Good morning, traders. Welcome to our weekly preview of economic data and the narratives that are driving global markets, with a focus on those inputs that may have the biggest impact on gold prices, as well as the Dollar and other correlated assets.
Gold prices are higher this morning and trading well above $1500/oz again, lifted initially by the Federal Reserve’s announcement a raft of additional programs to support the US economy through the current crisis. Most importantly, the Fed has reinforced its commitment to supporting the economy by removing any limits on the central banks rate or volume of asset purchases.
US equity futures initially rose along with gold on the news but, in a pattern that has now become familiar, the pump of additional monetary stimulus was shrugged off as the markets continue to call for stronger fiscal intervention from the government; the next hopeful tranche of which is currently stuck in legislative debate.
A mid-morning spike in gold prices followed the news that New York state is reporting a 38% increase in the number of Covid-19 cases.
Highlight: Breaking: New York State now has 20,875 confirmed cases of coronavirus: pic.twitter.com/9ntCFcYZCl
— Yahoo Finance (@YahooFinance) March 23, 2020
I think this move is worth remarking on, as it suggests that we’re seeing gold’s reliability as a safe haven hedge return, at least enough to overcome selling pressure from liquidation needs as stock prices fall.
With that dynamic in mind, let’s take a look at this week’s calendar.
US Economic Data to Watch
Tuesday, March 24 at 9:45 EDT // Markit US Mfg. & Services PMI (Mar)
[(mfg.) consensus expectation: 44.0 // Previous: 50.7]
[(services) consensus exp.: 42.0 // prev.: 49.4]
With the severe declines in regional manufacturing surveys that we saw last week, it’s not surprising to see the first look at nationwide PMI data dipping well into contractionary territory below 50 this month. The depth of the expected decline in services is a little more unexpected—although Markit had already printed a sub-50 number last month-- and could prove to be more concerning as we move towards recovery. We assume that this kind of bad news is priced into most markets given the recent carnage in equities. If stocks have made a rebound between now and Tuesday morning that could be at risk, and either way there may be some upside room for gold when this data is released.
Tuesday, March 24 at 10am EDT // Richmond Fed Manufacturing Index (Mar)
[consensus exp.: -10 // prev.: -2]
No reason to expect anything better from Richmond than the ugly regional manufacturing reads we saw from the New York and Philly Feds last week. But again, if we’re seeing the return of some of gold’s more typical correlations there may be a rise in prices if the data is even worse than expected.
Wednesday, March 25 at 8:30am EDT // Durable Goods Orders (Feb)
[consensus exp.: -1.0% MoM // prev.: -0.2%]
It’s tough to say whether we should expect February economic data to show the impact of the global Covid-19 pandemic. Overall, it doesn’t seem to be hitting US-centric data until the March reports although there will always be exceptions. Durable Goods is a little different because, while it’s a US economic report, it can be directly affected by changes in external markets: when Chinese industry grinds to a halt for weeks and so Chinese capex orders to American firms taper off, for example. For that reason, I’m joining a number of bank analysts in saying that the consensus number is too high this month and the data is set to be a disappointment (closer to -2%, by most estimates) that may pass-through to Dollar valuations and possibly gold prices as well.
Thursday, March 26 at 8:30am EDT // Initial Jobless Claims
[consensus exp.: +100k // prev.: +281k]
Last week’s surge higher in initial claims caught many of us by surprise, as we and others didn’t expect the labor market to stutter quick so immediately as movement restrictions in major metro areas put a choke hold on the US economy. Anecdotal evidence, like the swift moves by many restaurant groups to immediately lay off entire hospitality and retail staffs, supports the number we saw. For that reason, while it would be encouraging to see the spike in claims moderate a bit as the consensus expectation calls for, it seems more likely that we see something between 150-200k. Last week’s spike managed to goose gold spot a bit higher, and we could see similar action again.
Thursday, March 26 at 8:30am EDT // Q4 GDP (final)
[consensus exp.: +2.1% QoQ // prev.: +2.1%]
As usual, there are very low expectations for a revision to GDP once we get to the third and final calculation.
Friday, March 27 at 8:30am EDT // Personal Spending & Income (Feb)
[(spending) consensus exp.: +0.2% MoM // prev.: +0.2%]
[(income) consensus exp.: +0.4% MoM // prev.: +0.6%]
We touched on the uncertainty of timing just above when covering Wednesday’s Durable Goods data, and in this case it’s widely expected that February’s income/spending number will not show any real bruising from the current crisis. That’s important, because it means we’re setting a base ahead of what we know will be dour numbers for March next month. So any disappointment here, particularly in the data for Personal Spending, can be expected to rattle markets and bring a greater level of volatility than we’re used to seeing on Fridays.
Friday, March 27 at 8:30am EDT // PCE Price Index (Feb)
[(core) consensus exp.: +1.7% YoY // prev.: +1.63%]
[(headline) consensus exp.: +1.7% YoY // prev.: +1.73%]
The state of play for February’s PCE inflation data is the same as Personal Spending & Income; we’re not expected to see major impact from the pandemic’s constriction of economic activity just yet and so we’re hopeful that the data demonstrates a solid baseline before March data hits hard. Based on comparisons to Consume Price Index inflation which held steady for February, and PPI data which did not, analysts broadly expect the Fed’s measure of inflation to maintain an annualized course around 1.7%. This puts inflation—heading into what will be a massive reduction of commercial activity in some sectors—below the Fed’s target rate, but within touching distance. We expect gold prices to have a low degree of sensitivity to PCE data this month, unless there’s a sharp downside surprise that would be a tailwind for the yellow metal.
Global Economic Data to Watch
Tuesday, March 24 at 5am EDT // Euro Area Composite PMI (Mar)
[consensus exp.: 39.3 // prev.: 51.6]
Tuesday, March 24 at 5:30am EDT // UK Composite PMI (Mar)
[consensus exp.: 45.1 // prev.: 53.0]
Analysts are looking for the steepest month-to-month drop in PMI for the Euro Zone on record this month as the slow tapering in China as coincided with the Continent becoming the world’s epicenter for Coivd-19 infections. The UK’s data is expected to show deterioration as well, but to a lesser extent as the UK government will not have stepped-up their restrictions in time to be accounted for this month.
With the extreme volatility we’ve seen in global equities alongside commodity prices, we’re struggling to say with any certainty how gold prices will react to this data set if it is indeed as ugly as expected. What we can say it to expect some pop in early morning volatility.
Thursday, March 26 at 8am EDT // Bank of England Int. Rate Decision
[no changes to monetary policy expected]
Having made their own emergency moves last week, the BoE is unlikely to take additional steps this week. Instead, the day should give us some useful color on how England’s central bank views the immediate outlook. We’ll also get helpful discussion minutes for the MPC’s emergency meeting on March 19.
And that’s how the week lays out ahead of us traders. I wish you the very best of luck in your markets over the next trading days, and I’ll see everyone back here on Friday for our weekly wrap.