Good morning, traders. Welcome to your look at the macroeconomic week ahead! I hope you all enjoyed the long holiday weekend and are ready to jump back into the precious metals and currency markets. It’s another Jobs Week!
At the time of writing, gold prices are roughly $20 to the better of last week’s close, around $1542/oz in spot markets; while spot silver is going for $18.88/oz, up more than $0.50.
Despite a large gap higher when commodities markets opened on Sunday evening to very thin trading, most of the metals’ gains have come over the last several hours as safe-haven demand has returned to overall markets after last week’s more risk-seeking tone: concerns are rising (yet again) that there is no end to the US-China trade war in sight, the unrest in Hong Kong seems to be worsening, and the British Pound has weekend to its lowest levels since 2016 as the UK’s governing bodies have returned from summer break and promptly re-lit the Brexit dumpster fire; and that was all before 6am EDT. Since then we are seeing US equities down by as much as 1% for the day already, partly driven by the concerning report on manufacturing sector PMI that we’ll touch on below.
We’ll be keeping an eye on all of these developing stories and their impact on metals and currency markets through the week, but there’s also a fair bit of macroeconomic data on the calendar and a pack of Fed speakers to follow over the next four trading days; so, let’s jump right in.
US Economic Data to Watch
Tuesday, September 3 at 10am EDT // ISM Manufacturing PMI (Aug)
[consensus expectation: 51.2 // Previous: 51.2]
(Mfg. PMI was released this morning as I was finalizing this piece; The actual number came in at 49.1, a full 2.0 below exp. and into the contractionary sub-50pt range.)
As I’ve touched on a few times in recent months, the major ISM Purchasing Manager Indices have becoming an increasingly important data set month-to-month as investors try to discern: 1.) whether or not the US economy decelerating into a recession, and 2.) how the Fed will act next. The manufacturing sector PMI has been sliding downward for most of 2019 so far, although based on some recovery in many of the regional PMI data recently the index for August is expected to be unchanged from last month, so…yay?
A key reason for all the focus—and, recently, handwringing—on the manufacturing index comes from the fact that manufacturing (or “industry” to be a little more romantic about it) has historically been the engine room of the American economy. From a gold or US Dollar trader’s standpoint, that means strong showings in PMI boost the Dollar and put downward pressure on gold prices while the opposite is true for disappointments in the data.
In the age of Silicon Valley and an app for everything that’s becoming a somewhat less concrete truth, but Manufacturing PMI should still be tracked as a vital indicator of the US economy and we’ll talk about why shortly.
Thursday, September 5 at 8:15am EDT // ADP Employment (Aug)
[consensus exp.: +146k // prev.: +156k]
Private sector payroll data drops on a Thursday this month because of Monday’s holiday, but it should be plenty of time for the markets to digest any surprises ahead of Friday’s jobs data. General expectations are pretty low for anything other than a middle of the road report, but I suspect that if the worsening US-China trade war ever begins to cost people’s jobs stateside then we’ll start seeing those effects in the ADP data before it’s reflected in the deeper waters of Non-Farm Payrolls. Don’t expect any fireworks this month but do keep an eye on how the table gets set for Friday’s Jobs Report.
Thursday, September 5 at 8:30am EDT // Initial Jobless Claims
[consensus exp.: +215k // prev.: +215k]
Thursday, September 5 at 10am EDT // ISM Non-Manufacturing PMI (Aug)
[consensus exp.: 54.0 // prev.: 53.7]
Like its manufacturing-focused cousin, the “Service Sector” PMI has been trending downward all year albeit at a (generally) less alarming pace; it also typically passes through to asset prices in the same way (strong data boosts the Dollar and weakens more risk-off assets like gold, and so forth.)
In the past, this reaction has been more muted when it comes to services rather than manufacturing because, as we discussed above, it was the industrial sector that drove the US economic system. Over the last few years, we’ve seen a sort of reversal in that mechanism: because conventional wisdom now holds that the modern America is a services economy, as long as non-manufacturing PMI remains healthy then any concern (or market reaction) over poorly performing manufacturing PMI has been muted.
