It has been yet another week dominated by events unfolding in Ukraine. While there have been some reports of de-escalation in tensions, nothing has changed fundamentally to prevent investors from remaining fearful about a possible Russian invasion. So, investors have been seeking protection in haven assets like gold, not only because of the situation in Ukraine and heightened stock market volatility but because of surging inflationary pressures around the world, too. The precious metal climbed to $1900 for the first time since June, while stocks markets slumped after a positive start to the week.
So, key questions remain unanswered on the Russia-Ukraine tensions. But beyond this, investor sentiment is likely to remain downbeat anyway given concerns about surging inflationary pressures around the world and policy tightening from the Fed. This should keep the pressure on the stock markets, with the S&P 500 having broken below its 200-day moving average. Meanwhile, the technology-heavy and interest-rate-sensitive Nasdaq 100 is bearing the brunt of the sell-off. Safe-haven flows into gold is on the rise, and this is something we expect to continue in the week ahead. Investors are seeking to protect their purchasing powers from being eroded by inflation damaging the values of fiat currencies.
Key economic highlights
As we look forward to a new week, the market is likely to remain pretty much headline-driven and investors will unlikely pay much attention to macro data. There will be a couple of exceptions. For example, on Wednesday when we have a rate decision from the RBNZ and Friday when the Fed’s favourite inflation measure is published: core PCI price index.
Monday
- Flash Services and Manufacturing PMIs from UK, Germany, France and Eurozone
- US bank holiday in observance of Presidents’ Day
The first day of the new week will all be about those manufacturing and services PMIs, as they will provide us with the latest indication of economic health. In addition to information about the overall health of these sectors, we will get clues about new orders, employment and more to the point, prices for both goods and services. Investors are watching inflation data like hawks and any surprise readings here should move the markets. The PMI data often provides the most up-to-date and relevant insight into the companies’ view of the economy.
Tuesday
- German Ifo Business
- US Consumer Confidence (CB), Flash Services and Manufacturing PMIs and S&P/CS House Price Index
It will be a relatively quieter week for global macro pointers, but it is worth keeping a close eye on US housing data. With inflation surging in recent weeks, consumer’s disposable incomes have likely suffered. Meanwhile, the Fed is going to raise interest rates multiple times this year. This is already pushing up mortgage costs, albeit from historically low bases. Still, should rates rise further, delinquencies might become more common, hurting sales of homes.
Wednesday
- RBNZ
It is unusually very quiet in terms of major data on Tuesday and Wednesday, with the exception being the Reserve Bank of New Zealand policy decision. The RBNZ is expected to hike rates by 25 basis points to 1.00% from 0.75% currently.
Thursday
- US Preliminary GDP, unemployment claims and new home sales
- Central bank speeches: BOE Gov Bailey and Fed’s Mester
- New Zealand retail sales
- US Core PCE Price Index, personal income and spending
Without a doubt, Friday’s release of PCE Price Index measure of inflation will be the highlight of the week’s data releases. Analysts are expecting to see another 0.5% rise in the month-over-month figure to take the yearly rate to 4.8%, which, if correct, will actually be a tick lower than the previous reading of 4.9%. But as we have seen from the CPI and RPI data, inflation has had a tendency to surprise to the upside of late.
Chart to watch: Gold
Source: ThinkMarkets and TradingView.com
As mentioned, gold has been shining brightly of late for the macro reasons listed above. Gold has also found buyers because of its technical breakout from the consolidation range it had been stuck inside for several months. The breakout has potentially cleared the way towards $2000, although the 2011 high at $1920 will be the first bullish target.
