Good morning, traders. Welcome back to another week in the markets, and to our weekly preview of the events on the macroeconomic calendar that matter most for gold and Dollar prices. Gold is trading modestly higher this morning as equity markets take a bit of a breather and technical traders are boosting the yellow metal back above $1460/oz support levels.
Trade will continue to dominate the market narrative this week, even more so than over the last several as the December 15 deadline for the imposition of more US tariffs on Chinese goods looms large this coming weekend. The impact of headlines around trade rhetoric (substantiated or otherwise) from both sides will remain high, and I suspect they will come more frenetically this week as well, so keep you head on a swivel out there. Even in a week with an inflation read and updated economic projections from the Federal Reserve, the next moves in the US-China trade struggle will likely decide this week’s direction for gold prices and other major assets.
For now, while things are calm, let’s have a look at the important data points on this week’s calendar.
US Economic Data to Watch
Wednesday, December 11 at 8:30am ET // CPI Inflation (Nov)
[(core CPI) consensus expectation: +2.3% YoY // previous: +2.3%]
[(headline CPI) consensus exp.: +2.0% YoY // prev.: +1.8%]
Analysts generally expect to see core inflation maintain its level (year over year) in November’s data, with the headline number moving slightly higher thanks mostly to a recent uptick in energy prices. The most recent print of PCE (say it with me, “the Fed’s preferred measure of inflation”) showed almost exactly that, so it feels like a safe bet and one that’s mostly priced into the market with a non-eventful FOMC meeting expected later that day. One thing I will say: if the data is reported as anticipated, I suspect that there could be a knee-jerk market reaction to seeing the headline inflation number take a 2-handle for the first time since the spring. With the bar for a Fed move looking higher every day (more on that next) I can’t imagine a big shift; I’m thinking more like a short-term pop in the Dollar that may weigh on gold prices if they’re at a vulnerable level.
Wednesday, December 11 at 2pm ET // FOMC Interest Rate Decision
[no change to monetary policy is expected]
It’s been the widely held market assumption since the start of November that this week’s FOMC meeting would be a non-event in terms of policy, and the top-line macroeconomic data we’ve seen since then has only solidified that expectation. Overall, financial conditions in the economy have stayed balanced to the degree that we really can’t even expect much of a change to the language in the Fed’s post-meeting statement.
Because this is a quarterly meeting, we’ll also get an updated set of Staff Economic Projections-- the refreshed dot plot will be the most important and scrutinized part of this Fed Day, I expect. Based on the last month (and change) of FedSpeak, the market will be looking for the median projection to be for unchanged policy rates through the end of 2020, with single (if any) rate hikes in the following years. Like I said, this all seems expected and priced into major assets, so it would take a dovish shift in the dots to raise gold prices while a hawkish surprise would do the opposite.
As we’ve all (sadly) come to expect by now, we should also anticipate some twitter-rhetoric from Donald Trump in response to—based on market expectations—no interest rate cut this week, and no cut projected for the next year, depending on how preoccupied markets also might be with either trade talks or impeachment proceedings. Obviously, the hope would be for little-to-no reaction from markets to what has always been empty threats in the past, but when trading a risk asset like gold it’s always best to be prepared for some roiling charts.
Thursday, December 12 at 8:30am ET // Producer Price Index (Nov)
[consensus exp.: +0.2% MoM // prev.: +0.4%]
The higher energy prices that have passed through into November’s consumer inflation data should be visible in producer data as well, but it will be tempered by softer prices for core commodities. Coming on the heels of consumer inflation data and FOMC projections the day before, this looks to be a non-factor for Dollar and commodities markets.
Thursday, December 12 at 8:30am ET // Initial Jobless Claims
[consensus exp.: +212k // prev.: +203k]
Friday, December 13 at 8:30am ET // Retail Sales (Nov)
[consensus exp.: +0.4% MoM // +0.3% MoM]
Being in the thick of holiday shopping season means two things: 1.) we can expect retail data to perform well in this data set and, in fact, I expect that the market consensus for +0.4% is a little on the low side; 2.) an unexpected falter in this number would definitely send some risk aversion rippling through the Dollar and safe havens like gold.
Friday, December 13 at 11am ET // New York Fed President Williams Speaks
Until we see Wednesday’s FOMC statement and economic projections, it’s hard to say what to look out for in public comments from the committee’s power players like Williams; but as an important voting member it’s always a safe bet to keep an eye on his calendar.
Global Economic Data to Watch
Thursday, December 12 // UK General Election
As of today, polls in the UK are pointing towards a high probability of a Conservative majority winning the day in this week’s general election and the Pound has been strengthening in recent days as a result. Such an outcome would probably not pass through to Dollar and metals markets in the short-term, but any other result (primarily, a Labour government) would be expected to jolt risk markets as it would dramatically increase uncertainty around Brexit in 2020. Here I’ll point out—as I probably will several times in 2020—that the kind of polling that is predicting an easy Tory victory this week is the same that predicted a win for the Remain vote ahead of 2016’s Brexit referendum.
Thursday, December 12 at 7:45am ET // ECB Interest Rate Decision
[no change to monetary policy expected]
Thursday’s ECB press conference (scheduled to start 45 minutes after the (non)decision announcement, will be the first under new President Christine Lagarde. While Lagarde is somewhat of a known quantity from her high-profile term as head of the IMF, this is a new and different role for her. Markets will be focused on what she has to say about the more unconventional policy tools of the ECB—particularly negative interest rates—which appear at odds with her general philosophy and could be subject to change in the coming year. The ECB will also release updated economic projections.
And that’s how this back-loaded week looks for us, traders. I wish you the very best of luck in your markets this week, and I’ll see you all back here on Friday for our recap of the data and headlines that mattered most.