Good morning, traders; Welcome to our market week preview, where we take a look at the economic data, market news and headlines likely to have the biggest impact the price of gold this week and beyond, as well as market prices for silver, the US Dollar, and other key correlated assets.
Gold prices are sharply lower this morning at the time of writing (just 30 minutes after equity markets opened in the US.)
Although another “vaccine Monday” (this time, an announcement of trial results from AstraZeneca) had seen gold prices sliding moderately since the European trading session, investors and managers seemed more patient with their safe haven positions than in previous weeks. The steep drop in metals prices came on the heels of IHS Markit’s release of PMI data covering economic activity in the US, which has surprised markets by coming in at the highest levels in more than five years.
Solid flash November @IHSMarkitPMI: Manufacturing at 56.7 vs. 53 est. & 53.4 prior; Services at 57.7 vs. 55 est. & 56.9 prior … employment strengthened markedly, as did prices (fastest increase in survey history); composite now at 57.9, a 68-month high @BEA_News pic.twitter.com/TidWVKIjNW
— Liz Ann Sonders (@LizAnnSonders) November 23, 2020
This really is a surprising turn, given the picture of a steady backslide that other data has been painting for the US economy in recent weeks. It will take some time to untangle how Markit reached these numbers and what it means looking ahead, and to compare it to the ISM’s activity data (which is more commonly cited by US economists) for the same period. What’s clear now is that, ahead of a holiday-shortened week, investors are eager to celebrate the optimistic data and have been driving US stocks sharply higher at the expense of safer assets like gold and silver.
This week is an odd one on the calendar, as Thursday’s Thanksgiving holiday in the US has all the relevant economic data compressed on to Wednesday. Equity and bond markets will be closed in the US on Thursday, with only a half day of trading scheduled for Friday. In practice, expect Friday to be very lightly traded in the US session as many desks will just run a skeleton crew to manage positions. Indeed, volume will probably be abnormally light all week—lower liquidity may be playing a role in the severity of this morning’s moves—so any knee jerk reaction to Wednesday’s slew of data might be exacerbated.
US Economic Data to Watch
Wednesday, November 25 at 830am EST // Initial Jobless Claims
[consensus exp.: +730k // prev.: +742k]
Last week’s unexpected push higher in weekly unemployment claims played a big role in keeping enough worry and risk-aversion in the marketplace to see gold supported after a slide lower. It will also contribute to the general air of concern and unease this week. We’ll be keeping an eye on the number this week to see if the move higher was a one-off or a much more worrying trend higher, but with so much data hitting the wires on Wednesday morning the data point may not receive much in the way of immediate attention from the market.
Wednesday, November 25 at 830am EST // US GDP Growth (Q3 – 2nd)
[consensus exp.: +33.1% QoQ // 1st est.: +33.1%]
GDP calculations very rarely see meaningful changes from the first “estimate.” But, then, quarter-to-quarter GDP very rarely swings around as violently as we’ve seen during this year of shutdown and recession. We’re living through an unprecedented situation, so it can’t hurt to keep an eye out for any major adjustments that could impact our understanding of what kind of shape the US economy holds while on the precipice of another recessionary slump.
Wednesday, November 25 at 830am EST // Durable Goods Orders (Oct)
[consensus exp.: +0.9% MoM // prev.: 1.9%]
Economists are anticipating that big-ticket purchases continued to grow at a steadily healthy, if unexciting clip in October. Since investors seem desperate for any positive coloring they can use to tint the outlook for the US economy, I imagine that an as-expected release on this data will give a lift to stocks while (based on recent trends) weighing a bit on gold’s trajectory.
Wednesday, November 25 at 10am EST // PCE Price Index (Oct)
[(core PCE) consensus exp.: +1.4% YoY // prev.: +1.55%]
[(headline) consensus exp.: +1.2% YoY // prev.: +1.37%]
Wednesday, November 25 at 10am EST // Personal Income & Spending (Oct)
[(income) consensus exp.: +0.0% MoM // prev.: +0.9%]
[(spending) consensus exp.: +0.3% MoM // prev.: +1.4%]
The Fed will release their own estimation of consumer price inflation for the month of October, and analysts are expecting it to mirror the slight deceleration we saw in the Bureau of Labor Statistics CPI data for the same period. It’s somewhat concerning, given that we expect that the termination of the summer’s fiscal support for US consumers means that this category of data is going to get considerably uglier in November and December.
To echo that point, even if it’s considered “priced in,” it’s tough to imagine markets not being at least a bit rattled by personal income (by the Fed’s metrics) exhibiting zero growth at this point in the feeble “recovery” (and this close to the holiday season; an equally sharp pullback in consumer spending—which has underpinned most US economic growth for years and is a must-have for an honest post-crisis recover—will also worry investors. The market will probably more or less absorb releases in-line with expectations, but a downside surprise could be perfectly timed to jitter markets ahead of the US holiday and push investors into safe havens like gold at the last minute.
Wednesday, November 25 at 2pm EST // FOMC Discussion Minutes
Given its proximity to a hotly contested US presidential elections, the November meeting of the FOMC was an almost entirely routine exercise; We expect this to be reflected in the meeting minutes released just as everyone (who showed up this week, at least) goes home for the long weekend. The one point of interest will be any discussion (assumed) upcoming adjustments to forward guidance and the current pace of asset purchases by the central bank.
FedSpeak this Week
The full docket for Federal Reserve member appearances this week is actually pretty crowded, but for our purposes only a few scheduled comments warrant mentioning. Last week’s sudden tension between the leader of the Fed and the outgoing Treasury Secretary may get a mention, although it’s hard to say on Monday morning whether or not the Fed will want to address the situation further this week or not. Otherwise, expect the more influential FOMC members to keep highlighting the ever more dire need for fast and far-reaching fiscal stimulus if the US economy is to avoid a brutal double-dip recession at the start of 2021.
Monday: Chicago Fed President Charles Evans (non-voter) (3pm EST)
Tuesday: St. Louis Fed President James Bullard (non-voter) (11am EST); New York Fed President John Williams (FOMC voter) (12pm EST)
And that’s how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I’ll look forward to seeing you all back here at the end of the week for our market-week wrap up.
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