Overview: Disappointing US Q1 2014 GDP figures were more than countered by a positive surprise in employment, bolstering equities and the US dollar while weighing on defensive assets like gold….
ETF Securities Research
US non-farm payrolls rose 288k in April and the unemployment rate dropped to 6.3% from 6.7% the month before. The Fed maintained its course to taper US$10bn a month from its bond-buying programme, also weighing on gold’s performance
Commodities: Platinum group metal prices rebound. As strike negotiations between major miners and unions collapsed in South Africa, platinum rose 1.3% while palladium rose 3.5%. The three main producers, Amplats, Implats and Lonmin Plc Lonmin, have announced that they will consult directly with employees on their revised pay offers. The looming threat of more aggressive sanctions against Russia has also lent support to the metals while booming car sales (US sales up 8% y/y in April) is likely to keep demand high. A slightly-below forecast Chinese manufacturing PMI reading led to industrial metal prices falling (aluminium -5.3%, tin -4.1%, lead -3.6%, zinc 2.4%, copper 1.5%, nickel -0.3%). We believe that has been an over-reaction and we maintain a positive outlook for industrial metals as the global economic upturn is augmented by a mini-stimulus package in China that will see higher spending on rail and housing infrastructure.
Equities: Global equities gained positive momentum following the strong US jobs report, and better-than-expected US ISM manufacturing data. The FTSE 100® gained X% as better-than-expected manufacturing PMIs trumped the slightly below-consensus Q1 2014 GDP reading for the UK. DAXglobal® Gold Mining gained 0.8% as Goldcorp Inc, one of its largest constituents, reported Q1 earnings that beat analysts’ estimates as costs declined more than it forecast. Despite the strong performance of DAXglobal® Gold Mining year to date, share prices tracked by the index are still over 45% below their highs of 2013 and believe the rally is still in its early stages as gold miners make real progress restructuring their operations and the gold price stabilises after last year’s sharp fall.
Currencies: Monetary policy in focus as deflationary threat remains. While the Federal Reserve continues to taper its bond purchases, any concern over the pace of recovery appears overstated, with the US jobs market posting its strongest monthly gain in over two years. The USD upward momentum should continue next week, with monetary policy in focus for the Eurozone, the UK and Australia. While the UK economy continues to post robust growth, if a little under expectations, inflationary expectations are easing and will keep the Bank of England from modifying its current policy stance. We see little scope for upside for the Pound after having tested the topside of recent ranges and failed to break higher. Meanwhile, Eurozone inflationary expectations are moderating but remain anchored around the European Central Bank’s target despite CPI continuing to fall. Downside risks for Euro centre on whether the ECB continues to hold off providing more stimulus in the face of falling cost pressures.