This week, Germany, France and the U.S. will update their first-quarter gross domestic product (GDP) data, and the New Zealand Fed’s interest rate meeting takes place, or discuss plans related to QE tapering. Fed officials will continue to speak intensively, including St. Louis Fed President Bullard speaking at a cryptocurrency conference. In addition, heavyweight data such as the monthly rate of U.S. personal consumption expenditures (PCE) in April will also be released.
①Heavyweight data coming, US April PCE most notable
A series of heavyweight data will be released this week, including.
Tuesday (May 25), Germany’s final unadjusted annualized GDP rate for the first quarter, the U.S. S&P/CS 20 large-city home price index for March, U.S. total new home sales for April, the U.S. Conference Board consumer confidence index for May, and the U.S. Richmond Fed manufacturing index for May.
Thursday (May 27), U.S. first-time jobless claims for the week ending May 22, U.S. first-quarter annualized quarterly revision of real GDP, U.S. April durable goods orders, U.S. April contracted home sales index.
Friday (May 28), France’s first quarter final annualized GDP, Eurozone May industrial sentiment, economic sentiment, final consumer confidence index, U.S. April core PCE price index, U.S. May Chicago PMI, U.S. May finalized University of Michigan consumer confidence index.
Bart Melek, head of global strategy at TD Securities, noted that Tuesday’s U.S. Conference Board Consumer Confidence, Thursday’s U.S. first-quarter GDP, Friday’s U.S. personal income and PCE price index are worth watching, and weaker-than-expected data will be favorable to gold. The Fed is not expected to rush to tighten monetary policy, despite the references in its meeting minutes.
The most notable of these is the US PCE for April, with analysts currently forecasting a 3% year-on-year increase in PCE last month, which would significantly exceed the 2% set target. The mainstream view within the Fed is that inflation overshoot is temporary in the short term, but if this inflation indicator, which is the Fed’s biggest concern, exceeds expectations significantly, investors will speculate that the FOMC may have to consider accelerating the end of QE and raising interest rates by the end of next year.
It is worth noting that gold has remained strong even though US bond yields have recently rebounded on the back of US data. In response, Button, chief currency analyst at Forexlive, said the rise in U.S. bond yields failed to depress gold prices, and the market’s reaction to the U.S. CPI report and the Fed minutes’ statement on tapering bond purchases speak volumes, namely that while these factors weighed on gold prices in the short term, they did not derail the trend of a weaker dollar and stronger gold. This is an important signal of potential demand for gold.
② Fed officials speak intensively, will the hawkish camp expand?
On Monday (May 24), St. Louis Fed President Bullard spoke at a cryptocurrency conference; Cleveland Fed President Meister gave opening remarks at an online event at the bank on the work of the central bank.
Tuesday (May 25), testimony by Fed Governor Quarles before the Senate Banking Committee; remarks by Atlanta Fed President Bostic, a member of the 2021 FOMC ticket, on policy responses to the new crown epidemic; remarks by Kansas City Fed President George.
Wednesday (May 26), a speech by Fed Governor Quarles.
Thursday (May 27), Fed Governor Quarles spoke on the economic outlook.
The minutes of the Fed’s April meeting released last week showed that some members suggested that the next can start to consider tapering QE, which triggered speculation about the shift in monetary policy, the Jackson Hole annual meeting of global central banks held in August this year is considered by many institutions to be one of the timing of the Fed’s announcement of relevant plans. Philadelphia Fed President Harker in less than two weeks from “doves” to “hawks” is a concern.
Harker said that the premise of QE reduction is the continued strength of the labor market, which is the Fed’s “first step” in withdrawing support for the economy’s excess easing, and if the recovery continues, officials will consider raising interest rates at the “appropriate time”. However, last Tuesday he also stated that “there is no rush to withdraw easing”, which may be a signal that should not be ignored.
OANDA senior market analyst Edward Moya analysis, the Fed can not immediately start to normalize monetary policy, because it will bring too much confusion. The Fed could still be one of the last few central banks to tighten monetary policy, which is a good environment for gold, which would benefit as an inflation hedge and a safe-haven asset.
③Continue to focus on cryptocurrency plunge, gold, stock market fears ripples
Analysts point out that stocks are likely to continue to be volatile in the coming week, judging by the movement of digital currencies and the trading pattern of risky assets over the past two weeks. For now, investors are closely watching the wild swings in digital currencies like bitcoin and trying to use it to assess whether tech stocks, which have experienced rally attempts over the past week, can gain traction again.
Peter Boockvar, chief investment officer at Bleakley Advisory Group, said bitcoin is a prime example of a high risk appetite, and if it starts to drag the market down, stocks will be even more unsettled.
