High Impact Events Trading... Gold & Copper

US CPI Preview - June

I will analyze and possibly identify trading opportunities in Gold. In about 11 hours, the BLS will release the latest US inflation data:

1. CPI m/m
2. Core CPI m/m

Data expectations

1. CPI is expected to drop from 0.3% previous to 0.1%. 0.1% is what the market is expecting. It should be considered that some economists are forecasting a 0.2% figure. No notable estimates lower than 0.1% to report.
2. Core CPI is expected to tick up to 0.2% from 0.1% prior month. While some forecasts may deviate, the market is mostly aligned on the Core CPI forecast of 0.2%.

Some quick notes

1. As of today, the market is pricing in a 62.7% chance of a July rate cut despite the Fed stating their commitment to a patient policy.
2. Fed minutes continue to indicate no moves in either direction.
3. The most recent FOMC meeting took place prior to the escalation of US-China trade disputes.
4. Powell and rest of the Fed agree that lower price pressures as transient, while attributing lower inflation figures to idiosyncratic factors.
5. Fed monitors core PCE price index, not CPI, but CPI tends to have a greater impact.
6. Weaker than expected data could raise market expectations for the July rate cut, and could impact the expected timing of subsequent rate cuts.
7. Stronger than expected data won't do much to dial back expectations of rate cuts.
8. Impacts to inflation from China tariffs likely won't show up in this data.
9. Gold will tend to move higher on lower than expected inflation, and drop when inflation comes in better than the market anticipates.

Recap
A lower than expected inflation reading could spur further pricing in of the July rate cut. It would probably have to be a big miss, 0.2% or more. In that case, gold could have some upside potential. Global uncertainty around trade, tariffs, and Brexit will continue to support the price of gold. Any drop in the price of gold on the data will likely be limited. As always, caution is advised especially when more than one data is being released. Don't get whipsawed.

Last few CPI releases

May

Last month might be a good indication that there may be some limited moves. Both the core and overall CPI figures came in lower than expected, and gold move much higher.

April
April's reaction in gold is a good example of how this data can whip you out of the market. CPI came in higher, while the the core figure printed a lower than expected number. This resulted in the dreaded whipsaw.

March
March data was relatively in line. Gold barely moved higher on a slight miss in the core number.

Oct 2018
October of last year, inflation came in lower than expected and gold rallied. The potential for significant impact exists.

Conclusion
The past three CPI releases don't give much reason to think there could be any significant reaction to the data. However, there's always risk of big market moves on CPI data as seen in last October's release. The extent of the impact will depend on deviations from forecasts. Good Luck!

Wow, outstanding ET! Thank you for that!

Gold's reaction to the CPI data was pretty similar to May and March. Not much of a trading opportunity this morning.

China Industrial Production is on deck. Preview will be coming soon. Copper's in focus.

Manufacturing growth in China:

Chinese demand for commodities:

Percentage share of global GDP growth:

Now those are some pretty pictures.

Thank you ET for some in-depth analysis. Really helpful!

AU Employment Data Preview - June

I've decided to give this a quick preview. This is not an event that usually impacts metals enough for a trade opportunity. Australian employment data has become more important recently.

1. Employment Change
2. Unemployment Rate

Data expectations

1. Employment Change is expected to show an increase of 16K, a drop from last months 28.4K reading.
2. Unemployment Rate is forecasted to tick down from 5.2 to 5.1%.

Some quick notes

1. The RBA is relaying on employment data for signs of any strength in the Australian economy.
2. The RBA Indicator is showing market expectations of an interest rate decrease is at 53% vs 47% probability of keeping rates unchanged.
3. The Australian housing market is considered a global risk. It continues to weaken significantly.
4. House prices are in decline, construction work is slowing, new home sales, HPI, and home loans are all lower showing signs of slowing.
5. Growth in housing should has been in apartment buildings, not detached homes.
6. The population shift to urban areas has resulted in growth in construction.
7. The Australian construction industry is their largest non-service industry and makes up 8% of AU GDP.
8. Construction is dependent on demand in the housing market. AIG's Construction Index has shown a contraction, at lowest level in since 2013.
9. 1.1 million aussie jobs are in construction.
10. The labor market is vulnerable as the housing market declines

