Happy Friday, traders. Welcome to the weekend.
So, what kind of week as it been?
After a real back-end-of-the-rollercoaster kind of week, gold markets are heading towards the Friday close having set strong support at the $1290/oz level. Thursday’s $20 collapse in prices was likely initiated by direct action in the gold markets: with the end-of-month roll for future contracts and another failure to break $1320/oz, traders likely took the opportunity to sell their closing month gold positions and take profits rather than roll those contracts into the next active month.
Eventually, other correlated assets, like the US Dollar in particular, joined the move which applied further pressure on gold.
Muted Inflation Follows Muted Fed Speak
In Monday’s briefing on the week ahead, I made it a point to lay out the full schedule of public remarks from FOMC officials on the calendar in the chance that they might shed light on last week’s Fed meeting in a way that moved markets. Look back, as a whole those all turned out to be rather damp squibs. Market risk springs eternal though, so on this coming Monday I’ll be sure to mention a back-loaded Fed Speak calendar next week.
In other Fed-adjacent developments, today’s print of the PCE Index—the only meaningful look we got this week into the FOMC’s favored input—was another indicator of muted inflation in the American economy. The “Fed Pause” continues.
February Housing Data Falls Back
As predicted, housing numbers made up the majority of data this week worth paying any attention to for those of us trading in assets correlated to the US economy. For the most part there wasn’t a great deal of good news for the American economy in these data sets, although the negative reports—individually and cumulatively—failed to have much of an impact on markets. To recap:
- While less of a pull-back than many expected, Tuesday morning’s 8.7% decline in housing starts still registers as an 8-month low point; January’s surge was also revised down.
- Also, on Tuesday, the Case-Shiller index reported the slowest growth in US home prices nearly four years.
- This morning’s filing of Pending Home Sales data for the month of February describe a 1% decline in the number following what had been a stronger January market, despite parallel data showing that mortgage rates have come off the highs.
- Today also brought us the only contrarian of the week, as New Home Sales for the month of February surprised most analysts by more than doubling estimates on its way to an 11-month high.
Sales of new U.S. homes rebounded to the best pace in almost a year and exceeded estimates in February https://t.co/9N1WwQ4xjb
— Bloomberg Economics (@economics) March 29, 2019
While the dourer indications from the housing data that preceded it had failed to provide much of a tailwind to gold prices during the week, the surprisingly strong New Home Sales data was enough of a buffet to knock gold back from this morning’s attempt to cross back through $1300/oz.
US-China Trade Negotiators Settle In
Through the first couple days of this week it looked like we wouldn’t get a great deal of news flow around the ongoing trade negotiations between the US and China. Frankly, that didn’t really change in a noticeable way. Still, it made sense that following the US Trade Balance report on Wednesday which showed a much narrower than expected (by roughly $6 billion) trade deficit, we started to see stories coming about of the American side of the talks suggesting that there’s room to take time to strike the right deal. Had the January trade balance gone the other way, I suspect there would be increased pressure to find a peaceable end to trade conflict with the world’s second-largest economy.
Highlight: "The White House has called the talks constructive and candid," @jessicaasmith8 says about U.S.-China talks. "Many lawmakers want to be sure the president does not accept a deal that just deals with the trade deficit. They want to deal with those structural issues." pic.twitter.com/UO8GUi3jJC
— Yahoo Finance (@YahooFinance) March 29, 2019
As it stands, these talks have gotten so muddled and extended that it’s difficult to make a confident call in regard to how gold prices and the US Dollar would react to any of the possible outcomes of these talks, and that’s before you try to unravel the complicated USD/CNY relationship as a currency cross. As a result, I think gold markets will continue to be fairly non-reactive to this macro story until more concrete news arrives.
Brexit, Interrupted (…probably)
While we’re on the subject of recently more inert geopolitical happenings, this week was yet another five days packed with a lot of happenings in British parliament over Brexit but rather precious little actually happening. The gist is this: Prime Minister Theresa May’s deal has to be considered fully dead after today’s third failed vote. Not to be outdone in the ineptitude Olympics, the House of Commons also failed to deliver a simple majority to any conceivable options movie forward in a series of “indicative votes.”
— Bloomberg Brexit (@Brexit) March 29, 2019
With the UK still, shockingly, near the precipice of crashing out of the EU with no deal on April 12, the smart money is on a longer extension (12-24 months, depending on your estimates.) Barring a complete collapse into that worst-case (No Deal Brexit) scenario, a lengthy extension likely takes Brexit Watch off the list of stories that gold traders need to be actively apprised of.
Next week comes with a little more for gold traders to talk about on the economic calendar, culminating in March’s jobs report on Friday where along with the headline numbers it will be important to see the newest read on wage inflation, in an effort to measure the Fed’s next decision.
Until then, enjoy your weekend traders. I’ll see you back here on Monday for a look at the week ahead.