the new Saudi min-

ister was pressed to secure a

broad agreement on hefty out-

put cuts by his brother, Crown

Prince Mohammed bin Salman,

according to a Saudi oil adviser.

And at the Vienna meeting,

Prince Abdulaziz assumed Mr.

Novak would eventually go

along with the plan, the adviser

added.

Some OPEC delegates

blamed the failure on a hasty

meeting called by Prince Abdu-

laziz in Vienna late Thursday.

There, he convinced fellow

OPEC ministers to recommend

production cuts through the

end of the year, rather than the

previously agreed three-month

period, according to a person

present. He told the room it

was a “lot easier to relax cuts”

than to negotiate an extension

in June, the person added.

The OPEC’s ministers agreed

to production cuts of 1 million

barrels a day through the end

of this year, to be shared

among its 13 member nations.

The proposal also called for an-

other 500,000 barrels of daily

cuts to be divided among the

cartel’s 10 Russia-led oil-pro-

ducing allies.

Russia, the de facto leader of

the additional countries that

make up OPEC+, was still push-

ing to roll over existing cuts

without any additional reduc-

tions and wait until June before

considering any cuts beyond

those agreed at the last alliance

summit in December, according

to several OPEC delegates.

The Saudi prince thought

the Russians were bluffing

when they balked at the output

cuts they would be expected to

make and thought they would

ultimately agree to the reduc-

tions, an OPEC delegate said.

“That was his gamble and he

did not win,” the delegate said.

—Sarah Toy contributed to

this article.

10

8

6

4

2

0

%

Jan. Feb. March

+10%

Goldfuturesprice

performance,yeartodate

Source: Dow Jones Market Data

quantities of Russia’s cheaper
product for storage.
Unlike Saudi Arabia, Moscow
favors not cutting supply and
allowing cheap prices to stir
demand, which could be com-
pared to the economic path
taken by the Chinese govern-
ment in recent weeks, OPEC
delegates said. “They are say-
ing a deeper cut is not the an-
swer, and we are being too re-
active,” said an OPEC delegate.
OPEC’s failure to secure a
deal with Russia highlights not
only philosophical differences
over how to address the de-
mand decline, but also the
breakdown of crucial personal
relationships between the
Saudi and Russian delegations.
From the start of the collab-
oration in 2016, former Saudi
Energy Minister Khalid al-Falih
often negotiated oil-production

Continued from page B1

Russia wouldn’t agree to a Saudi plan to deepen production cuts at fields like this one in Almetyevsk to prop up crumbling crude prices.

ANDREY RUDAKOV/BLOOMBERG NEWS

Oil Prices

Plunge on

Failed Pact

leading IHS Markit index of

riskier credit derivatives, the

iTraxx Crossover. The cost rose

to more than €388,000

($436,000) annually to cover

€10 million of bonds.

While selling was broad-

based, bonds of companies in

sectors that could be most af-

fected by the spread of the cor-

onavirus, such as travel and en-

ergy, fell especially sharply. A

5.25%Caesars Resort Collec-

tionLLC bond due in 2025

dropped to 92.75 cents on the

dollar from 96.875 cents Thurs-

day, according to MarketAxess.

ALaredo PetroleumInc. 9.5%

bond due in 2025, which was

issued at par in January, fell 11

centsto58cents.

Friday’s selling was notable

because credit markets are crit-

ical to the functioning of the

economy. Earlier in the week,

companies of varying credit

quality were still issuing bonds,

and the average yield of U.S.

speculative-grade bonds re-

mained below levels from last

summer, according to

Bloomberg Barclays data. But

extended volatility could make

it difficult for companies to

borrow, exacerbating any eco-

nomic hit from the coronavirus.

“Today was the day when it

flipped from equity market

leadership of the selloff to

credit market leadership,” said

Barnaby Martin, head of Euro-

pean credit strategy at Bank of

America Merrill Lynch.

The rush to buy protection

and withdrawal from bonds

was driven by dedicated credit

funds being forced to cut back

positions, amplified by a lack of

liquidity in the markets, ac-

cording to one senior credit

trader in London.

