Good morning, traders. Welcome to our Monday preview of the week ahead, focusing on the economic data and market narratives most likely to have an impact on gold and precious metals pricing, as well as the US Dollar and other key correlated assets.
Gold prices are softening this morning shortly after the opening of US stock markets for the week. The yellow metal was subjected to some downward pressure overnight as crude oil prices began falling once again and exerting some drag on the overall commodities basket, but with US equities following global stocks in starting the week on the front foot, gold’s fall below $1710 looks driven more by a surge in risk appetite.
— CNBC Now (@CNBCnow) April 27, 2020
Perhaps driven by the week’s coverage of the Covid-19 pandemic—and efforts to curtail it—beginning on an optimistic note, US Treasuries are seeing strong selling alongside gold, with the benchmark 10-year yield rising sharply towards 0.65%.
Aside from tracking the narrative around the novel coronavirus and global economies’ plans to possibly re-open in the near-term, the US data calendar is somewhat busy this week. Let’s dive in.
US Economic Data to Watch
Tuesday, April 28 at 9am EDT // Case-Shiller Home Price Index (Feb)
[consensus expectation: +3.3% YoY // previous: +3.1%]
Often, it’s a little tough to wrap one’s head around the value of the Case-Shiller price data when it lags so far behind the other core housing market metrics that last reported for March; even more so when we’ve already seen the damage done in the months after February. It is useful though, as it gives us the best indication of how the housing market has been priced and valued (which just takes more time to compile,) and so we get a better picture of how the housing market fits into the US economy as a whole—better than we tend to get from the raw data of Housing Starts or sales figures. With that in mind, there’s low-probability of markets moving around this data coming as-expected, but if there’s weakness in the data preceding the economic shutdown some investors may get skittish.
Wednesday, April 29 at 8:30amEDT // US GDP (Q1) (1st est.)
[consensus exp.: -4.0% // prev.: +2.1%]
It’s no surprise that the market is expecting a brutal number for first quarter domestic growth, due to the effects of the economy shuttering in most major US metro areas by the end of March. Analysts are generally placing their number for how the first read will look around 4%. While this is presumably priced into the equity markets and other risk-sensitive assets like gold and the Dollar, keep in mind that this is the estimate of the first estimate of GDP for the period. Many bank analysts are including in their notes that they expect survey non-response and incomplete data sets to skew the GDP number lower than reality this time around.
If data collection is more comprehensive than anticipated from the start, we could see a number considerably worse than -4% which would spur a sudden (if brief) flight from risk across major assets; I would expect that kind of move to push gold higher (to what degree is unclear, as it will depend on how much buying the Dollar sees as well.) Either way, we’ll likely be tracking the later revisions to Q1 GDP over the coming weeks as well.
Wednesday, April 29 at 2pm EDT // FOMC Interest Rate Decision
[No meaningful change to monetary policy is expected.]
As we’ve covered over the last few weeks, the Fed has been incredibly active through the current economic maelstrom created by the US efforts to resist Covid-19’s spread, including two inter-meeting emergency cuts and an alphabet soup of operations and credit facilities to help seed growth and recovery post-crisis. With the FOMC pushed closer to the limits of monetary policy, and with signs that much of the Herculean effort is having the desired effect so far, expectations are pretty low for any new moves from Jerome Powell & Co. this week.
In terms of forward guidance, it’s possible the committee’s statement may include some information on when the rate of asset purchase can be expected to moderate to a more “regular” pace rather than “as necessary” but it does seem too early to even hint at easing off the gas pedal. Beyond that, expect promises from the FOMC that they are prepared to take greater action if necessary. For most major assets, I expect this month’s meeting to generate useful information but no serious price movement beyond the usual algo-driven choppiness around announcement and press conference.
Thursday, April 30 at 8:30am EDT // PCE Price Index (Mar)
[(core PCE) consensus exp.: +1.6% YoY // prev.: +1.82%]
[(headline PCE) consensus exp.: +1.3% YoY // prev.: +1.79%]
Thursday, April 30 at 8:30am EDT // Personal Income & Spending (Mar)
[(spending) consensus exp.: -5.0% MoM // prev.: +0.2%]
[(income) consensus exp.: -1.6% MoM // prev.: +0.6%]
The March report on the CPI variant of consumer inflation showed a slight pull back in price growth as the economic shutdown took hold around the US, but not a dramatic drop. We expect broadly the same look from the Federal Reserve’s calculations this week as the real impact of the hit to consumer’s income—expected to be generally deflationary—probably takes a month to pass-through to prices.
Speaking of which: we do expect some unsettling declines in consumer income, given the historic amount of new jobless claims in recent weeks, and the coinciding fall in consumer spending. Just how tightly the American consumer holds the purse strings, and how willing they are to spend again, will be a major pivot point in the US economy’s rebound and recovery from this very unique crisis, perhaps more so than for any recovery period in US history.
In terms of market reaction, because the PCE report will release at the same time as the weekly Initial Jobless Claims number which was attracted so much attention since March, it may be tough to tell which print is moving the market for gold or the US Dollar. If PCE (and personal spending/income) come in as expected I assume that would be generally bullish for gold in a risk-off mood, but again this kind of poor performance is likely accounted for in current asset prices.
Thursday, April 30 at 8:30am EDT // Initial Jobless Claims
[consensus exp.: +3,500k // prev.: +4,427k]
We’re looking for the gargantuan number of new jobless claims to keep falling this week, hopefully breaking down to “only” 3 million or so. The faster the spike tails off, the better for the labor market’s recovery chances not only for the sake of pure momentum but also in terms of the potential elasticity of many of those jobs. Last week’s decline from a 5 million handle to a 4 generated some extra risk appetite that weighed moderately on gold prices. I’d expect much the same this week.
Friday, May 1 at 10am EDT // ISM Manufacturing PMI (Apr)
[consensus exp.: 36.1 // prev.: 49.1]
March’s ISM manufacturing number actually outperformed expectations, still falling into contractionary territory below 50.0 but only just. This week, on the back of a dramatic worsening in regional manufacturing surveys, the shine will come off. Late Friday morning data is always tricky for anticipating gold pricing, as so many commodities traders are already more or less signed-off for the week and besides it’s tough to say for sure how gold will be priced four days from now. If the ISM number manages a print closer to 40.0 there could be some accelerated profit-taking on Friday; otherwise I anticipate this being fairly low-sensitivity for the yellow metal.
Global Economic Data to Watch
The economic calendar in Europe this week looks very similar to the US docket. For our purposes there is some potential for Euro-centric movement in the currency and debt markets very early Thursday morning as the Euro zone and its core economies report on Q1 GDP, followed by consumer price inflation for the EU. The headline grabber will be the ECB’s interest rate decision later that same morning. Similar to expectations for the Fed, the European Central Bank will likely do little in the way of announcing new programs this time around, but instead will focus on demonstrating the effectiveness of current efforts and crafting language to support a hopeful outlook for the medium-term.
The Asian slate if fairly sparse this week, with the Bank of Japan having already announced some new stimulus measures and course adjustments last night, to little effective reaction from gold or US Dollar markets.
And that’s how our week ahead looks. As always, I wish you the very best of luck in your markets in the days ahead. I’ll be back on Wednesday for a recap of the Fed Day; after that I’ll look forward to seeing everyone back here on Friday for our weekly market wrap.