Recap
Employment data could have a higher than usual impact. There's a lot of uncertainty about the timing of the next interest rate move. Strength in the housing market might be one of very few sets of economic data that the RBA can lean on to hold off on cutting rates further. Weakness in the job market is correlated to the condition of the housing market, mainly construction. If job losses in the construction sector start to appear in the data, it could mean the RBA needs to cut rates sooner than they'd hoped. As Australia ranks in the top 6 or so as a top exporter in copper and copper alternatives including aluminum, nickel, and iron ore. Weak jobs data hurts business confidence, which impacts the mining sector. Copper and gold prices could be impacted by the data. The greater the uncertainty in the RBA rates, the greater impact this event has had.

Last few CPI releases

May

This data was released the week after the RBA surprised the market when they kept rates steady. After they didn't cut rates, the market expected with 100% probability rates would be cut at the next meeting. This data didn't have any implications to where interest rates would go. Therefore, no impact.


April
As the RBA kept on giving guidance that confused the markets (rates could go up or down), April's data was highly anticipated. Since the data came in relatively close to forecasts, impact was a little muted.


March
In February, the RBA unexpectedly changed their position on the direction of interest rates sparking speculation that they were planning on cutting rates. Housing data had already started to show a slowdown was coming, but the RBA kept on leaning on the labor market as a point of strength in the economy. The data in March was mixed as employment change dropped while the unemployment rate dipped to 4.9%. 4.9% was an eight year low and triggered optimism. Gold and Copper rallied

Conclusion
This isn't usually an event that triggers large moves in gold and copper. At this time however, there's some focus on the data as the RBA and the market will get an indication about the health of the Australian economy. I'd pay attention to this data. It could surprise us. Good luck traders!

Thx for the writeup EventsTrader. I think I'm gonna stay outta the markets for this one.. Gonna see how it goes.

Appreciate you sharing the wealth and the thorough analysis. Will keep a lookout for your future posts!

There's not a lot previews out there for China's Industrial Production data due out later. That usually is a sign it may not be that important. The jury is still out.

There is usually a direct correlation between the media coverage an event gets, and the impact the release has. The media coverage is a result of demand stemming from anticipation from market participants. The more anticipation for an upcoming event, the more coverage the media will attempt to provide. Point being, the markets tend to anticipate events that are expected to have a big impact.

Regardless, I plan to preview Chinese Industrial Production data and how it might impact copper. Stay tuned...

China Industrial Production Preview - June
Industrial Production y/y

Changes are coming in this and following previews. I'll be trying different things, including cutting the length, providing better examples, format changes, etc. If you like certain things, don't like them, want a change, or want to holler at me, just do it!

Copper most impacted
Copper. This data is one of few economic indicators that will almost always impact copper.

This data is important
China's industrial sector accounts for around 40% of the country's GDP. As a growing economy, it's all about construction, manufacturing, and building things. As a country matures these sectors will shrink and others will grow. It's still all about industry, manufacturing, building, construction, etc. These are included in the Industrial Production report. China accounts for half of all global demand in copper, their economy's health can impact copper prices if there's signs that could affect the supply/demand relationship.

Keep your eye out for risk related to market sentiment and pessimism
There are a few things that make this data a little more important that usual. First of all, most often this data will impact copper. The impact will usually be limited or redirected. Statements coming out from China officials shortly after the release is common. Chinese officials will try and calm the markets or steer focus to prevent any major triggers that could spark risk on/off trading. Gold could also be impacted, but only in extreme deviations from forecasts. Expect copper to see most of the volatility on the release.

Keep your eye out for a weaker than expected number. Last month, industrial growth in China slowed at its weakest rate since the global financial crisis. Since this data is likely to reflect impacts from US-China trade tensions, I expect a little extra focus.

A view on potential impact
If the data doesn't deviate much from the 5.4% figure, we'll get a dud, or non-event. The 5.4% number is both the previous and also market consensus this month. A lower reading signals further slowing in China's growth, and implicates demand for copper heading lower. This puts downward pressure on copper prices. A weak number may also prompt speculation of China stimulus measures. That's bullish for copper and the market.

