Flotilla of Soft Data Affects Gold and Stocks Differently

We were treated not to just a raft of soft U.S. data but a flotilla of it. Initial jobless claims were steady, representing the only positive news on the day.

The August Producers’ Price Index came in unchanged, below expectations. Retail sales fell 0.3%, two-tenths of a percent more than was expected. Industrial production fell 0.40%, a tenth more than expected. Business inventories came in essentially unchanged.

Manufacturing is of great concern. The slippage is linked to a U.S. dollar that has steadily increased in value since 2014, squelching demand from overseas. That is on top of falling demand in sluggish economies from Europe to Asia, from South America to Russia.

"The economic data today was just atrocious and the economy seems to be unable to sustain without the central bank support. If this is the case, this could become a serious problem for the Fed and they can soon start paddling backwards. Going forward the number which we will be watching more closely will be the US CPI and consumer sentiment data due tomorrow and this is the last set of important number which the Fed will receive before they meet next week," Naeem Aslam, chief market analyst at Think Markets, said in a note to clients.

According to the CME Fedwatch probability index, the chances of a September rate hike next week at the FOMC meeting is 12%. Atrocious is as atrocious does. So disconcerting are the numbers that the CME index saw chance for a December interest rate hike diminish by 7.5 points, as well.

The VIX volatility index also continued to fall, as we leave the choppy waters that were churned by a September rate storm. The VIX declined by 9.00% today.

The near guarantee that there would be no interest rate change sent the Dow and the S&P 500 up 1.00%. The NASDAQ was up almost a full 1.50%, riding on the continuing strength of Apple, which is up 3.00% and about 11.00% total this week. As the world’s largest company by market cap, it’s no wonder Apple is the wind in the sails of the tech-heavy NASDAQ.

Yet over at the gold trading floor, we are seeing no enthusiasm by traders. There was a miniscule bit of an up-push by the weaker dollar, but regular traders were still selling off fairly vigorously. Silver was also helped by the lighter greenback but regular traders moved it up a small bit as well.

Usually, the prospect of low interest rates pushes gold up, not down.

Oil snapped out of its two-day swoon, with West Texas Intermediate up over 0.60% and Brent North Sea up nearly 1.40%.

Wishing you as always, good trading,