This follows a wave of with-

drawals from U.S. funds that in-

vest in riskier credit, according

to LCD, the loan research arm

of S&P Global Market Intelli-

gence. More than $5 billion was

pulled from U.S. high-yield

bond mutual funds and ex-

change-traded funds in the

week to March 4, up from $4.2

billion the week before, accord-

ing to Refinitiv Lipper. There

had been net inflows, year to

date, before last week.

Funds that invest in risky

loans, typically used to fund

private-equity-backed compa-

nies, have also seen growing

outflows, with $2.3 billion

pulled in the week to March 4,

bringing the total outflow over

the past seven weeks to $4.7

billion, according to Lipper.

Corporate debt investors

and analysts are growing more

concerned about how economic

disruption brought about by

the coronavirus will hurt the

cash flow and the credit quality

of weaker companies.

—Matt Wirz

and Sam Goldfarb

contributed to this article.

The market rout in stocks

spilled into the corporate-debt

markets Friday after investors

began to more fully assess the

harm that prolonged economic

disruption from the coronavi-

rus could do to highly indebted

companies.

Reaction to the virus had

been relatively muted in credit

markets, where yields on even

riskier junk bonds and loans

had remained below levels seen

during the selloff in late 2018.

However, data on Thursday

showed accelerating withdraw-

als from U.S. high-yield bond

and loan funds in the past

week, which was followed by a

drop in European bank stocks

driven by investors’ concerns

over loan losses.

In Europe, the cost of pro-

tection on risky corporate

credit jumped to its highest

level in nearly four years on the

BYPAULJ.DAVIES

Corporate Debt Engulfed by Turmoil

try’s rail network and its supply

chain since early February to

protest the pipeline. Such stri-

dent opposition has worried in-

vestors that the investment cli-

mate in Canada is too risky for

large deals.

Berkshire’s decision to scrap

the deal, reported Thursday by

the Montreal-based newspaper

La Presse, comes despite the

conglomerate’s earlier willing-

ness to invest in Canadian en-

ergy. The company’s energy arm

owns AltaLink Transmission, the

largest regulated energy trans-

mission company in the prov-

ince of Alberta. Berkshire also

owns a large stake in Suncor En-

ergy Inc., Canada’s largest

crude-oil producer.

Énergie Saguenay confirmed

in a blog post on its website that

a “potential private investor”

had decided at the last moment

to step away, declining to name

the firm. “This decision was

taken because of the political

context that has prevailed for a

month now in Canada,” said the

post, written in French.

The energy project, jointly

owned by California-based in-

vestors James Illich and James

Breyer through their investment

companies Freestone Interna-

tional and Breyer Capital, said

the project is still on track.

According to one person fa-

miliar with Berkshire’s decision,

the company had initially agreed

to invest a few hundred million

dollars in the project, ramping

up to C$4 billion in stages. But

during the second week of the

rail blockades, the company sig-

naled it was concerned by the

uncertainty caused by the dis-

ruption and was losing interest

in the investment. Berkshire

walked away a week later, this

person said.

The project is one of several

that hit hurdles, creating doubts

about Canada as a place to in-

vest. Prime Minister Justin

Trudeau’s government failed to

get approved projects com-

pleted, such as the expansion of

the Trans Mountain pipeline.

Berkshire HathawayInc. has

backed out of financing a major

gas project in the Canadian

province of Quebec, prompting

worries that international inves-

tors are increasingly shunning

the country after protests over

another energy project.

Warren Buffett’s conglomer-

ate pulled out of providing

roughly 4 billion Canadian dol-

lars (US$2.99 billion) in equity

financing for the Énergie

Saguenay Project, a proposed

Canadian natural-gas export fa-

cility to be built 130 miles north

of Quebec City, according to

people familiar with the matter.

Berkshire’s move was spurred

by a series of rail blockades set

up to oppose construction of a

natural-gas pipeline in British

Columbia, a person with knowl-

edge of the decision said.

Canada has been roiled by ac-

tivists and indigenous groups

who have obstructed the coun-

BYVIPALMONGA

ANDPAULVIEIRA

Berkshire Won’t Finance Quebec Project

The move was spurred by rail blockades against construction of a gas pipeline in British Columbia.

