Investors face a busy week with key economic data releases across major economies. US nonfarm payrolls on Friday will be crucial as markets assess labor market strength amid recession concerns. Recent data shows moderating inflation but weakening consumer spending, raising stagflation fears. Meanwhile, Trump's trade policies and diplomatic efforts on Ukraine continue to influence market sentiment, particularly for gold prices.

Key Events and Data to Watch This Week (March 3 - March 7, 2025)

Monday:

• China Caixin Manufacturing PMI (Feb)

• Eurozone HCOB Manufacturing PMI (Feb)

• Eurozone Harmonized Index of Consumer Prices (Feb)

• US ISM Manufacturing PMI (Feb)

• Japan Unemployment Rate (Jan)

Tuesday:

• Australia RBA Meeting Minutes

• Australia Retail Sales (Jan)

• Eurozone Unemployment Rate (Jan)

• Australia Judo Bank Composite PMI (Feb)

Wednesday:

• Australia Gross Domestic Product (Q4)

• China Caixin Services PMI (Feb)

• Eurozone HCOB Services PMI (Feb)

• Eurozone Producer Price Index (Jan)

• US ADP Employment Change (Feb)

• US ISM Services PMI (Feb)

Thursday:

• Australia Trade Balance (Jan)

• Eurozone Retail Sales (Jan)

• Eurozone ECB Interest Rate Decision

• US Unit Labor Costs (Q4)

Friday:

• China Trade Balance (Jan)

• Germany Factory Orders (Jan)

• Eurozone Employment Change (Q4)

• Eurozone Gross Domestic Product (Q4)

• US Average Hourly Earnings (Feb)

• US Nonfarm Payrolls (Feb)

• US Unemployment Rate (Feb)

Moderate Inflation, Weaker Spending: Is U.S. Consumer Behavior Shifting?

The report published by the U.S. Bureau of Economic Analysis on Friday showed that the Federal Reserve's preferred inflation gauge increased moderately in January. The core Personal Consumption Expenditures (PCE) price index, which excludes food and energy costs, rose by 0.3% from the previous month, in line with expectations.

On an annual basis, the increase slowed to 2.6% from the previously revised 2.9%, marking the lowest year-over-year rise since early 2021. Goods prices, excluding food and energy, climbed 0.4% in January, the highest increase since early 2023. Meanwhile, core services prices, excluding housing and energy, rose by 0.2%.

A key highlight of the report was that inflation-adjusted consumer spending dropped by 0.5% throughout January. This decline was primarily driven by a significant reduction in auto purchases and weaker demand for discretionary goods such as recreational items.

At the same time, nominal income surged by 0.9% in January, well above the expected 0.3% increase. This rise was partly due to the annual cost-of-living adjustment for Social Security beneficiaries. Inflation-adjusted disposable income also increased by 0.6%, pushing the savings rate to its highest level since June 2024.

Overall, the report suggests that price pressures in the U.S. remain moderate, but consumers are likely becoming more selective with their spending. Throughout 2024, high inflation and elevated borrowing costs have continued to strain households, with rising household debt and declining savings rates. However, solid income growth has supported consumer spending.

On the other hand, concerns are rising among American households that Donald Trump's policies could fuel inflation and weaken the labor market. Separate surveys released last week indicated growing expectations for higher inflation and an uptick in unemployment, along with increasing fears among workers about job security. Consumer confidence also saw its steepest decline in nearly four years in February.

As a result, U.S. consumers may have adopted a more cautious approach to spending amid uncertainties. While it is unwise to draw broad conclusions from a single month of data, one key question moving forward is whether Friday's figures signal the beginning of a shift in U.S. consumer behavior.

Stagflation Fears Rise as Economic Data Signals Slowdown

While consumer spending declined, a separate report showed that the U.S. trade deficit unexpectedly hit a record high in January. These reports followed a string of previous data pointing to a slowdown in economic activity, raising concerns that the U.S. economy is edging toward stagflation—a scenario where inflation remains high while growth moderates.

