Following weak manufacturing data all around the world, data released yesterday showed services sector slowed down as well, indicating that weakness in manufacturing started spreading into services sector and this increased recession worries while gold prices held above $1,500 ahead of US non-farm payrolls due later today. As recent weak data led to worries regarding global growth and increase expectations for another rate cut by the Fed at the end of October, Fed’s Vice Chairman Richard Clarida said yesterday that the economy was in good place and financial conditions were not so tight while adding that recession risk would not be high if Fed set the right interest rate policy. In the meantime on Brexit side, chances for a no-deal Brexit increased as the new Brexit deal proposed by Prime Minister Boris Johnson on Wednesday was not welcomed by either the opposition or EU leaders since it would cause additional problems.
As recession worries increased due to slowing services sector alongside with contracting manufacturing in major economies, gold prices held steady on Friday since investors were locked for US non-farm payrolls data later today.
As of 15:05 GMT+3, spot gold was trading at $1,507.58 while dollar index was at 98.77. US 10-year Treasury yield was down to 1.532.
ANZ analyst Daniel Hynes said on Reuters that recent disappointing data from the US supported gold investment while adding that upside momentum would be strong if US non-farm payrolls data were to be below expectations.
As worries on the US economy increased after data released earlier showed that manufacturing sector contracted the worst in 10 years and services sector grew the weakest in 3 years, chances that non-farm payrolls later today staying below expected 145,000 increased demand for safe havens.
Moreover, slowing economy increased chances for another rate cut by the Fed at the end of the month, following two rate cuts this year, while Fed’s Vice Chair Richard Clarida said yesterday that a recession could be avoided by setting the right interest rate policy. Clarida stated the economy was in good place and financial conditions were not so tight while giving no signal for another rate cut however reiterated the Fed would act as appropriate to sustain economic growth.
In the meantime on Brexit side, the new Brexit proposal made by Prime Minister Boris Johnson yesterday was not welcomed either by the opposition or EU officials. On one hand, Labor Party said this new proposal was even worse than the previous one prepared by former PM Theresa May while on the other hand, EU leaders said this could lead to some other problems. This is to say, according to new proposal, Northern Ireland will be a part of EU single market and whether to stay in the single market will depend on Northern Ireland legislations however in case of a departure from the single market sometime in the future, this would raise the question of a hard border in Irish island. Moreover, this will lead to two specific problems. First, there would be a need for a physical check between Britain and Northern Ireland to make sure that products coming from Britain conform EU standards. Second, products sent from Northern Ireland to Republic of Ireland and EU will need to be checked again to make sure that taxes are paid and prevent smuggling. Thus, EU officials think that there will be physical checks one way or another, which risks damaging the economy on Irish island and would possibly disrupt the peace process ensured with Good Friday Agreement in 1998.