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Gold trading reminder: Bulls "strike back" and gold prices rebound by more than $30, and the US PCE data is coming.
2024-06-28
644
Spot gold fluctuated in a narrow range in early Asian trading on Friday (June 28), currently trading around $2,327.31 an ounce. Gold prices rose more than 1% (or about $30) from a more than two-week low hit in the previous trading day on Thursday, closing at $2,327.33 an ounce as the dollar weakened and the market focus turned to key U.S. inflation data for clues about the Fed's policy path.
"Some of the data released were supportive of the gold market. Mainly, wholesale inventories were lower than expected. The final value of gross domestic product (GDP) was very low. Therefore, gold futures were boosted when the dollar index retreated."
The data released on Thursday highlighted weakening economic momentum, with corporate equipment spending falling in May and a widening of the goods trade deficit due to a decline in exports. The U.S. Department of Commerce's Bureau of Economic Analysis released its third estimate of GDP for the first quarter, confirming that economic growth slowed sharply in the first quarter.
The dollar fell as much as 0.33% to 105.92 on Thursday, while the 10-year Treasury yield fell to 4.289%, boosting gold's appeal to investors holding other currencies.
Investors have largely held on to the view that the Fed will cut interest rates around twice, even though it expects only one rate cut this year, according to FedWatch data from the London Stock Exchange Group (LSEG).
Personal consumption expenditures (PCE) price index data, a key inflation report and the Fed's preferred inflation measure, will be released on Friday.
With the yen hovering near a 38-year low, the market is also wary of signs that Japanese authorities are intervening in the yen. Economic uncertainty tends to boost gold's appeal.
U.S. continuing jobless claims jump and business equipment spending fall, suggesting weaker economic momentum
The number of Americans filing for unemployment benefits fell last week, but continuing claims jumped to their highest level in two and a half years in mid-June, suggesting that labor market conditions are loosening amid slowing economic growth.
Other data released on Thursday all highlighted weaker economic momentum, with business equipment spending falling in May and a widening goods trade deficit due to a decline in exports. A string of weak data increases the odds that the Federal Reserve will cut interest rates in September after growth slowed sharply in the first quarter.
Retail sales were tepid in May and inflationary pressures were clearly muted. Economists do not view the data as a sign of an imminent recession.
"The U.S. economy is on track for a soft landing, which is exactly what the Fed wants," said Sal Guatieri, senior economist at BMO Capital Markets.
Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 233,000 in the week ended June 22, the Labor Department said. The data included Juneteenth, a new public holiday last Wednesday.
Claims tend to fluctuate around public holidays. The volatility is expected to continue in the coming weeks, as automakers typically shut down plants for annual maintenance after the July 4 holiday.
Initial claims have risen to the high end of this year's range of 194,000 to 243,000. Economists are divided over whether the recent rise in claims signals more layoffs or a repeat of last year's volatility.
The increase in claims was also attributed to a policy change that took effect last year in Minnesota, which allows non-teaching educators to claim unemployment benefits during the summer break.
In another report released Thursday, the U.S. government confirmed that economic growth slowed sharply in the first quarter. The Commerce Department's Bureau of Economic Analysis released its third estimate of first-quarter gross domestic product, which was revised up slightly to a 1.4% annualized rate. The previous estimate of GDP growth in the first quarter was 1.3%. The economy grew 3.4% in the fourth quarter of last year. While growth may accelerate in the second quarter, it is likely to not exceed 1.8%, a rate that Federal Reserve officials believe will not lead to faster inflation.
The upward revision to the first-quarter GDP growth rate reflects upward revisions to business and government spending and downward revisions to imports. These factors overshadowed the downward revision to consumer spending.
The unemployment benefits report showed that continuing claims increased by 18,000 to a seasonally adjusted 1.839 million in the week ended June 15, the highest level since the end of November 2021. Economists cautioned against reading too much into the increase, noting that the trend of rising claims in Minnesota is likely to fade by the start of the new school year.
The above continuing claims data are within the government's interview period for households to report on the unemployment rate in June.
The number of continuing claims increased between the interview weeks in May and June. The unemployment rate rose to 4.0% in May, the first time since January 2022. However, most economists do not believe that the current level of unemployment poses a danger to the labor market, and they believe that the increase in unemployment is mainly concentrated in the 35-44 age group, new immigrants and certain industries.
A report from the U.S. Department of Commerce Statistics Bureau showed that non-defense capital goods orders excluding aircraft fell 0.6% in May, while economists had expected an increase of 0.1% and an increase of 0.3% in April.
Fed's Bostic said inflation is moving in the right direction and expects a rate cut in the fourth quarter
Atlanta Federal Reserve Bank President Bostic said in a policy article published on Thursday that U.S. inflation "appears to be slowing," which should allow the Fed to cut interest rates later this year.
