Gold heads into the weekend on a firm footing, setting new 6-week highs in the wake of this morning’s data. The dollar is back under pressure, erasing most of yesterday’s corrective bounce, which continues to provide a tailwind for the yellow metal.
While advance Q2 GDP met expectations of +2.6%, Q1 was revised lower to 1.2%. ECI missed expectations and there was “a big fall in annual inflation rates across the board,” Commerzbank analyst Carsten Fritsch told Reuters this morning.
The Fed essentially conceded this week that there will be no rate hike in September and that is fully priced into Fed funds futures, which presently show 0% chance of a hike. However, the latest data is going to start chipping away at December rate hike and balance sheet normalization expectations. That probability has already eroded to some degree, from about a 50/50 proposition to 43.7%.
Core PCE — the Fed’s favored measure of inflation — slowed to 0.9% in Q2, versus 1.8% in Q1. Clearly the Fed can no longer dismiss slowing inflation as being “transitory.”
Monthly PCE for June comes out on Tuesday next week. Expectations remain for further evidence of weak inflation.
Minneapolis Fed dove and dissenter Neil Kashkari will speak later today. It will be interesting to hear what he has to say about inflation and policy normalization prospects for the rest of the year.
It appears the GOP is throwing in the towel on healthcare reform. This was the center piece of their entire agenda since the ACA was signed into law in 2010, suggesting the majority party is severely fractured. This has rather ominous implications for the broader Trump economic agenda. With a debt ceiling debate queued up for after the August recess, we may be in for some real fireworks.
Bottom line, political and economic uncertainty prevails. With gold still below the highs for the year, now is a great time to be building your edge ahead of cyclically strong fall months.