High Impact Events Trading... Gold & Copper

Hello Sir,, What is your view on today's US PMI reports...

Hi Rudrax. I hadn't seen this until now. I take it you were talking about ISM Non-Manufacturing PMI. I usually don't preview that data because it really doesn't impact it enough on a consistent basis. It is important, just not in terms of a very tradeable calendar event.

US Employment Data - January Preview

1. Non-Farm Employment Change
2. Unemployment Rate
3. Average Hourly Earnings m/m

Forecasts

NFP

Most forecasts are falling within a range of about 142K to 190K. A very important consideration is the most recent forecasts, which are for the most part all toward the upper end of that range. That's a good sign that we could see a better than expected NFP number.

Unemployment rate

The rate is widely expected to come in at 3.5%, unchanged from the previous month.

Avg Hourly Earnings

While most forecasts are calling for 0.3%, there's a significant camp of economists predicting 0.2% reading. Both would be an improvement from the prior month, which was 0.1%.

Recent impact (gold, eur/usd, and usd/jpy)

Last month, the data didn't have as much impact as we've seen lately, while the Fed was providing a lot of certainty around interest rates. Since changing their chance to neutral, data in general will have slightly less impact. Here's how gold and the US dollar reacted last month.

Outlook

As always, heavy volatility is expected. The market is pricing in a rate cut by the September FOMC meeting. Even though the Fed is sticking with its nuetral stance on rates, there's some risk in weaker than expected data triggering the pricing in of an earlier rate cut. Here's the outlook for rate probabilities for September per the CME's FedWatch tool:

As shown in last month's impact, there could ample opportunity to get into a trade after a trend emerges. Trading prior to the releases or on any knee-jerk reaction is too risky. NFP and hourly earnings are the ones to focus on. The unemployment rate shouldn't have too much impact at all, unless it beats estimates. Also, don't forget this release is very susceptible to revisions which can sometimes cause a whipsaw.

Caution is always advised. Good luck out there!

Hiii Sir,,,
What is your view on today,s US event?

Hi Rudrax. Which event?

We have CPI and Retail Sales coming up in the next couple of days but I'd probably stay away from CPI. Ever since the Fed transitioned to rate neutral, inflation (among other data) has had lesser impact. Retail Sales, because of its history of significant deviations from forecasts, could provide more market volatility than CPI this week. It's also a lot riskier too.

Unemployment Claims is scheduled for tomorrow morning... Just for fun, I ran the Unemployment Claims timeseries through a few forecasting functions in R. Here were the results:

forecast_holt

Forecast Lo 80 Hi 80 Lo 95 Hi 95

206953.6 188037.8 225869.4 178024.4 235882.8

forecast_holt_damp

Forecast Lo 80 Hi 80 Lo 95 Hi 95

207547.1 188637.7 226456.4 178627.7 236466.4

forecast_ses

Forecast Lo 80 Hi 80 Lo 95 Hi 95

207548.1 188666.5 226429.8 178671.1 236425.1

forecast_naive

Forecast Lo 80 Hi 80 Lo 95 Hi 95

202000 182470.5 221529.5 172132.2 231867.8

I wouldn't recommend trading on any of these. They're just based on the historical trend so they're not particularly sophisticated. Still, I'll be interested to see which one comes closest.

The actual came in at 205k so the holt model came the closest. This has been interesting, I think I'll make some more forecasts. Who knows, maybe I'll be able to make something useful from this.

When I started checking sensitivity of NFP data in 2017-18, average hourly earning turned out to be the winner. It make sense which is directly will impact the spending power. Do you have same observation?

Wage inflation data has had higher impact from all the major economies, since 2017 or perhaps even earlier. I agree 100% tush1822.

Ok, unemployment claims are up again tomorrow. Last week the Holt model was the best, here's what it's forecasting this week:

Forecast Lo 80 Hi 80 Lo 95 Hi 95

206476.2 184821 228131.5 173357.4 239595

I've also been playing around with ets() which automatically selects the best model for a data series. Ets generated the following forecast for this week:

Forecast Lo 80 Hi 80 Lo 95 Hi 95

206880.9 194156.1 219605.7 187420 226341.7

So both are calling for the 206-207k range, slightly below the Metals Mine forecast at 210k.