CHRISTINNE MUSCHI/REUTERS

BYJOEWALLACE

Gold Sees

Its Best

Week in

Four Years

10%

-10

0

-20

-30

Jan. Feb. March

-32%

U.S.crudefuturesprice
performance,yeartodate

Source: Dow Jones Market Data

Government debt yields
tumbled and stocks were whip-
sawed during a tumultuous
week that was capped with a
late rally in the Dow Jones In-
dustrial Average Friday.

Although the recovery
wasn’t enough to erase the
day’s losses, the industrials and
other major indexes managed
to finish the week with slight
gains. That spoke to the violent
swings the market underwent
earlier in the week as investors
tried to assess the economic
fallout of coronavirus.
Debt markets had a more
clear-cut response: Yields on
the benchmark 10-year U.S.
Treasury fell to record lows as
investors sought safety in gov-
ernment bonds, although yields
rose late on Friday.
The Dow fell 256.50 points,
or 1% Friday, to close at
25864.78. It had been down
more than 890 points shortly
after opening before clawing
back nearly 600 points in the
last 50 minutes of trading, clos-
ing the week up 1.8%.
The S&P 500 dropped 51.57,
or 1.7%, to 2972.37 on Friday.
The Nasdaq Composite slid
162.98, or 1.9%, to close at
8575.62. Both the S&P and the
Nasdaq ended the week with

modest gains, thanks largely to
a rally at the start of the week.
Investors pushed the yield
on long-term U.S. government
bonds to unprecedented lows.
The yield on the benchmark 10-
year Treasury note fell below
0.7% for the first time.
Declining oil prices added to
the market turmoil Friday. Fu-
tures on Brent crude, the global
benchmark, fell $4.72 per bar-
rel, or 9.4%, to $45.27--their
largest one-day percentage
drop in more than a decade.
Gold, a popular refuge in
times of financial distress, had
its best week since 2016.
Nearly every major market
was volatile this week as fears
over the spread of coronavirus
took hold, prompting wildly
varying assessments of its im-

pact on the global economy and

corporate earnings.

This week’s turbulence came

despite the Federal Reserve

slashing its main interest rate

by half a point Tuesday, its first

emergency rate cut since the

2008 financial crisis. The fail-

ure of the Fed’s move to

staunch the market bleeding

shows central banks are ill-

equipped to handle the fallout

of coronavirus, said Liz Ann

Sonders, chief investment strat-

egist at Charles Schwab.

“The Fed cutting rates by 25

or even 50 basis points doesn’t

create a vaccine,” Ms. Sonders

said. “It doesn’t stop people

from canceling their vacations.”

Investors may now shift

their focus to hopes that gov-

ernment spending will blunt

the epidemic’s impact. But

President Trump and White

House officials have said they

don’t see an immediate need to

craft a broader fiscal-policy re-

sponse because the U.S. econ-

omy has been faring well.

Friday’s jobs report showed

employers added more posi-

tions than expected in Febru-

ary. The report’s impact on

markets was muted because

most companies reported their

head counts before cases linked

to the virus rose in the U.S.

“It demonstrates that the la-

bor market continues to be

strong,” said Michael Arone,

chief investment strategist at

State Street Global Advisors.

“But folks are more curious

about future jobs reports and

what they show of the corona-

virus impacts.”

Friday’s late gains, which

didn’t seem connected to news

developments, were likely

fueled by hope from some in-

vestors that the market had

bottomed ahead of the week-

end, said Frank Cappelleri,

chief market technician at bro-

kerage Instinet.

Other investors seized on

the selloff as a signal to buy.

Thomas Hayes, chairman of

investment-management firm

Great Hill Capital, said his firm

had bought stock of “high-qual-

ity” companies that appeared

cheap, such as American Ex-

press and Pfizer. Great Hill is

also considering investing in

Royal Caribbean Cruises, whose

share price has fallen more

than 50% year-to-date.

Mr. Hayes expects a rebound

in the broader market as well.

“If you look 12 to 18 months

out, this will all be a distant

memory,” he said.

—Chong Koh Ping

contributed to this article.

ByAlexander

OsipovichandAnna

Hirtenstein

Stocks Finish

Volatile Week

Up Slightly

‘The Fed cutting

rates...doesn’t create

a vaccine,’ Schwab’s

Liz Ann Sonders said.