Today is a big day for the markets. We have the Federal Reserve Open Market Committee meeting ending today, and lots of important economic news. Let’s take a look at what’s coming up so you can (hopefully) understand what it all means.
1.) ADP Private Sector Payroll Report (8:15am ET):
The monthly ADP employment report covers the private sector, excluding government hiring. This report has the ability to cause big swings in the markets, if it misses expectations up or down by a large amount. This report is considered an important barometer of official U.S. non-farm payrolls, as reported by the Bureau of Labor Statistics.
What to expect?
March showed an increase of 191,000 jobs in the economy, and the consensus for April is only slightly higher, at 210,000.
Effect on gold: A much larger than expected rise in new jobs could spark expectations of an earlier increase in benchmark interest rates by the Fed, which is seen as bearish for gold. A much lower report could weaken the dollar and push off the raise in interest rates, which would be bullish for gold.
2.) First Quarter U.S. GDP (8:30am ET):
This one is huge. If the FOMC meeting wasn’t ending today, this would be the most important economic news. U.S. GDP numbers can move the entire global economy. The Gross Domestic Product is the measure of the entire economy.
What to expect:
Remember all those “polar vortex” storms during January and February? That is expected to take a giant chunk out of the GDP numbers, as many sectors of the economy ground to a halt. “Real” GDP, which subtracts inflation, is expected to come in at a very anemic 1.1%. The GDP Price Index measures the changes in goods and services in the economy. It is expected to report a 1.7% for the quarter.
Effect on gold: Some see a correlation in real GDP and gold prices for the next quarter. In the short term, the dollar often moves in tandem with GDP. Since gold is denominated in dollars, a stronger dollar means fewer dollars are needed to buy an ounce of gold, AND it means that gold is more expensive in other currencies. The price to buy dollars in order to buy gold for people in other countries is higher.
3.) FOMC Statement (2pm ET):
The April meeting of the Federal Reserve Open Market Committee ends today, with a press release. This committee, made up of the the Federal Reserve Board of Governors, Fed Chair Janet Yellen, and four of the regional Fed presidents, sets monetary policy eight times a year. Four regional Fed presidents are seated on the Committee on a rotating basis. Other top Fed officials senior economists are also present, but do not have a vote in determining policy.
What to expect?
Almost everyone expects the FOMC to announce another $10 billion “taper” in the monthly bond-buying program known as QE3. There hasn’t been any economic news in the U.S. bad enough to convince the Fed to change course. Chairperson Yellen scared markets in March when she hinted that the Fed’s interest rates it charges banks would start to rise next summer, so expect lots of soothing words to keep the stock market happy. Yellen will not be giving a press conference after the FOMC statement is released. The next FOMC meeting will be in June.
Effect on Gold: Little effect is anticipated, as the markets have known that tapering is going to continue.
4.) Ukraine Crisis:
Things are getting uglier in Ukraine, with more government buildings being overrun in eastern Ukraine. This area is not only home to the majority of ethnic Russian Ukrainians, it’s also home to most of Ukraine’s industrial base. The new pro-Western government in Kiev is not letting this region secede without a fight, and it looks like it’s a fight that we’re going to get.
What to expect:
Effect on gold: If the tanks start rolling, expect a huge rush to buy gold.