Good morning, traders. Welcome to our weekly market preview where we focus on the developing stories and macroeconomic data that could matter the most to precious metals and related assets. We should strap in for a busy week ahead, as we have a packed data calendar heading into a week that looks to continue to be dominated by concerns around a coronavirus spreading through China.
Gold prices are markedly higher this morning on the back of a surge in safe haven buying at the start of trading Sunday night after the number of reported cases in China spiked over the weekend. The yellow metal has traded in a band between $1575-85/oz as Asian and European markets sold off in a broad risk-off move. As US stock markets have just opened, the major indices are down as much as 1.5% and yields on the US 10yr Treasury have hit a three-month low, while gold prices have traded closer to the top of that range although the fear impulse seems to be moderating somewhat.
While we navigate a crowded macroeconomic calendar this week, we will also keep focus on the developing assessment of just how much economic damage is being done by the efforts the Chinese government is taking to contain the virus, as well as more global travel restrictions. It’s these objective economic concerns, more than any unwarranted end-of-the-world type panic, that appear to be driving the selling we’ve seen in global equities and commodities this morning.
Before too much of the trading day gets ahead of us, let’s take a look at the calendar for the week.
US Economic Data to Watch
Tuesday, January 28 at 8:30am ET // Durable Goods Orders (Dec)
[consensus expectation: +0.4% MoM // previous: -2.1%]
[(ex. transportation) consensus exp.: +0.3% MoM // prev.: -0.1%]
The general expectation from analysts on December’s preliminary Durable Goods data is for the number to remain effectively flat month-to-month; though it’s worth mentioning that in the last week or so there have been more analysts (like the team at Goldman Sachs) suggesting that a continued drag from the airline sector could weigh the data set down enough to print another decline of more than 1%. Even if that’s the case, Durable Goods as been such a noisy number when big-ticket transport orders are included, that I don’t expect a big market reaction this month; unless the Dollar is in a vulnerable range when the data hits, in which case we could see the kind of momentum behind a weakening Greenback that lifts gold prices higher.
Tuesday, January 28 at 9am ET // Case-Shiller Home Price Index (Nov)
[consensus exp.: +0.4% // prev.: +0.4%]
Here, too, I’m not anticipating much volatility in risk-correlated assets. Especially since we get Home Price data on such a lag relative the other economic data we’re trading this week. Still, the last two key(ish) housing market reports have been big upside surprises so there may be more eyes and algos on this release than usual. When that’s the case, there’s always a change of deeper market moves.
Wednesday, January 29 at 2pm ET // FOMC Interest Rate Decision
[no change to monetary policy expected]
This week’s Fed meeting brings exceptionally low expectations for any kind of change, not only to actual monetary policy but even within the committee’s statement. At the December meeting, the FOMC laid out and confirmed the outlook for unchanged short-term interest rates through the end of 2020. In his press conference, Powell made clear that in the current environment the committee is plenty comfortable with the current “paused” stance (as opposed to feeling any pressure to further ease rates,) and that a rate hike would have to be preceded by a “significant and persistent” increase in inflation.
In the weeks since the December FOMC, economic data has changed very little while real word financial conditions have loosened; there’s just no reason to expect anything to have changed at the Fed. Since the majority of rhetoric and commentary from Fed officials in the last month broadly agrees with the December assessment and policy stance, we’re expected no change to rates and only minor tweaks to the language in the committee’s statement. Theoretically this should be neutral for gold prices; practically speaking, I expect some immediate algo-trading to push gold lower very briefly before prices moderate closer to unchanged. Whatever comes, we’ll have an FOMC recap for you on Wednesday.
Thursday, January 30 at 8:30am ET // Q4 GDP (adv.)
[consensus exp.: +2.1% QoQ // prev.: +2.1%]
With all the fits and starts (and tantrums) around US-China trade negotiations that happened in the fourth quarter of 2019—which feels like it was about 17 years ago, by the way—I think markets will be satisfied to see the pace of domestic growth staying constant in the absence of real acceleration. This being the preliminary release of GDP data, there’s certainly a possibility of a miss to the downside (that would put considerable pressure on the US Dollar and push a safe-haven bid into gold prices) or an upside surprise (driving the opposite reaction.) Estimates have been fairly accurate lately, so you don’t need to set your alarm for this one; just be aware of its place on the schedule.
