Good morning, traders. Welcome to our regular preview of the trading week ahead, with a particular focus on the economic data, news, and market narratives most likely to impact the price of gold, as well as the US Dollar and other correlated assets. Gold prices are opening the week slightly higher than Friday’s closing, as US stock markets are opening relatively flat following a tumultuous weekend in the States and ahead of unknown escalations between the US and China over trade.
With the Federal Reserve’s FOMC members entering their pre-meeting blackout period, the key data points this week will be the ISM’s activity indices for the US, and the May Jobs Report due on Friday. Once Monday’s equity trading opens in the US, the dominant market narrative to start the week will be the fracturing trade peace between the US and China, so we will be tracking that in the coming days as well.
US Economic Data to Watch
Monday, June 1 at 10am EDT // ISM Manufacturing PMI (May)
[consensus exp.: 43.7 // prev.: 41.5]
The ISM’s measure of industrial sector activity proved slightly more resilient than expected through April’s contraction forced by the Covid-19 crisis, as did the variant tracked by Markit. With Markit’s manufacturing PMI for May also showing a sharper bounce than anticipated, there seems to be more upside risk to the mild rise that the consensus is calling for in the ISM’s data set due later this morning. My feeling is that, independent of global trade tension, the optimistic mood of US markets is still fragile; anything in the 40s is probably taken in-stride by the market and it would take something north of 50.0 to see a big enough surge in risk appetite that passes through the weaker gold prices, but any unexpected to decline in Monday’s headline number could really worry the market and see more strong flows into gold and other safe havens (particularly the Dollar.) These same dynamics will likely be in play for Wednesday’s service sector PMI as well.
Wednesday, June 3 at 8:15am EDT // ADP Employment Report (May)
[consensus exp.: -9,500k // prev.: -20,236k]
For the second month in a row, we’re expecting a massive month-to-month delta in private payroll jobs added/lost in the US economy; unfortunately, we know that for the third month in a row the number will reflect an overall loss of jobs for Americans. The anticipated drop below 9 million, which seems reasonable given the downward trend in weekly jobless claims, should be a sign of the slow march towards recovery, and is probably well accounted for in current asset pricing. Again, though, I think the stubbornly optimistic run we’ve seen in equity markets will continue to need economic data supportive of a recovery or else the downward correction will be sharp. In that scenario, the selling in equities would likely be matched by a boost in non-Dollar safe havens with gold and US Treasuries leading the way.
Wednesday, June 3 at 10am EDT // ISM Non-Manufacturing PMI (May)
[consensus exp.: 44.5 // prev.: 41.8]
Because the same crisis is impacting the whole of the US economy, there’s not much to tell you in advance of the services sector PMI read that I didn’t touch on with regards to the manufacturing sector data just above. From a gold trader’s perspective there’s a bit more risk of tailwinds than resistance. I will point out, as I have before, that services are now the dominant of the two sectors in the American economy and so any dislocation from the expected data this week—positive or negative—will likely be felt more keenly through the Non-Manufacturing read.
Thursday, June 4 at 8:30am EDT // Initial Jobless Claims
[consensus exp.: 1,800k // prev.: 2,123k]
Another weekly decline, and this time to bring the initial claims number below 2 million, will represent continued movement in the “right” direction, but I’m expecting the weekly data to take a backseat to the month jobs report in terms of traders’ attention.
Friday, June 5 at 8:30am EDT // May Jobs Report
[(non-farm payrolls) consensus exp.: -8,000k // prev.: -20,537k]
[(unemployment rate) consensus exp.: 19.6% // prev.: 14.7%]
As with Wednesday’s ADP payroll data, we’re expecting another massive swing between April’s NFP number and May’s, with all hopes being that it’s a deep drop downwards. While there’s still no reliable correlation over time between ADP and NFP data for a given month, I’ll caution you that if there’s an up-or downside surprise on Wednesday analysts and traders will move quickly to re-calibrate their expectations for Friday. A drop back below 10 million as expected will probably give US equity markets a boost going into the weekend and slow any gold momentum, but then with more than 4 days between now and then for the world’s two largest economies to stoke a new trade war it’s very hard to predict what levels we’ll find risk assets or safe havens at come Friday.
Through some complications of the way different degrees of “not working” gets classified by the Labor Department while calculating employment rates, while we’re looking for a steep drop in jobs-lost the general expectation is for a further rise in the headline unemployment rate. This in itself shouldn’t be a pivot point for risk-on/risk-off sentiment on Friday, but I do think there may be a psychological component to consider: Even if it’s only marginally higher than analysts’ expectations, an unemployment rate in the 20s could reflexively spook traders—computerized and humans alike—and at least initially force a big flight from risk in the market. It may only be a knee-jerk reaction but depending on what lines of resistance/support we find the gold chart near on Friday that could still break or build important momentum for the yellow metal or the Dollar.
Global Economic Data to Watch
Outside of the US, the key calendar date for this week is Thursday’s ECB policy meeting and interest rate decision. Expectations for a further adjustment to already negative interest rates are extremely low, but even given some improving data out of the Eurozone the central bank looks likely to increase the pace of stimulus through asset purchases. It’s tough to predict any direction impact for the Dollar or gold prices ahead of the announcement; just be aware that it could move some asset prices pre-market on Thursday morning.
And that’s how the next five trading days lay out ahead of us, traders. As always, I wish you the very best of luck in your markets this week, and I’ll see everyone back here on Friday for our weekly market wrap.