[Market Review].
U.S. bond yields retreated from highs. U.S. ten-year Treasury yields fell from a ten-month high of 1.18% to near 1.1%, and the dollar index ended a three-day rally, falling back to near $90. U.S. bond yields rally suddenly stalled, mainly related to an auction last night. The U.S. Treasury renewed the $38 billion 10-year Treasury note, attracting strong demand and causing prices to rise and yields to fall, causing traders to cover their short positions, thus reversing the earlier rise in yields.
Still, we need to keep an eye on the outlook for U.S. economic stimulus. Expectations of expanded U.S. fiscal stimulus and an accelerating economic recovery have been a major driver of the recent uptrend in U.S. bond yields. In addition, discussions that the Fed may taper its bond purchases or even bring forward its interest rate hike plans are also factors behind the recent spike in yields. But there are growing signs that these are not the mainstream views of Fed officials. Investors can focus on what Fed Chairman Jerome Powell thinks of the issue next.
Gold is slightly higher. U.S. bond yields and the dollar weakened, supporting a rebound in gold prices. Gold was slightly higher on the day amid shocks and is now trading near $1,860.
Silver rose more than 3%. Compared with gold, silver’s rise seems more pleasing, rising from below $25 all the way to near $25.50 during the day, up more than 3% during the day.
The British pound saw big gains. In non-U.S. currencies, the pound rose more than 140 points against the dollar during the day. On the one hand, the dollar weakened, supporting the pound, on the other hand, the Bank of England Governor Bailey’s speech, but also to dispel the concerns of investors, so that the pound trend prospects are further bullish. Bailey pointed out in his speech that the negative interest rate policy is controversial and unconventional monetary policy measures, and therefore will not be easily used. He also said that the epidemic will not completely hurt the bones of the British economy. And the current epidemic prevention measures to affect the economy than last spring, which makes the market on the Bank of England to further strengthen the easing of expectations have receded.
Euro shocks up. The euro also saw a wave of gains. The euro surged more than 50 points against the dollar during the day, driven by the weaker dollar. However, we still need to be vigilant as Merkel warned that the UK variant of the virus poses a huge threat German blockade measures need to be extended for another 8-10 weeks. And investment banks have collectively lowered their expectations for Eurozone growth in the first quarter. This may drag on the euro.
U.S. and Japanese shocks to the downside. In the yen, the dollar shocked down against the yen, from 104 all the way down to around 103.5, down nearly 0.5% during the day.
U.S. oil shocks up. Finally, take a look at the oil market. U.S. oil also rose more than 2% intraday as the dollar weakened, pushing up dollar-denominated commodities. In addition, API crude oil inventories recorded a sharp decrease of 5.821 million barrels, which also supported oil prices. However, we need to note that despite Saudi Arabia’s pledge to cut production last week, the implementation rate of the entire OPEC production cut in December was 98.5%, down from 100.1% in November, according to Platts Energy’s calculations, which may need to be brought to our attention.
▼Bond Market
Overnight, the yield on China’s 10-year Treasury note fell 0.28 percent, while the yield on the U.S. 10-year Treasury note fell 1.46 percent and the yield on the U.S. 3-month Treasury note fell 12.87 percent.
▼On the stock market
U.S. stocks closed in unison, with the S&P 500 up 0.04 percent, the Nasdaq up 0.28 percent and the Dow Jones up 0.19 percent; by this morning, Chinese stocks opened mixed, with the Shanghai Composite Index up 0.14 percent, the Growth Enterprise Market Index up 0.01 percent and Hong Kong’s Hang Seng Index up 0.12 percent.
[Risk Warning
Gold: Inflation risk emerges Gold may go up to the 2000 mark
Analysts at Standard Chartered Bank said the market will see a continued allocation of funds to gold as inflation risks emerge, and therefore believe that gold will again go up to $2,000 in the course of the first quarter.
New Zealand dollar: seasonal bullish factors may fade New Zealand dollar is expected to high finishing
ANZ Bank said that the New Zealand dollar rebounded strongly from support around 0.7150 against the U.S. dollar and is expected to stay higher. Considering the new crown virus and political differences, it is easy to be bullish on the New Zealand dollar and bearish on the U.S. dollar. However, U.S. risk assets and higher U.S. bond yields are the dominant factors, while seasonal bullishness on the New Zealand dollar tends to subside in January. On balance, the New Zealand dollar is expected to continue to finish higher against the U.S. dollar. Technically, support at 0.7150 and resistance at 0.7315
British pound: the pound performed strongly above resistance 1.3720
Bank of Tokyo-Mitsubishi UFJ said the pound is one of the best performing currencies in the G10 countries’ foreign exchange markets as the Bank of England is exploring policy options, while the launch of the UK vaccine is accelerating. Technically, Credit Suisse said the pound is expected to consolidate further against the dollar, possibly holding 1.3430, with a possible test of 1.3720 next, and a breakout to confirm that the core uptrend has resumed, with the next resistance levels at 13804 and 1.4302.
[Key Forecast].
17:00 Lagarde or the old tune again
First, let’s focus on ECB President Lagarde’s upcoming speech. At last month’s press conference, Lagarde said that the second wave of the new crown epidemic will lead to a significant economic contraction in the fourth quarter of last year, which is expected to shrink by 2.2%, and the economy will be dragged down in the first quarter of this year. If necessary, the scale of emergency anti-epidemic bond purchases can be increased; the ECB will continue to monitor the exchange rate and not target foreign exchange rates, and the strength of the euro puts downward pressure on prices.
In summary, we believe that Lagarde will emphasize that the second wave of the epidemic has impacted the economy, and if necessary will expand the scale of economic anti-epidemic debt purchases.
In addition, she may also say that the ECB may observe the euro exchange rate, but is unlikely to take intervention measures.
21:30 U.S. CPI may pick up in December
Next, take a look at the U.S. CPI data for December to be released on Wednesday. The data released last month rebounded, recording 0.2%. Agency commentary said the U.S. consumer price index rose more than expected in November as the cost of transportation services accelerated. But because the epidemic continues to dampen economic activity, the
Inflationary pressures in other sectors remained moderate.
By December, the data may continue to pick up. Collating December data reveals that the ISM manufacturing PMI recorded 60.7, a new high since August 2018. the ISM non-manufacturing PMI recorded 57.2, a new high since September 2019. However, the non-farm payrolls data was not as good as expected, with non-farm payrolls adding 140,000 jobs in December, the first decrease recorded since April last year.
Currently, the market expects the U.S. quarterly CPI monthly rate of 0.4% in December, which may be positive for the dollar if the published value is larger than expected; conversely, it will be negative for the dollar.
In addition, the annual CPI rate will also be released at the same time, you should also consider a comprehensive approach and make a reasonable layout. If the two sets of data are weak, the dollar index is afraid to continue to decline.
23:30 EIA crude oil inventories may decrease
Finally, let’s focus on the upcoming US EIA crude oil inventories. Last week’s EIA crude oil inventory release decreased by 8.01 million barrels, decreasing for four consecutive weeks. Early this morning, API crude oil inventories have been released, decreasing by 5.821 million barrels, more than expected.
According to past experience, API inventory data and EIA inventory data have a relatively strong positive correlation, so EIA crude oil inventories may also decrease.
Even so still need to pay attention to the current market expectations, the United States to January 8 week EIA crude oil inventories or reduce 2.72 million barrels, if the release of data more than expected, oil prices may short term dip; if the inventory data is less than expected, oil prices are expected to strengthen.
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