Thursday, January 30 at 8:30am ET // Initial Jobless Claims
[consensus exp.: +215k // prev.: +211k]
Friday, January 31 at 8:30am ET // PCE Price Index (Dec)
[(core PCE) consensus exp.: +1.6% YoY // prev.: +1.61%]
[(headline PCE) consensus exp.: +1.6% YoY // prev.: +1.47%]
As I touched on in the brief on Wednesday’s FOMC decision, inflation (specifically the Fed’s PCE) is both a key metric that would have to move before any shift in monetary policy from the Federal Reserve, and also generally unchanged of late. Based on December’s Consumer Price Index and PPI data, and other inputs like import pricing, the reasonable expectation is for PCE to hold steady. Similar to the Fed’s rate decision, an as-anticipated report should be mostly neutral for gold prices although there may be some movement lower in futures markets as the headlines hit.
Friday, January 31 at 8:30am ET // Personal Income & Spending (Dec)
[(income) consensus exp.: +0.3% MoM // prev.: +0.5%]
[(spending) consensus exp.: +0.3% MoM // prev.: +0.4%]
I continue to believe that for the remainder of this FOMC mini-cycle—that is, between now and then the Fed signals intention to either cut or raise its policy rates—tracking Personal Spending will be valuable in projecting the future rate path. Chairman Powell and his team have made it clear how important the health of the American consumer is to their outlook for 2020, and I think that as long as the consumer is spending then the “high bar” for the Fed to consider easing rates again will remain. With that in mind, the consensus is expecting a minor pullback in November’s rate of growth, but the data should still remain on pace with the recent trend line that has encouraged the FOMC.
Friday, January 31 at 8:30am ET // Employment Cost Index (Q4)
[consensus exp.: +0.7% QoQ // prev.: +0.7%]
I actually think that the pace of inflation in the cost of employment remaining unchanged from month-to-month will be considered a disappointment to many observers, as if often has been when wage growth seems to be stagnating despite all the other metrics of a growing economy; so keep an eye out for a bit of a lift in gold prices (and other non-Dollar safe havens.) If the move does come, it may be muted, with this data set coming at the end of a busy week and mixed with other higher-impact data.
Global Economic Data to Watch
Thursday, January 30 at 7am ET // Bank of England Interest Rate Decision
[no change to monetary policy expected]
Towards the end of last year, there were some clues that the BoE might be forced to cut rates as soon as this week’s January meeting with the economy under threat of recession. In recent weeks though, economic data following the UK general election has been surprisingly strong and has most analysts expecting the central bank to remain on hold (for now.) Still, a cut can’t be completely ruled out, given that two of the five committee votes needed to enact a change have already been voting for a cut in recent months. While a no-change decision will probably have little impact outside of GBP markets, a (somewhat) I believe an unexpected decision to lower short-term rates would send a risk-off signal that boosts gold prices higher along with other safe havens; it would also provide some lift to the Dollar, capping the yellow metal’s upside.
This will also be the final Bank of England meeting presided over by outgoing Governor Mark Carney, so we’ll keep an eye on an parting remarks he has for the global economy ahead of the Brexit separation.
Friday, January 31 at 5am ET // Euro Area GDP (Q4)
[consensus exp.: +1.1% YoY // prev.: +1.2%]
Friday, January 31 at 5am ET // Euro Area Inflation (Jan)
[consensus exp.: +1.4% YoY // prev.: +1.3%]
We’ve touched on it before, but there are a lot of voices out there calling for 2020 to be the year the respectable, reliable growth returns to the Euro Zone economy. In gold markets this is relevant because the rising value of the Euro that should come with such growth would go a long way to capping the US Dollar’s upside ahead of November elections, which in turn would give gold prices a little more room to run higher when the rallies come. With low expectations for any market-moving discrepancies this time around, we’ll watch this week’s updates on Euro Zone growth and inflation to set a baseline for improving health in the common currency area.
And that’s how the week ahead looks for us, traders. I wish you the best of luck in your markets, and I’ll see you all back here on Friday for our market wrap.