Good morning, traders. Welcome to our weekly preview of the macroeconomic data and market data that are positioned to matter the most for gold markets and related assets. Gold prices are trading a few dollars higher this morning, following some volatile moves between $1568-75 during the overnight.
Risk aversion in the marketplace is trending higher again, as the numbers of confirmed cases of the coronavirus and, most distressingly, the death toll continue to climb. On the other hand—and this is purely from the standpoint of economic observation—there seems to be a belief in the market that there is now an understanding of the ultimate economic impact of this health crisis. That assumption that things are unlikely to get materially worse, whether it’s correct or not, appears to be muting the flow that we might otherwise expect to see into gold and other safe haven assets.
The other factor that could be weighting on gold prices to start the week is strong headwinds for the commodities complex as a whole, let by more weakness in oil prices. WTI crude barrels are trading at $50 again, and with news that OPEC+ ministers can’t even agree to meet, much less agree on production cuts to support prices, there may not be the safety net some expected.
The spread of the coronavirus and the economic damage left in its wake will remain top of mind for us this week in tracking the market narratives, particularly as we have a light schedule of macroeconomic data.
US Economic Data to Watch
Thursday, February 13 at 8:30am ET // CPI Inflation Rate (Jan)
[(core CPI) consensus expectation: +2.2% YoY // previous: +2.3%]
[(headline CPI) consensus exp.: +2.5% YoY // prev.: +2.3%]
At the end of the last week, we saw that the US labor market remains on an absolute tear, so when It comes to monitoring tier-one macro data in our efforts to anticipate any changes to monetary policy and the interest rate environment, inflation is for now where our attention should go. This was underlined in the FOMC’s most recent statement, which alluded to the committee having a somewhat greater level of concern than most assumed about the current pace of consumer price inflation in the economy.
The January numbers on PCE, the Fed’s “preferred” measure of inflation, dropped shortly after the FOMC statement. In it we learned that, for January at least, consumer price growth remains at a level consistent with the freeze on interest rates; the majority of projections show a similar report on CPI this week. The slight step back expected in the year-over-year core number is based on mild softness in some categories like education costs, while in the more volatile “headline” number we should see the effect of December and January’s lower fuel prices.
Gold markets were mostly unmoved by the recent PCE data release, and I expect the same from Consumer Prices this week: I believe it would take a severe drop on the YoY core number, to below 2.0%, for a risk-off swing into gold buying, and with the various drivers of risk-aversion still in play this week, I can’t see a lot of weakness in gold without a print much closer to 3% driving the Dollar higher.
Thursday, February 13 at 8:30am ET // Initial Jobless Claims
[consensus exp.: +210k // prev.: +202k]
Friday, February 14 at 8:30am ET // Retail Sales (Jan)
[consensus exp.: +0.3% MoM // prev.: +0.3%]
As with inflation, we’re expected Retail Sales to maintain a steady trendline, and deliver the fourth-consecutive month of +0.3% growth. It’s certainly not a stunning number, but with inflation remaining close to target and consumer spending continuing to rise I don’t see much reason for concern. If the impact of lower gas prices is less than expected we might see a gentle tick higher in the number.
Friday, February 14 at 9:15am ET // Industrial Production (Jan)
[consensus exp.: -0.2% MoM // prev.: -0.3%]
Manufacturing indices—both regional and national—have been a mixed bag over the last several months. While IP historically isn’t a major data point for my trade outlook, it has occasionally created some movement in the gold chart in this same period—like it did last month, when a similar decline in IP pushed the yellow metal higher-- as investors and observers try to gauge the health of US manufacturing at this point in the cycle.
Friday, February 14 at 10am ET // U of Michigan Consumer Sentiment (Feb)
[consensus exp.: 99.2 // prev.: 99.8]
The key indicator for the “sentiment” measured here tends to be the performance of US stocks, so despite the humanitarian concerns and economic drag created by the health crisis growing out of China, we can expect this soft number to remain positive and supportive of a strong Dollar (all though not enough to impute any new pressures on gold.)
FedSpeak this Week
FedSpeak really gets rolling this week, with several FOMC members having pretty full dance cards. Overall, we can (and do) expect members to continue toeing the party line: monetary policy is, in its current structure and volume, appropriate for supporting continued economic growth. More briefly: rates will remain on hold this year.
But with last week’s report to Congress taking time out to underline the risk to economic growth posed by the Chinese coronavirus, there will be plenty of eyes out this week on if and how some of the more pertinent FOMC members view this risk to their outlooks and projected policy path. Below are the appearances and public remarks in this week’s busy slate that are worth being aware of, in case markets get moving:
Monday, February 10: San Francisco Fed President Mary Daly (non-voter) (1:45pm ET); Philadelphia Fed President Patrick Harker (FOMC voter) (3:15pm)
Tuesday, February 11: Federal Reserve Chairman Jerome Powell’s semiannual monetary policy report to Congress (10am ET); Federal Reserve Vice Chair Randal Quarles (FOMC voter) (12:15pm); St Louis Fed President James Bullard (non-voter) (1:30pm); Minneapolis Fed President Neel Kashkari (FOMC voter) (2:15pm)
Wednesday, February 12: Harker (8:30am ET); Federal Reserve Chairman Jerome Powell’s semiannual monetary policy report to Congress (cont’d) (10am ET)
Thursday, February 13: New York Fed President John Williams (FOMC voter) (5:30pm ET)
Global Economic Data to Watch
From a strictly gold-priced perspective: while the epicenter of the primary market narrative this week comes from outside the US, international macro data will take a backseat. We have a fairly middling slate of European data on deck and some public remarks from a few ECB officials—nothing that demands much attention from the precious metals or Dollar trading space, but if somebody goes off-book and impact the gold chart we’ll be sure to cover it in Friday’s wrap.
And that’s how the next five trading days lay out ahead of us. As always, I wish you the very best of luck in your markets this week, and I’ll see everybody back here on Friday for our weekly market wrap.