The non-manufacturing index fell to 55.1 from 56.9 in today’s ISM data. Three out of the four components that make up the index took a dive. New orders were the lowest since December of 2017 and employment dropped by the most in 16 months.
ISM Services Index and Factory Index came in the lowest since October of 2016. Today also had disappointing ADP jobs data, 140k expected vs 102k reported. Disappointing ADP data coupled with disappointing ISM data gives the federal reserve the data they need to lower rates at this month’s upcoming meeting, possibly even by 50 basis points. Gold has had more reason to catch a bid on this disappointing economic data, as it usually does and did today.
ISM Employment Gauge:
The ISM employment gauge fell 3.1 points to 55. While a dropping employment figure is concerning, the fact that we still hover above 50 suggests that the jobs market is still in an expansionary period. Adding to the disappointing ISM Employment data, today’s ADP employment data was disappointing as well. June’s ADP report missed the expected 140k jobs and came in at 102k. One positive piece of data was that May’s disappointing report was revised from 27k to 41k.
ISM Services and Factory Index:
The ISM Services Index came in at the lowest level since October of 2016. The Services Index has been greatly weighted down by the trade war with China. There was a truce declared during the G-20 summit between the President Trump and President XI, but not much progress has been made other than the agreement not to make the problem worse. ISM’s Factory Index fell to 51.7, also the lowest level since October of 2016 and marking the third successive decline.
Federal Reserve Implications:
The ISM report helps further the case for the Federal Reserve to lower rates in the meeting later this month. If Friday’s Non-Farm Payroll data is weak it could further the case for the Federal Reserve to make a 50-basis point cut, something the Fed typically likes to do at the beginning of a cut cycle.
Gold Price Action
Gold has continued this out of control price action. The trade truce with China gave gold a big reason to sell off on Sundays futures open, dropping more than $15. The entire $15 Sunday selloff was recovered, and further gains were made during Tuesday’s trading session as no resolution with Iran has been made, twitter went out of control on the possibility of World War III.
Iran was violating the 150 Billion Dollar (plus 1.8 Billion Dollar in CASH) Nuclear Deal with the United States, and others who paid NOTHING, long before I became President - and they have now breached their stockpile limit. Not good!
— Donald J. Trump (@realDonaldTrump) July 3, 2019
This week has had no shortage of news and excitement for gold traders. In the past 24 hours gold has traded from $1410 up to almost $1440 and now back below $1420 (that move measures realized volatility in the mid-20s). This Fridays Non-Farm Payroll data is the next big data point to watch. Surprises to either side will send gold on more big moves due to the volatility within the gold market ramping up.