Key Events This Week: Inflation All The Rage?

The April nonfarm payrolls came in at an utterly disappointing 266,000 instead of the one million figure that was expected. Yet US stocks merely shrugged off the jaw-dropping figures to climb higher, with both the S&P 500 and the Dow Jones Industrial Average posting their respective record highs on Friday.

Even Big Tech got in on the act, with the Nasdaq 100 climbing for a second straight day to move to within 2.3% of its highest ever closing price that was set on 16 April.

The futures contracts for all three major US stock indices (S&P 500, Dow, Nasdaq 100) are pushing higher at the time of writing.

“US stocks have demonstrated tremendous resilience by taking everything in its stride, supported by a better-than-expected US vaccination rollout and the Fed’s ultra-accommodative stance.,

Let’s see how they fare with this week’s key events:

Monday, May 10

  • Chicago Fed President Charles Evans speech

Tuesday, May 11

  • Fed speak: Fed Governor Lael Brainard, San Francisco Fed President Mary Daly,
  • New York Fed President John Williams
  • Germany ZEW survey expectations
  • OPEC monthly market report

Wednesday, May 12

  • UK GDP, industrial production
  • BOE Governor Andrew Bailey speech
  • Fed Vice Chair Richard Clarida speech
  • US inflation

Thursday, May 13

  • St. Louis Fed President James Bullard speech
  • US weekly jobless claims
  • Alibaba earnings (before US market opens)
  • Disney, Coinbase earnings (after US market closes)

Friday, May 14

  • Dallas Fed President Robert Kaplan speech
  • US consumer sentiment, industrial production, retail sales

Can Gold reach its 200-day SMA?

When the shocking US jobs report was released, investors fled to safe havens.

The buying of US Treasuries sent its yields lower. The strong correlation between Treasury yields and spot gold once again on full display last week, especially when the shocking jobs figures were released. 10-year yields screeched towards the 1.5% mark before erasing its declines, not before elevating gold prices onto a higher plain.

“In order for gold prices to climb even higher, investors must have stronger conviction about the precious metal’s traditional role as a hedge against inflation. Of course, falling Treasury yields and a weaker dollar would also go a long way for bullion bulls.”

And that brings us to the April US consumer price index due Wednesday.

Although this set of data is expected to be high due to the low base effect, given the abnormally low CPI figures throughout Q2 2020 due to the lockdown measures across the United States, the inflation outlook is very much central to global financial markets. Still, concerns about inflation making a roaring comeback could be taken down a notch after last Friday’s severely disappointing US jobs report.

“This could mean that gold bulls may have to depend on other factors, namely another decline in US yields, a softer dollar, or bouts of risk-off sentiment.”

Any of these events could help move bullion closer towards testing its 200-day simple moving average as a resistance level over the course of this week. However, with spot gold’s 14-day relative strength index now flirting with overbought levels, should prices lurch higher, that may trigger a pullback to clear some of the eventual froth.

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