The G7 finance ministers and central bankers are holding a conference call tomorrow to discuss the coronavirus. It's going to be a big market mover. While there's no sign that central banks are planning any coordinated intervention, they will likely send signals that easing is coming.

Currently, the markets are pricing in a 100% chance the Fed lowers rates by 50 basis points at the next meeting in March.

WOW. Fed cuts rate at an unscheduled meeting by 50 basis points! First time they've taken that kind of aggressive action since the financial crisis. I'm wondering what the CME FedWatch tool is going to change to.

Thursday we'll see the ECB rate decision/Monetary policy announcement. Considering increasing bond purchases and talking down rates has already been priced into the markets, the attention will probably turn to PEPP. ECB could further increase the amount of bonds they are purchasing and/or extend the PEPP past March 2022. None of those options will excite the markets too much although they could signal the ECB is committed to remaining accommodative for longer than previously thought.

It's probably going to come down to what Lagarde says and her comments about the economic outlook. Let's take an actual look at how gold and the euro react during these ECB meetings. If history is any indication, we should see gold and euro prices (high correlation) supported by this event. Obviously it's not a certainty, but you could argue it's likely if the past is any indication.

January Meeting:
December meeting:
October meeting:
September meeting:

I'd probably wait until closer to the meeting and after the BOC meets to start positioning for this event. Like always, be careful out there!

Hello I am new to trading metals and am trying to understand what are the variables and catalysts that affect their price - in particular gold and silver. I was wondering if you could clarify your comment in simple, layman terms. Generally speaking, as the value of the Euro goes up, then so does gold? If so, is the same correlation true for silver? Lastly, what is the reasoning behind the correlation?

My first guess is, if there is Euro strength against the Dollar, then the dollar becomes weaker, and thus precious metals rise in price. That is just my simpleton thinking, but I really am new to this space and have no idea.

I appreciate any help you can offer.

Gold and silver have a very high correlation. Euro's correlation with gold is heavily dependent on the US dollar. As the USD weakens both will appreciate.

Yup, you're on the right track with that one.

But - this morning after the ECB meeting, EUR/USD went up, however Gold and Silver went down?

That tells us it was more about euro strength rather than any dollar weakness. It didn't really go up much. It kind of sold off slightly after the initial knee jerk reaction. The ECB meeting turned out to be a relative non-event. The market now is reacting to other triggers such as the AstraZeneca news.

1. https://www.metalsmine.com/news/1066...italy-official
2. https://www.metalsmine.com/news/1066...id-19-vaccines

US FOMC - March Preview

All eyes will be on the latest FOMC Economic Projections at 2pm ET. Then, 30 minutes later traders will be closely monitoring Powell's press conference. Odds are high the Fed will move markets this week, no matter how hard it tries not to.

FOMC Economic Projections

1. For the first time since December, the Fed will be updating its Summary of Economic Projections, which contains forecasts for unemployment, inflation and GDP.
2. Since its last print in December, Congress has passed almost $3 trillion in fiscal stimulus.
3. Fed officials are likely to raise expectations for greater economic growth, lower unemployment, and a nudge up in inflation compared to previous forecasts.
4. The most focus will be on whether Fed officials expect to raise rates by 2023, and a few members may even be ready to raise rates next year.

FOMC Statement

1. Statement is expected to stay mostly the same.

Federal Funds Rate

1. No change expected.

FOMC Press Conference

1. Powell could begin to reveal some views on the future path of Fed policy.
2. He'll be faced with a lot of inflation questions. Let's see how well he can stick to the “moderately overshoot” or "transitory" language.
3. any evidence of rising inflation characterized as transitory for now.
4. will Jay Powell then be able to calmly reiterate that inflation will be allowed to overshoot moderately? We doubt it.

December FOMC (last time projections were released)

Outlook: It's not uncommon for the markets to take a direction on the statement/projections, then reverse when Powell begins his testimony as we saw happen at December's FOMC meeting.

A key factor to keep an eye out for is if the Fed prolongs the SLR-relief beyond March 31st. That will have a direct impact on bond prices. For more info on it go here: https://am.jpmorgan.com/sg/en/asset-...ital-adequacy/

Good luck out there!