GoldPrice.

Good morning, traders. Welcome to our weekly preview of the next five trading days, with a focus on the economic data and market narratives most likely to impact the price of gold, as well as the Dollar and other correlated assets.

Gold prices are higher this morning, following Friday afternoon’s rally and then a strong push back above $1700 in the European trading session as global equity markets have tensed and fallen on concerns of persistent instability in the oil market and the growing threat of a US-China trade war’s reemergence at the worst possible time for the global economy. As US equities have opened the week on the back foot, gold spot prices are trading with comfort above $1705/oz while silver is having a tougher go of things, falling now below $14.75.

US Economic Data to Watch

Tuesday, May 5 at 10am EDT // ISM Non-Manufacturing PMI (Apr)

[consensus expectation: 37.0 // previous: 52.5]

Last week ended with a little bit of relief as the ISM’s April index for the US manufacturing space didn’t quite fall into the 30s as expected (although it was still dismal 41.5.) The reached-for implication being that the US economy is still in a free-fall due to the Covid-19 shutdown, but maybe our very worst projections about the damage are too severe. There’s a possibility of a similar small beat in Tuesday’s PMI for the services sector, but I’m still expecting a largely risk-off message from the data. While the March reading was better than expected (same as the manufacturing PMI for March) and this month’s could be too, it’s almost certain that we’ll see the headline number push well below the 50.0 line that indicated contraction; any limited upside that can be gleaned from the ISM data on Tuesday will likely be muted anyhow by the brutal April numbers reported by Markit for the US services sector just over a week ago. I’m confident in saying this data set will dampen risk appetite in the market and drive investors into some additional safe haven buying. It seems most likely case that gold prices will benefit from the reach for safety, but we have to be aware of the potential that investors and managers opt to move to USD cash (or debt) over all else.

Wednesday, May 6 at 8:15am EDT // ADP Employment Report (Apr)

[consensus exp.: -20,500k // prev.: -27k]

We saw the markets take in-stride a nearly 5% drop in GDP last week because it had been more or less priced into the most assets. Although there will be the same lack of surprise around the labor market data coming this week, I think jobs lost in the multi-millions will be a much tougher pill to swallow than a more esoteric GDP number; we’ll see the first evidence of that with Wednesday’s private payroll numbers from ADP. Goldman Sachs’ US macro team points out that the minutiae of ADP’s data collection and modeling  may lead to it understating the depth of job losses, which says to me both that there’s a potential that number could come in markedly below expectations, and that we should avoid adjusting our expectations for Friday’s NFP number if it doesn’t.

Thursday, May 7 at 8:30am EDT // Initial Jobless Claims

[consensus exp.: +3,000k // prev.: +3,839k]

Will the number a new unemployment claims drop sharply for a fourth week in a row? Probably. Will risk-markets react positively to the news? Probably not. Particularly if Wednesday’s ADP number is as bad (or worse) than the consensus projection, I suspect investors and economists will be bracing for Friday’s Jobs Report headlines rather than celebrating further improvements in the weekly pace of layoffs.

Friday, May 8 at 8:30am EDT // April Jobs Report

[(NFP) consensus exp.: -21,000k // prev.: -701k]

[(unemployment) consensus exp.: 16.0% // prev.: 4.4%]

As much focus as weekly Initial Jobless Claims have earned over the last month, the headline data in the monthly jobs report almost always hits harder for both the risk markets and the general psyche of the US economy. I imagine that will be especially true this week, seeing all 20+ million lost jobs (temporary or otherwise) printed at once. Some kind of knee-jerk reaction from algo-traders (as I ask myself: do computers have knees?) is likely based on the numbers themselves, but I do anticipate a slightly more sustained bid for safe havens like gold in the morning (which may well lead to some profit-taking in the yellow metal by the end of the day.)

The unemployment rate, which had seemed so impossibly low for the last year or so prior to March, will also look like a misprint in the double-digits. Analysts are tempering their expectations for the jump as it compares to the number of jobs lost in the economy: a sharp decline in the participation rate is expected which will water down the headline spike, and some number of employees of temporarily-closed business will report themselves as “employed but not at work.” I expect the majority of any market reaction to be driven by the NFP number more than the headline unemployment rate, but then it’s very tough to untangle the two unless they (almost impossibly) move in drastically different directions.

FedSpeak this Week

With last week’s FOMC meeting behind us, we move back into the open period of communication from Fed officials. With the current ultra-low interest rate environment firmly ensconced for the time being, we’ll be most interested in any separation or nuance between individual influential Fed members’ views on the near- to medium-term outlook for a post-lockdown recovery.

Tuesday, May 5: Chicago Fed President Charles Evans (non-voter) (10am EDT); St. Louis Fed President James Bullard (non-voter) (2pm)

Wednesday, My 6: Atlanta Fed President Raphael Bostic (non-voter) (1:30pm)

Thursday, May 7: Minneapolis Fed President Neel Kashkari (FOMC voter) (12pm); Philadelphia Fed President Patrick Harker (FOMC voter) (4pm)

Global Economic Data to Watch this Week

With Japan on holiday for most of the week, the focus on macroeconomics outside of the US will be on the Bank of England’s monetary policy decisions on Thursday (5am EDT.) Most of the central bank’s day is expected to look the same as the Federal Reserve and ECB last week: no changes to interest rate policy in the wake of inter-meeting emergency moves, and rhetoric reaffirming the will and ability to take further action if needed.

Of course we’ll also be tracking the key geopolitical developments from abroad: this week’s key concern will be looking out for any escalation in the gradually heating threat of a new trade war between China and the US.

And that’s how the next days lay out for us, traders. I wish you the very best of luck in your markets this week, and I’ll see you back here on Friday for our weekly market wrap.