The Atlanta Fed's GDPNow model, incorporating the latest data, now projects a contraction in the first quarter. Although figures will evolve with incoming data, the current estimate suggests that GDP could decline by an annualized 1.5% by the end of Q1. Additionally, economists surveyed by Bloomberg now place the probability of a recession at 25%—still historically low but marking an increase for the first time since 2023.

If, as feared, Trump's policies hinder U.S. inflation from progressing toward the Fed's target and undermine growth, the central bank could face a difficult choice between fighting inflation and supporting the labor market. Some economists argue that if stagflation risks intensify, the Fed will be forced to respond with rate cuts. Others believe that the Fed has historically prioritized inflation control and would tolerate rising unemployment as long as inflation remains elevated.

Jobs Report Looms as Markets Weigh Fed's Path Forward

This week, markets will closely watch the nonfarm payroll data for more insights into the U.S. labor market. U.S. employers are expected to have added jobs at a moderate pace in February. According to economists surveyed by Bloomberg, payrolls likely increased by 160,000, following a previous rise of 143,000, while the unemployment rate is expected to remain steady at 4%.

This month's report will be particularly important as it may reflect the impact of federal job cuts. A report released by the Department of Labor on Thursday showed that unemployment claims filed by federal employees nearly tripled from the previous week.

So far, the number of reported federal layoffs has not been large enough to significantly impact employment figures. However, private-sector workers who contract with the government are also being laid off as part of federal spending cuts, and a domino effect could gradually appear in upcoming reports.

Growing expectations of further labor market weakness are fueling bets on Fed rate cuts. Following the latest data, swap traders are pricing in a total of 66 basis points of cuts by year-end, with the first quarter-point reduction expected by July. This has contributed to lower U.S. Treasury yields and a decline in bullish bets on the U.S. dollar. If the February jobs report also signals weakness amid mounting doubts about the resilience of the U.S. economy, bets on Fed rate cuts could increase further, putting additional downward pressure on the dollar.

Gold's Outlook: Trade Policies, Geopolitical Uncertainty, and Rate Cut Bets in Focus

Gold prices recouped some of last week's losses after a pullback, as traders continued to digest last week's key data and prepared for this week's upcoming jobs report.

Gold came under pressure last week, likely due to a stronger dollar following additional remarks from Donald Trump regarding tariffs. President Trump announced plans to impose additional tariffs and other measures on China while also confirming that the delayed tariffs on Mexico and Canada would take effect on Tuesday.

Meanwhile, Trump has directly involved himself in efforts to end the Ukraine-Russia war. On one hand, he is engaging in swift, direct diplomacy with Russian President Vladimir Putin, while on the other, he is urging Ukrainian President Volodymyr Zelenskyy to accept a mineral agreement that he claims would provide Ukraine with automatic security guarantees.

Following Trump's moves, expectations of a resolution to the conflict have slightly eased geopolitical risk sentiment. Additionally, speculation has increased that the U.S. might soften its sanctions on Russia. These developments may have somewhat dampened safe-haven demand for gold, but resolving the conflict is not as simple as it seems.

Friday's meeting between Trump and Zelenskyy at the White House reinforced this notion. After the meeting, Trump stated that he views Zelenskyy as an obstacle to aiding Ukraine, and the mineral-related agreement has yet to reach a resolution. Additionally, lifting U.S. sanctions on Russia will not be easy, as they have been codified into U.S. law and would require congressional approval for removal.

Ultimately, while uncertainty surrounding Trump's trade policies persists, geopolitical tensions remain unresolved—factors that could continue to highlight gold's safe-haven appeal. Additionally, as long as U.S. economic data continues to support bets on Fed rate cuts this year, falling Treasury yields are likely to provide further support for gold.

As market uncertainties persist, savvy traders continue to seek refuge in gold to hedge against inflation and currency fluctuations. Start trading gold with Duhani Capital today and unlock new opportunities in the financial markets with 500x leverage!