Gold prices are slightly lower again this morning, as markets await the statement from the Federal Reserve's policy meeting this afternoon. A rebound in oil prices lifted European stocks, but wasn't enough to prevent Wall St. from opening lower. The dollar is moderately higher on expectations of the Fed revealing a bullish outlook for the rest of the year, but almost no one sees an interest rate hike this month.
Gold prices are testing support at $1,227 this morning, with the next stop being $1,224. First solid resistance is seen at $1,234, then $1,238,
The CME FedWatch tool, which uses Fed funds futures to calculate the market's sentiment on rate hike, still shows a 0% chance of a rate hike today, but a 28% chance in April. If economic conditions continue their trend, the odds of a June rate hike are 51%. This outlook is lending strength to the dollar.
A new ingredient in interest rate hike speculation was this morning's mixed reports on consumer inflation and factory output.
Overall consumer prices fell 0.2%, due to a 13% drop in oil prices. However, core CPI, which ignores energy and food prices, rose 0.3% in February from January, and 2.3% year to year. These gains were credited to (blamed on?) higher rents, higher prescription drugs, and higher health care.
While manufacturing output for February was up 0.2%, overall industrial output was -0.5%. This was due to the slowdown in the oil and coal industries.
Retail sales for February gained 0.1% from January, and January's numbers were revised sharply downward from 0.6% to 0.1%, as shoppers pulled back amid turmoil in the stock markets.
This is leaving markets with no clear expectations on which direction the Fed will lean this afternoon. Fed hawks, like Vice-Chair Stanley Fischer, could use the core inflation numbers as a sign the Fed should act now. Conversely, doves such as Lael Brainard can point to drops in overall consumer prices and industrial output as reasons to delay a rate hike. Even though those losses are from the global oil glut, this glut shows no signs of abating for at least a year.
Speaking of oil, crude prices are up nearly 2% in morning trading.Prices are being supported by the announcement of Qatar's oil minister that the kingdom will host another meeting among major OPEC and non-OPEC oil producers to discuss freezing cure output at current levels. The resulting cheer among oil traders may be displaced, however. A freeze at current levels would still mean over 1 million more barrels a day of excess production over demand.
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