The market might take time to digest the data. A move could develop slower than expected. Also, China spokespersons could hit the news wires after the release, and reverse the direction of any initial move in copper.

It can have big impact
March 2018, Industrial Production surprised the market with a way better number than expected during a time where slowdown fears were rising. This triggered Gold (above) and Copper (below) to rally on optimistic market sentiment.


Summary
The risk is that fears could heighten related to the impact of tariffs, US-China trade war, and slowdown concerns. Be cautious. There could be some selling pressure coming into copper. It's smart to wait until a direction takes hold and look for opportunities after the data is out and statements have been made.

As always, caution is advised. Here's to taking profits!

The data has been delayed. It isn't due out now for another 5 hours.

This story says retail says CH retail sales, industrial production and fixed investment come out at Friday 8am GMT. The MM calendar has these events for 7am GMT. Am I looking at this wrong?

According to the alert on the calendar, the data was rescheduled and is expected at 3am ET. Be ready good sir!

I think you might need to turn DST on? I've seen multiple sources reporting 3am ET as the release time.

US FOMC Preview - June

Wednesday 2pm ET:
FOMC Economic Projections
FOMC Statement
Federal Funds Rate

Wednesday 2:30pm ET:
FOMC Press Conference

Data Expectations:

1. The CME FedWatch Tool is showing the probability of 80% for the Fed keeping rates unchanged.
2. The fact that the market is still pricing in a 20% chance of a rate cut is still surprisingly high.
3. Keep in mind, these are likely to change leading up to the release.

Some quick notes:

1. The market is pricing in 85% chance that the Fed will lower rates by the July meeting.
2. A lot of focus will be on the FOMC statement, economic projections, as well as the press conference.
3. If the Fed surprises the market and lowers rates, all bets are off. Gold will likely shoot up, as the US dollar plummets.
4. Look for changes in language in the FOMC statement having to do with a pivot from remaining patient to reacting to data and/or developments.
5. The Fed's dot plot could change (dovish) as the median 2019 dot as of last release was still showing no change in policy through 2019.
6. The press conference could have more impact than the statement. The market is looking to Powell to give some guidance on upcoming rate cuts.
7. Remember that the Fed is now considering every meeting as 'live', the reason why they are now as of 2019 including a presser at every rate decision.
8. This preview is unusually early so that we can discuss changes in any market expectations prior to the release.

Last few releases

May - This is a good example of how the press conference can sometimes take center stage. Powell came out hawkish during the presser, gold tanked.

March - Gold reacted to a pivot in the Fed's guidance, when they indicated they'll be keeping rates unchanged in 2019.


January - After raising rates in December the Fed introduced new language to the statement indicating 'patience.'


December - After hiking rates, the Fed projected two more increases.


Summary
After December's rate increase, the Fed has shown a dovish pivot at every meeting. The market impact is expected to be significant, as displayed by the previous releases. This one could be bigger, depending on the statement and what Powell says at the press conference. We could see the Fed statement pivot even further with some signals that rates may be headed lower. Be cautious with the press conference as Powell's main goal is too calm the markets. However, if a dovish statement is followed by a dovish Powell, gold could see a big rally. There's some big upside potential in gold as the US dollar risk is to the downside. My best advice is... be ready!

Good luck traders!

ET, excellent analysis of FOMC impact on Gold. Setting an alarm for this release. If all goes well, I'll head out to enjoy the surf afterwards

Nice write up!

The Fed, along with everyone else, wants to see what’s going to happen between Trump and Xi at the G20. The outcome may affect their policy, but they’re probably not going to do anything in advance.

I think this FOMC meeting is all about the dot plot. It’s going to be very interesting to see what the FOMC members are expecting over the next 12 months since the market thinks there will be 3 cuts.

It's surprising to see that the market has actually priced in a greater chance of a rate cut at tomorrow's meeting. It's setting up for more volatility than originally thought.

I find it surprising as well with news of US / China meetings - I would think that might lead to some optimism. I think the Fed is going to try to resist the pressure a little longer tomorrow. If they lower rates tomorrow will feel like they are bowing to Trump. Would not lead to good optics.

You're right, I'm surprised there's a 21% chance of a cut tomorrow. Tomorrow is going to be a big day no matter what they do.