- Gold price juggles below the $1,950.00 resistance as the focus shifts to the US Services PMI.
- US markets will remain closed on Monday on account of Labor Day.
- Cooling labor market conditions boost the Fed’s hopes of a soft landing.
Gold price (XAU/USD) traded back and forth from the past four trading sessions even though cooling labor market conditions boosted the Federal Reserve’s (Fed) soft landing hopes. A softening job market could mean that the Fed’s interest rate hike in July was the last one in the current policy tightening spell. The precious metal remains calm, but a power-pack action is expected after the release of the Services PMI data on Wednesday.
US markets will remain closed on Monday on account of the Labor Day holiday, so a lackluster performance is widely anticipated due to thin trading conditions. Going forward, investors hope that both price and the US Dollar can deliver gains as strength in the US Dollar would shift from the Fed’s tight policy to the vulnerable economic outlook of other G7 economies.
Daily Digest Market Movers: Gold price awaits Services PMI
- Gold price trades sideways below the $1,950.00 resistance even as cooling labor market conditions boost the Federal Reserve’s soft landing hopes.
- The precious metal delivered a volatile action after Friday’s Nonfarm Payrolls report for August but remains above the crucial support of $1,940.00.
- US employers added 187K new payrolls in August, higher than expectations of 170K and July’s reading of 157K. The Unemployment Rate rose sharply to 3.8% against the consensus and the prior release of 3.5%.
- Cleveland Fed Bank President Loretta Mester said on Friday that demand and supply in the labor market is coming into a better balance but the job market is still strong. She further added that while job growth has slowed and job openings are down, the Unemployment Rate is low.
- Wage growth slowed in August as employees appear to be shifting their focus towards staying at one job rather than switching frequently.
- Average Hourly Earnings expanded at 0.2% on a monthly basis, a slower pace than the expected 0.3%. In July, earnings grew by 0.4%. On an annual basis, earnings growth decelerated to 4.3% against the consensus and the former print of 4.4%.
- Slower wage growth might cut the real income of households and weigh on consumer spending momentum. In July, both the headline and core monthly Personal Consumption Expenditure (PCE) Price Index grew at a steady pace.
- Investors hope that the US labor market will continue to cool down due to hefty interest rate hikes, prompting the Fed to keep interest rates unchanged for the remainder of the year.
- As per the CME Group Fedwatch Tool, as much as 93% of chances are in favor of steady interest rates in the September meeting. For the November meeting, the chances of an unchanged interest rate decision have increased to 62%.
- The US manufacturing sector seems to be stabilizing, but the PMI came in below the 50.0 mark, signaling a contraction in activity. The PMI increased to 47.6 in August from July’s reading of 46.4. The index has remained below the 50.0 threshold for 10 consecutive months.
- The US Dollar Index declined from a four-day high of 104.30 even though a cooling labor market boosted Fed pause bets.
- While the majority of economies are experiencing a vulnerable real estate sector, the US Commerce Department said on Friday that construction spending rose 0.7% as outlays on single-home projects rose due to limited supply.
- Investors should note that US markets will remain closed on Monday on account of Labor Day.
- This week, investors will keep focus on the ISM Services PMI for August, which will be published on Wednesday at 14:00 GMT. The PMI is expected to be broadly steady at 52.6.
- Developing economies could face the wrath of higher interest rates for a longer period as IMF First Deputy Managing Director Gita Gopinath expects that interest rates will remain higher for a quite long time.
- IMF Gopinath warned that external conditions had become more challenging for emerging markets due to rising geopolitical fragmentation, tightening financial conditions, and the growing costs of climate change.
Technical Analysis: Gold price corrects to near $1,940
Gold price continued to auction in the $1,934-$1,949 range for the past four trading sessions after a significant recovery. The precious metal stabilizes above the 20- and 50-day Exponential Moving Averages (EMAs), which indicates that the medium-trend has turned positive. The Relative Strength Index (RSI) (14) hovers around 60.0, A decisive break above this level will likely activate the bullish impulse.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.