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 the price of gold this week and beyond, as well as market prices for silver, the US Dollar, and other key correlated assets.
Gold spot prices are trading roughly in-line with the week’s opening price of $1880/oz after some predictably volatile trading in response to a weekend full of headlines.
To quickly recap: The US Congress looks poised to avoid a shutdown and finally pass a fiscal stimulus package (which looks, in reality, to have a negligible benefit for the US consumer) before the end of the year; meanwhile, with trade negotiations careening towards a full-on “hard Brexit” on January 1, the UK has gone into a near-total lockdown after discovering a mutated strain of Covid-19 ripping through the South of the country. While we can see that the markets overall are this weekend’s news as broadly negative and full of risk-off signals, gold seems to be lacking in upward momentum this morning after a failed attempt to hold ground above $1900/oz overnight. To some extent, this can be attributed to a rallying US Dollar which appear to be drawing more interest from investors looking for safety this week (as does US Treasury paper.) The Greenback’s return to strength is being helped by the market’s assessment of the stimulus package details that have been shared, talk over the weekend of a return to “strong Dollar policy” in the Biden administration, and, not least, by a collapse of more than 2% in the British Pound against the Dollar. As none of these inputs feel particularly permanent, but the risk-off posture is more likely to persist through the week, we’ll keep an eye on whether or not USD can hold on to the prime safe haven position or if gold can find some gains once again in a risk-off market.
As a reminder going into this holiday week, liquidity in most markets and most time zones will be generally thinner this week and next, as European firms are mostly dark until the new year and US-based managers and trade desks tend to run skeleton crews in the run-up to Christmas. This could become a particularly noticeable in the early- to mid-morning New York hours which are usually still dictated news flow out of London and Europe, given that the UK is grappling not only with the final hours of trade deal negotiations that seem unproductive, but now also with being the epicenter of the Covid-19 mutation headlines that are rattling market sentiment at the end of the year. While it’s tough to firmly predict something so vague, I think it would be smart to keep an eye out for heightened volatility in the mornings this week (and possibly next.)
For now, let’s take a look at Wednesday’s US economic data.
US Economic Data to Watch
Wednesday, December 23 at 830am EST // PCE Price Index (Nov)
[(core PCE) consensus exp.: +1.5% YoY // prev.: +1.41%]
[(headline PCE) consensus exp.: +1.2% YoY // prev.: +1.18%]
Expectations this week are for the Fed’s measurement of consumer price inflation to remain at the same steady pace of recent months. Core inflation running at an annualized 1.5% aligns not only with the CPI and PPI data points for November, but also the general tone of stagnation we’ve seen from most US economic data in recent weeks. An as-expected report this week should have little impact on the gold and Dollar markets, but help us firm up our baseline heading into 2021 and (hopefully) the start of a more earnest recovery.
Wednesday, December 23 at 830am EST // Personal Spending & Income (Nov)
[(spending) consensus exp.: -0.2% MoM // prev.: +0.5%]
[(income) consensus exp.: -0.3% MoM // prev.: -0.7%]
While the Personal Income number’s rate of contraction is expected to slow from October, both Income and Spending showing an inclusive decline, while generally expected, is negative signal all around. Particularly in light of the fact that the fiscal stimulus package expected to be passed this week is looking very anemic in terms of assisting the consumer, this could be the most negative, risk-off data point on a noisy Wednesday morning—depending, of course, on how Initial Jobless Claims shake out.
Wednesday, December 23 at 830am EST // Initial Jobless Claims
[consensus exp.: +875k // prev.: +885k]
As with Personal Income and Spending data, I think the market reaction to this week’s jobless claims number could be influenced by how investors process and grade the congressional stimulus package due to pass this week, and the odds for another more meaningful push of stimulus in January or February; If the rate of unemployment filings continues to climb, I just don’t see how a “rescue package” that is markedly weaker than the summer stimulus—which we’ve already seen was unable to have a permanent impact—bodes much better for the US labor market than no package at all. With that in mind, another initial claims print above 850,000 could send another pulse of uncertainty and risk-aversion through financial markets ahead of Christmas.
Wednesday, December 23 at 830am EST // Durable Goods Orders (Nov)
[consensus exp.: +0.6% MoM // prev.: +1.3%]
Bringing up the rear, analysts expect Durable Goods orders (as a measure of industrial activity and production in the US) to follow this week’s trend of economic data that is, at very best, uninspiring. While the industrial sector is looking more resilient in this “third wave” of the Covid-19 pandemic, seeing the Durable Goods number drop by roughly 50% in November does not bode well for the near-term outlook for US economic activity.
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, for those of you who celebrate, I hope you have a very happy Christmas in whichever way you’re able to enjoy it. I’ll see you all back here at the end of the week for our regular market wrap and a look ahead to the final trading days of 2020.