I wouldn’t be the first, however, to point out that there’s a different risk to consider: those manufacturing businesses that may no longer be the workhorses of the US economy sure do employ a lot of services—accountants, marketing departments, HR professionals. At some point, I think we have to assume, persistent weakness in the manufacturing sector will begin costing us productivity and jobs in the services sector. Should that happen, and we see not only manufacturing PMI fall below 50.0 as it did again today but also non-manufacturing, it will be come more and more difficult, maybe impossible, to halt or delay the American economy’s slide into the next recession.
Friday, September 6 at 8:30am EDT // August Jobs Report
[NFP consensus exp.: +158k // prev.: +164k]
[Unemployment Rate consensus exp.: 3.7% // prev.: 3.7%]
In framing month’s jobs data from a risk-trader’s perspective, I’m doing to do a two-step that’s become very familiar when talking about major US economic data points.
Step One: I’ll point out that for the last 12 months labor market growth has remained “strong” (per the FOMC’s own assessment) if not excellent, and that the trend is expected to continue in the August report. Assuming it does, there shouldn’t be any reason for the Fed to material change their view of the labor market our pull their (and indeed the markets’) short-term focus away from inflation data. As a result, if the number of jobs added in August is within spitting distance of expectations, there shouldn’t be a big move in gold prices beyond the immediate term in which we’ll always see some whippy trading driven by algos that ultimately corrects itself in most instances.
Step Two: I’ll remind you that while weakness in a single jobs report would ultimately leave a lot of things up to interpretation (is it a “transitory” shock, for example,) with the tense posture of markets ahead of the September Fed meeting I could see a bad miss in NFP data being the catalyst to drive gold spot prices north of $1550. So, while the risk of a downside surprise in the NFP data this month is low, we need to be watching out for it because of the volatility it implies.
The headline unemployment rate will, almost certainly, remain nailed on to 3.7%.
Fed Speak This Week
We’ve got a full raft of Fed speakers lines up this week, including the Chairman himself pulling up the stern. While I’ve learned my lesson in recent months about ignoring what seem like less-interesting members’ public remarks, I do still think some are more worthy of attention than others; either by virtue of the speaker’s role on the committee or their proven influence on other members. This week, I’ve put those particular appointments in bold.
- Boston Fed President Eric Rosengren (FOMC voter); Tuesday, 5pm EDT
- New York Fed President John Williams (FOMC voter); Wednesday, 9:25am EDT
- Federal Reserve Governor Michelle Bowman & St. Louis Fed President James Bullard (both FOMC voters); Wednesday, 12:30pm EDT
- Minneapolis Fed President Neel Kashkari (non-voter); Wednesday, 1:40pm EDT
- Chicago Fed President Charles Evans (FOMC voter); Wednesday, 3:15pm EDT
- Federal Reserve Chairman Jerome Powell; Friday, 12:30pm EDT
Global Economic Data to Watch
Friday, September 6 at 2am EDT // German Industrial Production (July)
[consensus exp.: +0.4% MoM // prev.: -1.5%]
In much the same way as the US economy’s Manufacturing PMI, the health and pace of the German industrial sector is also the driving force not only for its domestic economy but really for that of the European Union as a whole. With September’s ECB meeting right around the corner, those members of the committee who have surfaced recently in support of less aggressive monetary easing at this point will be hoping to see Germany’s productions numbers growing again for July.
Data supporting more cautious maneuvers (i.e.: “only” a rate cut) from the ECB should spur the Euro currency, perhaps enough to weaken the Dollar a bit; while more negative metrics that might propel the ECB to also introduce new quantitative easing could have the inverse effect, even to the degree that it negatively effects gold prices (however temporarily.)
And that’s how this shortened week lays out ahead of us, traders. I wish you the very best of luck in the markets over these four days, and I’ll see back here on Friday for a thorough recap of the week’s macroeconomic events and headlines.