Hello traders, welcome to our preview of the week ahead, with a focus on the economic data and market narratives that are likely to have the most meaningful impact on gold prices, as well as the US Dollar and other associated markets.
Following some up-and-down overnight trading, gold prices are relatively flat to last week’s close, near to $1620/oz. Silver has been having a harder go of it, likely under added pressure as the more industrial of the two precious metals as oil prices continue to deteriorate; silver has fallen just under $14/oz at the time of writing.
Asian and European equity markets had a slightly disappointing start to the week, but the major US stock indices are so far bucking that trend with the S&P and Dow both up 2% and higher as we trade through the morning. We’ll be keeping an eye this week on whether or not gold can continue to move higher alongside rallying equities, or if their more typically inverse relations return to the state of play.
While there may be some hopes for improvement, the lockdown stance adopted by most of the West’s most developed economies seems unlikely to change this week, so economic data may step into a more dominant role for market action this week as we start to assess the real drag being created by our responsible attempts to halt the Covid-19 pandemic.
US Economic Data to Watch
Tuesday, March 31 at 9am EDT // Case-Shiller Home Price Index (Jan)
[consensus expectation: +3.2% YoY // previous: +2.9%]
We’ve seen some conflicting numbers on pre-crisis housing data, with new builds tailing off in February while the sales of existing homes made new highs. Case-Shiller, as always, is a month behind the other housing market indicators, but will still be useful for modeling conditions moving forward. With the housing market having been such a valuable driver for the US economy in recent years, a lot of attention will be devoted to how it functions as we move through this troubling period.
Tuesday, March 31 at 9:45am EDT // Chicago PMI (Mar)
[consensus exp.: 40.0 // prev.: 49.0]
Although the Richmond Fed’s manufacturing data has been an outlier, other regional surveys of manufacturing activity have been brutal as March data sets reflect the point at which American industry really began feeling the effects of the economic constriction that’s come as a result of efforts around the world and at home to curb Covid-19’s spread. I’d venture to guess that such ugly news is priced into any forthcoming regional surveys at this point, so the market may have low sensitivity to the Chicago PMI printing as-expected or a knee-jerk rise in algo-traders’ risk appetite should it outperform as the Richmond number did.
Wednesday, April 1 at 8:15am EDT // ADP Employment Report (Mar)
[consensus exp.: -150k // +183k]
Here will be the first chance to see the impact that last week’s historic spike in Initial Jobless Claims will have the monthly labor market statistics. Given the volume of job losses recorded for last week, it seems reasonable to expect a loss of 150,000 private payroll jobs in March—honestly, it also seems reasonable to expect a deeper cut that even that. In terms of gold (and broader) markets’ reaction to this data set, what is tough to anticipate right now is how another week of high volatility with effect price sensitivity to data that we’re already expecting to be poor. Afterall, in the midst of a wild market week, 3.28 million jobs lost added some support to gold prices but did little else to impact US markets.
Wednesday, April 1 at 10am EDT // ISM Manufacturing Index (Mar)
[consensus exp.: 45.0 // prev.: 50.1]
Markit released their PMI reports on economic activity for the world’s most developed western economies last week, and they were universally terrible. The ISM’s report, which is typically favored over Markit in measuring the US economy, is expected to be similarly distressing as it marks the impact of supply chain issues and demand droughts created by our attempts to “flatten the curve.” ISM’s manufacturing read languished below the 50.0 line that separates expansion from contraction for several months at the end of 2019 (though never quite as low as the est. 45.0,) so I’m anticipating relatively low sensitivity in gold and Dollar markets to this data, as long as it comes in above 40.0.
Thursday, April 2 at 8:30am EDT // Initial Jobless Claims
[consensus exp.: 3.15 million // prev.: 3.28 million]
It really was shocking last week to see both initial claims ripping to 3 million and a fairly unenergetic market response overall. Gold prices benefited from the safe haven support that the number provided, but the Dollar didn’t suffer badly and at the end of the day US equity benchmarks had all moved higher. I suspect that may be more difficult to repeat this week, as another 3 million jobs lost will signal that last week’s surge wasn’t a “get it all out of the way early” kind of move; rather, a paradigm shift that will persist for several weeks at least. I should note, I’m seeing at least a few of the analyst teams at major shops call for an even higher claims number this week, some of them suggesting losses as high as 5 million.
Friday, April 3 at 8:30am EDT // March Jobs Report
[NFP consensus exp.: -100k // prev.: +273k]
[Unemployment Rate consensus exp.: 3.8% // prev.: 3.5%]
While I’m, confident that something like 100,000 jobs lost in the month of March will be mostly priced-in by the major markets come Friday, there are many signs that observers and analysts are struggling to accurately estimate just how deeply this acute deterioration in the labor market will impact that numbers for the month as a whole. Just as there is a wide delta between banks and other expert teams’ predictions for Thursday’s jobless claims, some analysts are hewing closely to the consensus number while others are calling for NFP to drop by closer to 200,000. Given this range of deviation and the more “headline” nature of the Non-Farm Payrolls data vs. weekly jobless claims, I believe there will be a lot more market sensitivity to a downside miss here than we saw last week. Presumably that would look like strong pressure on US stocks and the Dollar, while investors move deeper into safe havens and boost gold higher while Treasury yields fall.
The headline unemployment rate has been so low for so long, that risk markets won’t feel much panic for a +0.3% increase. That said, psychology is important here so I do think anything over 4% this month will spook investors and could rock whatever gains the US stock market makes this week.
Friday, April 3 at 10am EDT // ISM Non-Manufacturing Index (Mar)
[consensus exp.: 44.0 // prev.: 57.3]
Even if markets manage to make it through Friday’s labor market data without much friction, I do expect some strong risk-off inputs to come from the ISM’s data on the US services sector. While manufacturing has historically been the engine room of the US economy, the services sector has been ascendant over the last decade or more; the best proof of this is found in 2019’s raging bull market even as signs of slowing in the industrial sector mounted. In March 2020, not only is the service sector possibly the heart of the US economy, it is also certain to be the hardest hit by the severe social distancing measures enacted in most major US metro areas. The drop that we’ll see in Friday’s ISM data is expected then (and presaged last week’s by Markit’s services PMI falling like a stone,) but I still expect it to present a bit of a shock to markets. At the very least, I think gold (and other safe haven assets) can expect some additional price support on Friday.
And that’s how the week lays out for us, traders. I’ve left out a section covering global economic data this week, as there’s nothing on the radar that clearly demands the attention of the gold markets during overseas sessions. If that changes of course, or if there are any surprises, we’ll be sure to cover it. I wish you all the best of luck in your markets this week, and I’ll see everyone back here on Friday for our usual market wrap.