Good morning traders, welcome to Monday.
Gold looks to be starting another week on the good foot, having shrugged off some hard selling in pre-US trading. After healthy trading in the Asian session and through the European morning, some aggressive pressure drove the yellow metal through last week’s close, down to the neighborhood of $1225/oz, where gold not only found support but rebounded quickly to $1330 and higher. At the time of writing, spot markets are pricing gold by the ounce at $1331.
Despite expecting another slug of negative reports on the housing market I’m anticipating a positive week for the US Dollar, not only on the macroeconomic calendar, but also as result of the now slightly less tenuous possibility of some positive deal-making coming from continuing US-China trade talks now that the White House has agreed to push back the March 1 tariff deadline.
— Bloomberg Economics (@economics) February 24, 2019
All that said, I’m also looking for another healthy week for gold prices. Last week was a display of gold strength that came into markets without needing the catalyst of a sharply weaker dollar or a stumbling equities market. Should that trend continue, it sets the table for a higher ceiling on a gold move when a marked retraction in the Greenback does come, as many have called for in 2019.
Let’s not get too far ahead of ourselves just yet; here’s your week ahead:
US Economic Data to Watch
Tuesday, February 26 at 8:30am EST // Housing Starts (Dec)
[consensus expectation: -0.5% MoM // previous: +3.2%]
Thanks mostly to a dour report on existing home sales, last week was a rough one for the US housing sector and its leading indicators for the American economy as a whole. Based on analysts’ expectations it doesn’t appear that December’s Housing Starts will do much to reverse that trend.
Tuesday, February 26 at 9am EST // Case-Shiller Home Price Index (Dec)
[consensus exp.: +0.3% // prev.: +0.3%]
As with the previous few months, projections for the Case-Shiller 20-city index are built for the most part on similar reporting from other measurements of housing prices, like CoreLogic’s, as they have shown a reliable correlation. Still, more in sync with the majority of recent housing data, many economists (including the team at Goldman Sachs) maintain views that growth in home prices will continue to slow in the coming months and apply pressure to US growth overall.
Tuesday, February 26 at 10am EST // FOMC Chairman Powell Senate Testimony
Chairman Powell begins the two-day semi-annual Monetary Policy Report on Tuesday morning before the Senate Banking Committee. There may be some interesting comments from the Powell with regards to developments around the January meeting, but typically the only really useful information (if there is any) is included in the pre-published prepared remarks. Because it’s somehow not a requirement to have a basic understanding of economics to hold a seat in congress, what follows is typically a dull dog and pony show that hold little interest for traders and investors. Wednesday’s testimony to the House Financial Services Committee will be more of the monotonous same.
Wednesday, February 27 at 10am EST // Pending Home Sales (Jan)
[consensus exp.: +0.8% MoM // prev.: -2.2%]
Housing numbers from December, as we’ve seen, were pretty uninspiring, so a nearly flat month-over-month number in January Pending Sales would be a slight encouragement. That said, another negative print would likely bring a little more fear-trading into assets like gold and Yen that are negatively correlated with the US Dollar.
Wednesday, February 27 at 10am EST // US Trade Rep. Amb. Lighthizer speaks
Given the news Sunday evening that the President has agreed to extend the March 1 deadline for increasing the tariff rate on imports from China, we’ll be looking to Ambassador Robert Lighthizer’s assessment of the current state of trade negotiations between the world’s two largest economies.
Thursday, February 28 at 8:30am EST // GDP (Q4)
[consensus exp.: +2.4% QoQ // prev.: +3.4%]
The Q4 reading of US GDP will only reflect the very earliest bit of pain from the Federal Government shutdown. I expect that if the number comes in a little closer to 3%, we’ll see gold price weakness as some increased—if temporary—strength steps into the US Dollar.
Thursday, February 28 at 8:30am EST // Initial Jobless Claims
[consensus exp.: 224k // prev.: 216k]
Friday, February 29 at 8:30am EST // Personal Income + Spending (Dec)
[Income consensus exp.: +0.5% MoM // prev.: +0.2%]
[Spending consensus exp: -0.1% MoM // prev.: +0.4%]
An increase (however slight) in Personal Income matched with a decrease (however slight) in Person Spending—in December of all months-- is not a healthy indicator for inflation in the US economy. This uninspiring projection is supported by December’s weak retail report.
Friday, February 29 at 8:30am EST // PCE Price Index (Dec)
[consensus exp.: flat MoM // prev.: +0.1%]
As we talked about last week, the minutes from the FOMC’s January meeting have turned heads towards the upcoming analyses of inflation that lead into a pivotal March Fed meeting. PCE itself is unlikely to change investors’ impressions one way or the other, but it will have some bearing on the headline numbers due in a couple weeks’ time.
Friday, February 29 at 10am EST // ISM Manufacturing PMI (Feb)
[consensus exp.: 55.6 // prev.: 56.6]
From Goldman Sachs:
Our manufacturing survey tracker – which is scaled to the ISM index – declined by 1.1pt to 53.0, reflecting mixed-to-weak manufacturing surveys so far in February. Following a 2.3pt rise in January, we expect the ISM manufacturing index to decline by 1.3pt to 55.3 in February.
I think there’s some extra import on the February PMI. As major indicators of growth in the US manufacturing sector are all showing signs of weakness, investors and economists will be looking to see if the January rebound in ISM’s report was the rejection of a shockingly poor December read, or if it was just a dead-cat bounce.
Global Economic Data to Watch
Friday, February 29 at 5am EST // Euro Area Inflation (Feb)
[consensus expectation (headline): +1.5% YoY // previous: +1.4%]
[consensus exp. (core): +1.1% YoY // prev.: +1.1%]
European growth over the last few months has been pretty much nothing but alternating speed bumps and pot holes, so a headline inflation print of 1.5% or higher in February would be a confidence builder and might further drive the Euro to put a dent into the US Dollar on a trade-weighted basis. However, an unchanged core inflation number will probably dampen any confidence.
That’s how your week ahead lays out, traders. Best of luck out there, and I’ll see you back here on Friday for a detailed recap of the week in gold markets.