Happy Friday traders. Welcome to our Weekly Market Digest, where we look back over the past five trading days with a focus on the market news, economic data and headlines that have had the most impact on gold prices. gold and other key correlated assets – and which may continue to do so in the future.
Gold prices could end the week with some momentum: after rising on Thursday morning, gold continued to rise slowly but steadily throughout the overnight session and, just before the US market opened on Friday it trades at a premium to Sunday night’s opening offers. .
So what kind of week has it been?
With just one trading session left in the week, the most impactful “event” (from a market perspective) we have traded on is a decision by the European Central Bank; and…yeah…if that’s not a sign of a terribly slow week, I don’t know what is.
At the start of the week, in our Monday preview, we offered a note of initial optimism for gold: the US Dollar’s raging bull run appeared to be slowing down after gaining more than 1% in the previous week alone. , and as a result, the yellow metal was given some room to rise; Through Sunday evening and into Monday morning’s US trading session, gold appeared to be taking the opportunity to shift some of investors’ attention to the dollar and reestablish its position at higher support. $1700/oz.
On Tuesday, which was a very strong day for U.S. equity markets but looked low energy in many other asset classes, gold trading had also been stripped of any real volatility and spot prices broke through the line just above $1710. On Wednesday, albeit temporarily, the bottom collapsed.
An increase in risk appetite sent gold to new lows
After the best intraday performance of the S&P 500 in about a month (and equally strong or stronger movements in the Dow and NASDAQ), we began to notice a little more often that the US stock market seems to have July was a pretty solid month on its own: after Wednesday’s session, markets had recovered much of the losses incurred since mid-June. Following back-to-back days of major stock indices trading green at the close, everyone’s favorite intangible and indisputable motivation for higher stock prices has returned to the forefront, explained in soft science words like ‘optimistic sentiment’. .
The tone of the market is starting to resemble what it was in May and early June before the CPI print kicked things off, except arguably the bar for even more hawkish monetary policy in the short term. term increased.
— Conor Sen (@conorsen) July 19, 2022
Rational or not, investors have seen their risk appetite reach near euphoria at times, buoyed by what has been a pretty good pee for second-quarter earnings reports. Gold prices began falling Wednesday morning as pink-tinged trading prompted investors to take risks against traditional gold safety. By late afternoon, gold’s slide accelerated and spot prices fell below $1,700 an ounce en route to the lowest trading price in a year.
From there, it looked like, with markets expected to be sparse until mid-August and (reasonable to assume, right now) another hawkish meeting and FOMC hike a week away, there was no There may not be much for the gold chart but air pockets below $1700, especially as Thursday’s session in Asia dropped the yellow metal to just above $1680/ oz. Thursday morning, however, allowed gold to reverse course and pare much of the week’s losses.
A big ECB move and disappointing US data adjusted market sentiment on Thursday
As the ECB proceeds with a bigger-than-expected rate hike, it says “today’s frontloading of the exit from negative interest rates allows the Governing Council to move to a meeting-by-meeting approach.”
Frontloading = quickly becoming the central bank buzzword in 2022
— Jeanna Smialek (@jeannasmialek) July 21, 2022
First, the European Central Bank announced its first rate hike in more than a decade on Thursday and also caught the market off guard, increasing twice the expected size (50 basis points vs. 25 basis points) . The euro jumped on the news, showing signs of life for the first time in weeks and moving away from parity with the dollar (which hadn’t been reached in decades). without resistance from a rising dollar. Well, with less resistance, anyway.
There was also a double whammy of disappointing macro data on the U.S. economy: Initial jobless claims rose relative to expectations, reporting more than 250,000 new unemployment claims for the first time since the beginning of the year and continuing an upward trend that dates back to April; published at the same time, the Philadelphia Fed’s manufacturing index also disappointed the consensus by indicating a contraction in industrial activity for the second consecutive month.
Philadelphia-area manufacturers’ outlook for business conditions fell this month to the lowest level since 1979, as gauges for future new orders and planned capital spending both deteriorated. https://t.co/ndYWBU8T4t
—Bloomberg Economics (@economics) July 21, 2022
Both of these data points are generally second-tier at best, but their impact on investors and managers is amplified this week due to the fact that they are among the only macro footprints on record.
These factors – a rise in the euro boosted by the ECB and a pair of disappointing data sets – sent the dollar back a few steps and the gold market quickly capitalized on the opportunity, rising before even the opening and acceleration of US cash markets. after. Spot gold prices rallied back to $1700 before stabilizing near Tuesday’s critical point just above $1710/oz. Following the credit of the yellow metal, even if the dollar has recovered a little Over the past few night sessions of the week, the Friday morning gold pre-trade was able to build momentum and now, surprisingly enough, is trading in the black for this week.
The last week of July promises to be much more “action”: not only is the last FOMC meeting before the Fed rally in Jackson Hole on the bridge, but there is no question of will be they increase, but “how high?” – but a first look at the US economy’s Q2 GDP growth is being printed the same day with many observers and investors wondering if we’ll see a back-to-back contraction to signal a “technical” recession. Meanwhile, others will wonder if this is a data point that would even matter given that (see Q2 earnings, June jobs report, etc. ), things now look so bleak. We will also have the Fed’s PCE reading on inflation data due at the end of the week.
For now, traders, I hope you can get out and enjoy your weekend safely over the next few days. After that, I’ll see everyone back here on Monday for our preview of the week ahead.