Meanwhile, Kitco’s latest survey results show that the gold market continues to see strong bullish momentum, as the sharp volatility in cryptocurrencies has caused investors to pull out of the crypto market and money may shift to the traditional gold market. Wall Street analysts and retail investors surveyed said they remain bullish on gold this week and expect the next target to be $1,900 per ounce.
Kitco News analyst Neils Christensen said investors are turning their attention back to gold as bitcoin’s shine fades and investors seek safe harbor from volatility and uncertainty. Many analysts say bitcoin’s stagnation could send gold prices back up to $2,000 an ounce by the end of the year.
Colin Cieszynski, chief market strategist at SIA Wealth Management, also expects gold to continue to benefit from investors pulling out of cryptocurrency investments, with technicals not showing gold to be overbought.
CITIC Futures, on the other hand, pointed out that the precious metals rose sharply last week as inflation expectations – the 10-year U.S. bond break-even inflation rate fell back from 2.5% to around 2.4%, reflecting the Fed’s management of inflation expectations, which put an end to the idea of the Fed cutting debt ahead due to inflation, and the dollar index returned to consolidation. However, along with this, the logic of runaway inflation is also aborted, the precious metals short-term rapid pull-up power also decline, so the near future is expected to be dominated by shocks.
Newsom Analysis President Darin Newsom cautioned that unless gold prices can continue to make record highs this week, there will be a need to retest the $1,850/oz support level. Recent spot gold orders seem to be preparing for a short-term downtrend, and a fall below the $1,860/oz line could trigger a larger pullback.
Kevin Grady, president of Phoenix Futures and Options LLC, takes a similar view: Gold is definitely in an uptrend, but needs to hold the $1,846 support level. Neutral on gold, which could re-visit this level this week. If it falls below this level, the next support level for gold will be $1,808.
④Iran nuclear talks – the only thing that matters for oil prices at the moment
International oil prices fell last week as investors worried that signs of progress in negotiations over the Iran nuclear deal could finally drive more supply into the market.
Iranian President Rouhani said over the weekend that Iran will continue nuclear talks until a final deal is reached with the United States. Talks between Iran and the International Atomic Energy Agency (IAEA) on nuclear monitoring continue, and the IAEA is expected to hold a news conference on Monday on the progress of the talks.
Under a previous agreement, Iran’s monitoring agreement with the IAEA on nuclear facilities expired on Saturday, and the IAEA is no longer allowed access to data collected by cameras inside nuclear facilities, with a possible conditional one-month extension for Iran. The extension could be conditional on world powers finalizing a deal with the United States to fully restore the 2015 nuclear deal and lift sanctions.
Market sources have revealed that Iran is ready to crank up its oil export capacity to maximum levels in the coming months. If the oil sanctions imposed on Iran are eventually lifted, an additional 2 million barrels per day of crude oil could flood the market. The additional oil exports would be roughly equivalent to the year-end supply gap previously forecast by the International Energy Agency. As a result, OPEC may not be able to continue to increase production in the future as planned.
Financial blog Zero Hedge believes that given the current highly sensitive price action, the only thing that matters for oil prices at this point is the progress of the Iran nuclear deal negotiations, not the impact on demand caused by the Indian epidemic or the reopening of the US.
OPEC+ is reported to have postponed the Joint Technical Committee (JTC) from May 25 to May 31.
⑤ New Zealand Fed rate resolution expected to support NZD
The central banks of South Korea, Indonesia and New Zealand are all expected to keep monetary policy unchanged this week. Prakash Sakpal, an analyst at ABN AMRO, said that while inflation has started to accelerate, the threat from the new crown epidemic is far from over. Asian central banks’ policies remain focused on supporting economic growth rather than curbing inflation, which is almost a temporary phenomenon and may require maintaining the policy status quo throughout the year.
The New Zealand Fed’s interest rate resolution is likely to extend the “long-term hold” line, leaving all policy settings unchanged, although there is a risk that its stance may be hawkish, as economic developments have been optimistic since the February regular meeting. Westpac said this week’s New Zealand Fed rate resolution will support the New Zealand dollar, which is expected to break through the top at 0.7300 in the next week or two and rise towards 0.7600 in the coming months.
(6) Biden’s Budget
U.S. President Joe Biden will announce his first budget in office this week, with Reuters saying the timing is delayed by a day to the 28th. The budget for the new fiscal year starting in October will cover a detailed list of U.S. foreign aid, immigration policy, policing security and a host of other programs.
(7) European Council to hold special EU meeting
EU leaders will hold a summit in Brussels starting on the 24th local time. At the special meeting, leaders will discuss how to achieve the EU’s 2030 goal of cutting greenhouse gas emissions, and other topics include the epidemic and Britain’s exit from the European Union.
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