After concerns that inflation might be stagnating at a high level, Bostic said recent data showed new progress, including that the share of goods and services with annual price increases of more than 5% has fallen below 20%, which is closer to pre-pandemic levels and similar to the share when inflation slowed rapidly last year.
"Inflation is moving in the right direction," Bostic said, citing the measure as one of the Fed's tests to combat inflation that could surge to a 40-year high in 2022.
May personal consumption expenditures (PCE) inflation data will be released on Friday.
Bostic said that as things stand, "I still think it is very likely that conditions will allow for a cut in the federal funds rate in the fourth quarter of this year." In subsequent comments to reporters, he said one reason to be "patient" about the first rate cut is that it would come after inflation is clearly on a path back toward the 2% target and can be seen as the first in a series of rate cuts.
Investors expect rate cuts to begin in September and to be followed by two 25 basis point cuts by the end of the year, while Bostic and many other Fed policymakers now expect a single rate cut.
"I'm not locked into any particular policy path," Bostic said. "More rate cuts, no rate cuts or even rate increases may be appropriate in some plausible scenarios. I'll be guided by the data and by reality."
He said recent employment and growth data suggest "an orderly deceleration of economic activity that restores balance between supply and demand in the economy ... that's really economics 101."
He said at a news conference after the article was released that businesses in his Southeast region still see inflation as a "major concern" and most see current levels of hiring and employment as sustainable.
Bostic said his sense is that there is no "cliff" ahead in the job market and he believes the Fed can achieve its inflation target while "the labor market ... remains tight by historical standards." (END)
Weak U.S. economic data drags dollar down
The dollar fell against most currencies on Thursday, weighed down by softer U.S. economic data that supported expectations that the Federal Reserve will begin cutting interest rates this year.
Helen Given, a foreign exchange trader at Monex USA, said: "The market seems to be more concerned about the PCE data than anything else, which is definitely a sign of a slowdown in the U.S. economy. It was expected that GDP would be below the hot level in the first quarter, but the downward revision of consumer spending data suggests that further slowdown may be coming."
Given the continued weakness of the yen, the market needs to be vigilant about the possibility of Japanese authorities intervening in the market again. Analysts said that although the risk of intervention has increased, Japanese authorities may wait to see the U.S. personal consumption expenditure (PCE) price index released on Friday before intervening in the market. They said that the effect of any intervention measures may be limited.
Michael Boutros, senior foreign exchange analyst at Forex, said: "It is well known that the Bank of Japan likes to act on Friday, but its best case scenario would be... a sharp slowdown in U.S. inflation, further supporting the Fed's call for a rate cut this year."
Federal Reserve Governor Bowman: Not ready to support rate cuts before inflation has clearly eased
Federal Reserve Governor Michelle Bowman reiterated on Thursday that she is still not ready to support rate cuts while inflation pressures remain high.
In a speech prepared for the 2024 annual meeting of the Idaho, Nevada, Oregon and Washington Bankers Associations, Bowman said the Fed's current rate stance remains "restrictive" and price pressures should cool even if monetary policy remains at current levels.
"If incoming data indicate that inflation is moving toward our 2% objective on a sustained basis, it would be appropriate to eventually gradually reduce the federal funds rate to prevent monetary policy from becoming overly restrictive," Bowman said. "We are still not in a position where it is appropriate to lower the policy rate, and I continue to see some upside risks to inflation."
"If incoming data indicate that inflation progress has stalled or reversed, I would still be willing to raise the federal funds rate target range at a future meeting," Bowman said.
This is largely consistent with her recent remarks on the economic and policy outlook. For now, Fed officials are looking for evidence that inflation pressures are steadily retreating toward their 2% target. Policymakers now expect one rate cut of 25 basis points this year, with many market participants believing it will come at the September Federal Open Market Committee (FOMC) meeting.
Bowman said earlier this week that she sees no rate cuts this year and that easing is possible next year.
Overall economic activity has been strong this year but has slowed, and progress on inflation has stalled, Bowman said Thursday. She noted that loose financial conditions are creating challenges for the future direction of prices.
"There is also a risk that the loosening of financial conditions since late last year, reflecting the sharp rise in equity valuations, and additional fiscal stimulus could increase demand momentum, thereby hindering any further progress or even causing inflation to reaccelerate," she said.
Bowman also said the decline in the number of banks in the U.S. is a problem. At the same time, not enough new banks are being created.
She said: "In the long run, the lack of newly established banks will create a gap in the banking system, which may lead to a decline in the supply of reliable and reasonably priced credit, a lack of financial services in underserved markets, and a continued shift of banking activities outside the banking system."
Market outlook
After the sharp rebound in gold prices overnight, the uncertainty of the market trend has increased significantly. From the 4-hour level, the Bollinger Bands are running close to horizontal after closing. Pay attention to the breakthrough of the Bollinger Bands track 2295.30-2342.01 area.
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
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