Hawaii Six O - Gary Wagner
This week could be the most important week of the summer
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Two exceedingly important events will take place this week. The Federal Reserve will convene and conclude the July FOMC meeting. The Open Market Committee will begin on Tuesday and conclude on Wednesday, July 27 when they will release a statement containing their updated and revised monetary policy. This will be followed by a press conference by Chairman Jerome Powell. With inflation continuing to run exceedingly hot and swell to higher levels.
Since June 2021 the CPI has continued to worsen. During the last 12 months, there have only been two instances in which the CPI index was below the prior month, year on year. In August 2021 the CPI came in a 5.3% 1/10 of a percent below the 5.4% recorded in July. In April 2022 the CPI came in at 8.3%, 2/10% below the 8.5% CPI index recorded in March. For all of the remaining months, we have seen inflationary pressures increase and are now at a 41-year high.
The table above is from the U.S. Bureau of Labor Statistics and plots the year-on-year CPI for each month from May 2021 to June 2022. The table clearly shows that inflation continues to spiral higher.
On July 13 the BLS released the consumer price index for June 2022 which revealed that over the last 12 months, all items index increased 9.1% before seasonal adjustment. This is the single largest 12-month increase since the period ending November 1981.
The June CPI report will certainly force to hand of the Federal Reserve to continue to raise rates at this week’s FOMC meeting. It is currently perceived that the Fed will raise rates by 75 basis points. According to the CME’s FedWatch tool, there is a 77.5% probability that the Fed will raise rates by ¾% and a 22.5% probability that the Fed will raise rates by a full percentage point.
Second-quarter GDP Report
The second major event is the release of the second quarter GDP on Thursday, July 28. This report will give economists a clear indication as to whether or not the economy is heading into a recession. Currently, the assessment is that the second quarter GDP is expected to show negative growth. If this assessment is correct it would be the second contracting GDP in a row which is the definition of a recession. According to the Atlanta Fed GDP Now its latest data is suggesting a decline of 1.6% for the second quarter. Concurrently Dow Jones, a consensus forecast of economists expects a 0.3% increase.
These two reports collectively could make this week one of the most important weeks of the summer and shape the economic outlook short term.
As of 6:04 PM EDT, gold futures are trading under pressure today with the most active August futures contract fixed at $1717.70. The dollar also traded fractionally lower today with the dollar index currently down 0.26% and fixed at 106.34.
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Wishing you as always good trading,