[Market Review].
U.S. index resumed its rally. The dollar index resumed its rally as the market looked to the bailout plan to support the economic recovery. On the market hotly debated the reduction of bond purchases, the Fed Governor Brainard’s statement is very dovish. She said that the short-term economic outlook is challenging, if necessary, can increase the amount of debt purchases.
Gold once fell below the 1830 mark. The dollar strengthened, inhibiting gold’s upside. Gold ended the day down more than $20 from the day’s high, down to $1841.76 an ounce, and then it was once below the 1830 mark.
Silver oscillated to the downside. Similar to the trend of gold, silver oscillated downward during the day, from $25.6 once slipped to $25.11 at the location.
The British pound surged higher and retreated. In the British pound, although the U.K. downplayed expectations of negative interest rates, the pound saw an intra-day decline against the dollar, falling more than 20 pips against the backdrop of a stronger dollar, the impact of the epidemic and the unresolved legacy of the U.K.’s exit from the European Union. The British pound still faces strong resistance above 1.37.
The euro fell more than 50 points intraday. Turning to the euro, the dollar index re-recorded a rally during the day, while investors are also concerned about the continued seriousness of the epidemic in Europe, the euro fell back more than 50 points against the dollar from the intra-day high.
U.S. oil is under pressure again. Finally, taking a look at the oil market, EIA crude oil inventories recorded a decrease of 3.248 million barrels, far exceeding market expectations and supporting oil prices. However, from a general point of view, US oil was still suppressed by the rally in the US dollar, with an intra-day drop of 0.88%. In addition, the epidemic in Europe and the United States remains severe, causing investors to have doubts about the global economic recovery, which also temporarily curbed the space for further upward movement of oil prices.
▼Bond Market
Overnight, the yield on China’s 10-year Treasury note fell 0.02%, while the yield on the U.S. 10-year Treasury note fell 2.33% and the yield on the U.S. 1-month Treasury note fell 11.95%.
▼In equities
U.S. stocks closed mixed, with the S&P 500 up 0.23 percent, the Nasdaq up 0.43 percent and the Dow Jones down 0.1 percent; by this morning, Chinese stocks opened mixed, with the Shanghai Composite Index down 0.38 percent, the Growth Enterprise Market Index down 0.91 percent and Hong Kong’s Hang Seng Index up 0.61 percent.
[Risk Warning
U.S. dollar: the fundamental outlook is uncertain U.S. dollar shorts need to be cautious
The market expects the Fed to taper quantitative easing ahead of schedule, which pushes U.S. bond yields higher, which in turn boosts the dollar higher. The market expects the incoming Democratic administration to deliver on its promise to expand fiscal stimulus, which should accelerate the economic recovery once the epidemic does show signs of receding. Therefore, before things become clearer, U.S. bond yields and the dollar should be limited by the degree of setback, which should lead to short-term full consolidation of the dollar.
Euro: the euro long-term upward trend unchanged short-term fear of a pullback
Credit Suisse Bank pointed out that the euro against the dollar in the year will remain on an uptrend. However, at present, the dollar index short term upward action is still not released, so the short term Europe and the United States have further downward space, especially before the arrival of the ECB resolution next week. If it loses 1.2132, it will fall towards 1.2059, and 1.20. Only after the exchange rate in regained 1.2230, it may restart the rally.
Australian dollar: the Australian dollar remains strong, be wary of officials verbal suppression
Morgan Stanley pointed out that global risk appetite continues to improve, in anticipation of increased infrastructure investment in various countries commodity demand continues to climb, which constitutes a sustained medium- to long-term positive for the Australian dollar. However, Morgan also warned that while the Australian dollar is still facing volatility risks in the short term, on the one hand, the U.S. dollar index has recently stopped lifting the trend, on the other hand, do not rule out the relevant officials recently verbal intervention in the exchange rate.
Key Outlook
TBD OPEC crude oil production will continue to increase in December
First of all, OPEC will publish its monthly crude oil market report. Last month, OPEC published its monthly report showing that OPEC crude oil production increased by 750,000 barrels per day in November from a year earlier. OPEC has again lowered its global crude oil demand growth forecast.
By December, market sources said that OPEC increased its supply by 190,000 barrels per day to 25.45 million barrels per day last December. This would be the sixth consecutive month that OPEC has increased production.
Because the epidemic continues to worsen in Europe and the United States, vaccinations have not been fully rolled out and it is expected that OPEC may continue to lower its crude oil demand forecast. Also last week, OPEC+ agreed to increase production by 75,000 barrels per day in February and March, respectively, due to higher production from Russia and Kazakhstan. But Saudi Arabia unexpectedly announced it would voluntarily cut production significantly in February and March, while other OPEC+ members kept output steady or increased it slightly. The Saudi energy minister said it will voluntarily cut production by 1 million barrels per day in the next two months. This production cut will go far to offset the joint production increases by Russia and Kazakhstan in February and March. The Saudi move shows that the country is worried about the possible impact of the resurgence of the epidemic in Europe on global oil demand, and also highlights Saudi Arabia’s determination to avoid a new price war with Russia. It also implies that OPEC’s crude oil production for February and March, could be scaled back.
20:30 ECB may stress commitment to economic recovery
Next, take a look at the minutes of last December’s meeting that will be released by the ECB. In the last month, the central bank kept its three key interest rates unchanged as well as its asset purchase program, readily adjusting its tools as needed. The epidemic continues to pose serious risks to the economy, so it lowered its GDP growth forecast for 2021 and inflation expectations for 2020 and 2022, and increased the size of its emergency anti-epidemic bond purchase program by 500 billion euros, at least until March 2022.
Based on this, we believe that the ECB minutes will indicate that the impact of the epidemic on the economy is still ongoing and that tools will be adjusted as needed.
Overall, the minutes will show the ECB’s determination to support the economic recovery.
21:30 US initial claims may remain high
Next, take a look at the initial jobless claims that will be released in the US. In recent weeks, the U.S. initial claims have remained near 800,000, with last week’s release coming in at 787,000. Some agencies commented that the number of initial jobless claims remained extremely high, as the labor market recovery seems to have stalled under the influence of the worsening epidemic, which also shows that the economy is still being hit by the epidemic.
Currently, the market expects that the U.S. initial jobless claims for the week of January 10 to 780,000, if the published value is much higher than expected, the dollar index may be under pressure; conversely, if the published value is less than expected, the dollar index may be stronger.
Need to be alert, the current number of confirmed new crown in the United States did not significantly reduce, which may push up the number of initial jobless claims, the risk of pressure on the dollar index is greater.
Friday 01:30 Powell may maintain a cautious stance
Finally, pay attention again to the speech to be delivered by Fed Chairman Powell. The market is expected to see a strong recovery in the U.S. economy, driving expectations that the Federal Reserve will scale back quantitative easing ahead of schedule. But on Tuesday, two Fed officials hit these expectations, saying that in the continued development of the epidemic, to discuss the reduction of bond purchases is still too early. Federal Reserve Vice Chairman Clarida said it would take until 2022 to scale back bond purchases, not worrying about rising U.S. bond yields. He believes that U.S. GDP will return to the level before the outbreak of the new crown in 2021. In general, Fed officials maintain a relatively cautious stance.
If Powell also maintains a cautious stance, it will support the view that the Fed will continue to remain accommodative this year and the market may be further bearish on the dollar.
Currently the U.S. is continuing to vaccinate, but the number of confirmed new crowns has not decreased significantly, and market expectations for a strong economic recovery are not as strong, so the likelihood of Powell maintaining a cautious stance is relatively high.
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