Gold prices are slightly lower again this morning, as markets await the statement from the Federal Reserve’s policy meeting this afternoon. A rebound in oil prices lifted European stocks, but wasn’t enough to prevent Wall St. from opening lower. The dollar is moderately higher on expectations of the Fed revealing a bullish outlook for the rest of the year, but almost no one sees an interest rate hike this month.
Gold prices are testing support at $1,227 this morning, with the next stop being $1,224. First solid resistance is seen at $1,234, then $1,238,
The CME FedWatch tool, which uses Fed funds futures to calculate the market’s sentiment on rate hike, still shows a 0% chance of a rate hike today, but a 28% chance in April. If economic conditions continue their trend, the odds of a June rate hike are 51%. This outlook is lending strength to the dollar.
A new ingredient in interest rate hike speculation was this morning’s mixed reports on consumer inflation and factory output.
Overall consumer prices fell 0.2%, due to a 13% drop in oil prices. However, core CPI, which ignores energy and food prices, rose 0.3% in February from January, and 2.3% year to year. These gains were credited to (blamed on?) higher rents, higher prescription drugs, and higher health care.
While manufacturing output for February was up 0.2%, overall industrial output was -0.5%. This was due to the slowdown in the oil and coal industries.
Retail sales for February gained 0.1% from January, and January’s numbers were revised sharply downward from 0.6% to 0.1%, as shoppers pulled back amid turmoil in the stock markets.
This is leaving markets with no clear expectations on which direction the Fed will lean this afternoon. Fed hawks, like Vice-Chair Stanley Fischer, could use the core inflation numbers as a sign the Fed should act now. Conversely, doves such as Lael Brainard can point to drops in overall consumer prices and industrial output as reasons to delay a rate hike. Even though those losses are from the global oil glut, this glut shows no signs of abating for at least a year.
Speaking of oil, crude prices are up nearly 2% in morning trading.Prices are being supported by the announcement of Qatar’s oil minister that the kingdom will host another meeting among major OPEC and non-OPEC oil producers to discuss freezing cure output at current levels. The resulting cheer among oil traders may be displaced, however. A freeze at current levels would still mean over 1 million more barrels a day of excess production over demand.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product