Spot gold closed $2 down at $2301 in a highly volatile market Friday. US nonfarm payroll and ISM services data fell short of forecast; however, inflationary pressure continues to build up. The metal was down around 1.50% on the week. The US yields retreated on dismal US data. The ten-year US yields were down 1.95% Friday to close at 4.50%, whereas the two-year yields fell % to %. The US Dollar Index fell 0.24% Friday as it was down nearly 1% on the week.
FOMC decision
As expected, the US Federal Reserve kept the benchmark rates unchanged at 5.25%-5.50%. However, in a relief for the markets, Fed Chair Jerome Powell ruled out further rate hikes though he admitted that progress on inflation has stalled. In a dovish gesture, the US Federal Reserve said that it will reduce the monthly reduction of holdings in US Treasury securities from $60 billion to $25 billion. On balance, given the fact that various inflation metrics are showing rising inflation, it was a dovish FOMC outcome.
Data round up: economy weakening amid elevated inflation
The US JOLTs job openings (March) came in at 8488K Vs the forecast of 8680K, which reflected a slowdown in the US job market. US ISM manufacturing (April) at 49.20 fell short of the forecast of 50; however, prices paid surged to 60.90 from 55.80 Vs the forecast of 55.40. US Unit labour costs (1Q preliminary) came in at 4.70% Vs the forecast of 4%. The Employment Cost Index accelerated to 1.20% in Q1 from 0.90% in Q4 and topped the estimate of 1%. The data translates into an annualized growth of 4.80% as the y-o-y remains at 4.20%. It is to be noted in the previous week PCE deflator CPI (march) came in at 0.30% m-o-m (Forecast 0.30) and 2.70% y-o-y Vs the forecast of 2.70% but y-o-y reading at 2.80% topped the estimate of 2.70%.
The Euro-zone moved out of recession as its top four economies gathered pace; the Q1 GDP rose by 0.30% on a QoQ basis, which is the fastest rate in the last one and a half years.
US data released Friday were much weaker than forecast but price pressure was evident in the data. Two-month payroll net revision was noted at -22K. Headline nonfarm payroll figures came in at 175K Vs the forecast of 240K, though the March figure was revised higher from 303K to 315K. Unemployment rate edged higher to 3.90% from 3.80% in March Vs the expectation of 3.80%. Average hourly earnings m-o-m (April) stood at 0.20% as against the expectation of 0.30%, whereas y-o-y earnings came in at 3.90%, which fell short of forecast of 4%. Similarly, average weekly hours for all employees at 34.30 was short of forecast of 34.40. ISM services Index showed unexpected contraction as the data came in at 49.40 Vs the forecast of 52. However, ISM services price paid surged to 59.20 in April (expected 55) from 53.40 in March. ISM services employment shrank deeper than expected, and services new orders data was short of forecast, too.
Fedspeak
Federal Reserve Bank of Chicago President Austan Goolsbee took comfort in Friday’s job report as the economy is not overheating. Fed Governor Michelle Bowman anticipates price gains will eventually cool with interest rates held at current levels.
Gold ETF
Total known global gold ETF holdings slipped to 80.85 MOz as of May 2, which is lower than 81.158MOz holding level as seen last week. Physical demand is slowing down due to high prices.
Data next week
Major US data to be released next include weekly job data, the University of Michigan sentiments (May preliminary) and inflation expectations. The UK’s major data on tap is GDP (Q1 preliminary), whereas the Euro-zone’s services and composite PMI (April final), retail sales (March), and Germany’s services and composite PMI (April final), factory orders (March) and industrial production (March) will also be in focus. China will release its Caixin services and composite PMIs (April), trade balance (April) and new Yuan loans (April) data.
Weekly outlook
After Friday’s US data, markets are now looking for two rate cuts as compared to one rate cut before the data. Next week is light on the data front. The yellow metal may test the resistance at $2350/$2360 on softer-than-expected US data released this week; however, renewed inflationary concerns and lack of fresh escalation in the geopolitical situation will keep the upside contained. Overall, the expected range is $2250-$2350 in the short term.
(The author is Associate Vice President, Fundamental Currencies & Commodities at Sharekhan by BNP Paribas)
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