Gold is modestly higher today, but is narrowly confined to the low end of yesterday’s range. Focus remains on Ukraine, despite the modest easing of tensions noted yesterday. Market focus is now on the ECB policy meeting on Thursday and Friday’s U.S. nonfarm payrolls report for February.
The ECB remains under pressure to ease further, largely due to ongoing negative price risks. The drop in Eurozone PPI to -1.4% y/y in January was just the latest evidence of deflationary pressures. The IMF urged the ECB to consider “further cuts in the policy rate and, more importantly, look for ways to substantially increase its balance sheet, be it through targeted LTROs or quantitative easing (public and private asset purchases).”
Expectations for February U.S. payrolls had been running around +145k jobs, with the jobless rate forecast to hold steady at 6.6%. However, today’s ADP survey results and the employment component of February ISM-NMI set up some downside risk for the jobs report.
The ADP employment survey for February came in at +139k, well below expectations of +157k. The December private payrolls figure also saw a big downward revision to +127k, from +175k previously.
The headline ISM services print was pretty bad as well, falling to 51.6 in February, on expectations of 53.2, versus 54.0 in January. Prices tumbled to 53.7, from 57.1 in January. It was, however, the plunge in the employment index to a four-year low of 47.5 that was perhaps the most concerning.
Goldman and Deutsche Bank have already lowered their forecasts for NFP to 125k and 120k respectively. Some of my former colleagues at S&P, suggest potential for a sub-100k print.
Yet another bad employment report would put considerable pressure on the Fed to pause tapering. Such a move — in conjunction with any further easing by the ECB — would reinforce my assertion that the age of easy money is nowhere close to being over. And that should be supportive to gold.