Gold News Monitor
originally sent to subscribers on April 29, 2015, 7:50 AM.
The Fed’s April post-meeting policy statement is scheduled to be released
today at 2 p.m. EDT. What can investors expect from it? How can it affect the
gold market?
It can be said that very little is expected from today’s announcement,
since the Fed explicitly ruled out an interest rate hike in April in its March policy statement, while Chairwoman Yellen is not
holding a press conference afterward and the FOMC is not releasing any new
economic projections.
However, the Fed’s officials may give some clues about the timing of the
interest rates hike. Some analysts are expecting an explicit signal that June
is off the table, but we believe that the FOMC will not rule out the next
meeting, because it wants to be as flexible as possible. What is perhaps more
important is that the policy statement will give an updated view of its
economic assessment. Given the weak economic data in the first quarter, we
expect a more dovish stance of the Fed (it will, at least, acknowledge the
weak recent data).
The crucial point is how will the FOMC describe and explain the winter
slowdown? Will they blame the weather or the appreciation of the U.S. dollar?
Will they mention the weak manufacturing orders and cuts in capital
expenditures in the energy sector? How will they explain the
March slowdown in hiring?
Waiting for the FOMC’s statement, it is worth briefly reviewing recent and
forthcoming data. Two days ago, Fitch downgraded Japan from A+ to A over fiscal concerns,
while yesterday the Richmond Fed Manufacturing Index came in negative,
confirming the weak economic activity. It seems that consumers are
acknowledging the slowdown, since the consumer confidence index dropped in April to 95.2 from a
revised 101.4 in March, which is the lowest level since December. The
only recent positive (but only for homeowners, not for potential buyers) news
is that U.S. house prices picked up in February, rising 0.5 percent,
according to the S&P/Case-Shiller 20-City Composite Index.
This week is quite busy. Today, just a few hours before the FOMC’s
statement, the first read on Q1 GDP will be released, and taking into account
the 0.1 percent forecast by the Atlanta Fed, we believe
that the market consensus forecasts of around 1 percent growth in the first
quarter are too optimistic. This week, investors should also look at the
Employment Cost Index for Q1, March personal income and outlays, Chicago and
Markit PMIs, ISM Manufacturing Index and construction spending.
The bottom line is that investors should not expect major surprises from
today’s statement. The Fed will have to acknowledge the weak economic data in
the first quarter, which could be positive for the gold market at the margin.
The most important thing in the forthcoming statement is how the Fed will
explain the recent weak economic activity and how it will assess the future.
The gold prices can be affected in both ways, depending on the FOMC’s stance,
however we believe that the recent weak economic data is fundamentally
bullish for the gold market.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News
Monitor and Market Overview Editor
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