Good morning, traders; Welcome to our market week preview where we take a look at the economic data, market news and headlines likely to have the biggest impact on the price of gold this week and beyond, as well as the market price for silver, the US Dollar, and other key correlated assets.
Helped by falling US Treasury yields and a slightly weaker US Dollar this morning, gold spot prices have climbed back above the important level of $1800/oz this morning.
US markets generally seem to be pulling towards a more optimistic bent than we endured last week: The stock market has immediately jumped to a healthy start for the week.
The most likely pivot point for not only gold but US markets in general this week comes at the tail-end, with Fed Chairman Jerome Powell’s scheduled keynote address at the central bank’s annual Jackson Hole summit. Otherwise, it’s a light economic calendar for the days ahead. Just as well—we can expect investors and managers to remain in a tentative stance for most the week while trying to position for the “Will they or won’t they?” of the forthcoming Fed statement.
For now, let’s take a look at the rest of the calendar ahead.
FedSpeak this Week
Although we can’t say much specifically about it, FedSpeak gets a rare opportunity to kick of the look at this week’s calendar, such is its importance. At 10am EDT on Friday morning, Fed Chairman Jerome Powell will deliver his keynote address at the Fed’s (virtual, this year) Jackson Hole Symposium.
For most of this year the expectation has been that, with the US economy making strong progress towards recovery, the Jackson Hole meeting would be a prime opportunity for the FOMC to introduce new forward guidance about tapering their massive asset-purchasing program. From there, the actual taper would likely begin in December. However, as we discussed on Friday, with Covid-19’s Delta variant leading a deadly surge in cases, hospitalizations, and deaths across America, economists and observers seem much less certain than even a month ago that the US economic recovery is “out of the woods.”
And so, we’ll head into Friday with little certainty on whether the Fed will add forward guidance this month, or hold off. All we really know today about Powell’s speech (the text of which will likely be released to the public earlier on Friday morning) is its title: “The Economic Outlook.” Thank you, Mr. Powell. Very helpful. Unless something happens elsewhere in the news to upset the apple cart, markets may be very tentative for most of this week leading up to Friday as the lack of confidence in the Fed’s next move keeps a lot of traders and investors sitting on their hands.
When Powell’s address does come across the transom, the reaction function for gold (and Treasuries. And the Dollar.) should remain the same as it’s been: A step towards tapering is a step towards higher interest rates and a bearish environment for gold prices; A lack of forward guidance/movement implies a friendly near- to medium-term outlook for gold remains in place and the (lack of) news should be a tailwind of the yellow metal.
All of that said, be smart. The most important market reaction to expect to this statement from the Fed is volatility.
US Economic Data to Watch
Thursday, August 26 at 830am EDT // Initial Jobless Claims
[consensus est.: +350K // prev.: +348K]
After an unexpected spike in the middle of July, the weekly count of new unemployment claims has resumed its steady descent as the US labor market tries to recover its pre-pandemic strength. Most investors have come to take (mostly) consistently declining jobless claims as a given week-to-week, and so we’ve only seen the occasional market reaction following a negative surprise (a sudden rise in the new jobless number.)
Depending on what the Fed does or does not announce this week though, this higher frequency labor market data might take on greater significance for your near- to medium-term outlook: Unless Chairman Powell specifically says otherwise in his address, if the Fed holds of on including forward guidance about plans to taper by the end of this year, we can assume that to some extent the FOMC will be closely watching the next few monthly Jobs Reports for greater progress in the labor market recovery before tightening conditions. If this is the case, the weekly jobless claims data will be even more relevant to plotting out when the Fed might “go,” whether or not the market reacts week-to-week.
Of course, if the Fed does introduce new forward guidance this week (without tying tapering steps to specific labor market benchmarks,) we’ll be in a different ballgame altogether and probably nothing much changes for Initial Jobless Claims’ value. Macroeconomics is fun like that.
Friday, August 27 at 830am EDT // PCE Price Index (July)
[(core) consensus est.: +3.6% YoY // prev.: +3.91%]
[(headline PCE) consensus est.: +0.4% MoM*// +0.45%]
Friday, August 27 at 830am EDT // Personal Income & Spending (July)
[(income) consensus est.: +0.1% MoM // prev.: +0.1%]
[(spending) consensus est.: +0.4% MoM // prev.: +1.0%]
First things first: It seems unlikely that we’ll see a sustained market reaction that we can attribute July’s PCE Index (which is the Fed’s own metric for consumer price inflation in the US) or the other data in Friday morning’s report. If the text of Chairman Powell’s Friday keynote isn’t released at the same time as this data set, it should follow soon enough after those investors will be focused on little else.
With that out of the way, the consensus for July’s PCE aligns well with what we’ve already seen from the CPI read on inflation as well as other inputs: Though current inflation numbers remain high on a year-over-year basis, the Fed-backed argument that the spike is temporary is supported by pressures starting to noticeably ease when comparing July 2021 to June.
(*I am not sure, honestly, why there doesn’t seem to be a consensus projection for the YoY headline PCE number. I’ve checked my multiple sources for these estimates with no joy. Just as well, as we (and most economists) tend to focus on the less volatile “core” number.)
The personal/household income and spending assessments are expected to fall within the broader economic narrative as well—that is, they shouldn’t reflect much movement besides Personal Spending pulling back from an outperformance last month. Spending will, as usual, draw the most attention of the two numbers as economists will be looking out for signs that the resurgent heath crisis is scaring consumers into staying home with their cash in the mattress (even though we won’t see the Delta variant’s full impact until the August data.)
And that’s how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I’ll look forward to seeing you all back here on Friday for our market-week wrap up.