[Market Review].
Gold traded weakly. Gold, on the other hand, had a relatively subdued week, basically trading weakly around $1850 and even falling below the $1820 mark at one point.
The current logic of increased U.S. stimulus, soaring U.S. bond yields and gold price volatility may have investors wondering. Before the recent rapid spike in U.S. bond yields, the increased U.S. stimulus was seen as positive for gold. This is because the more water is released, the more likely the dollar will depreciate. But increasing the size of the stimulus means that the U.S. has to issue more Treasuries, and the market fears an oversupply, and U.S. bond yields climb. This makes U.S. bonds more attractive relative to gold, which yields zero, leading investors to switch from gold to U.S. Treasuries. And the support from rising yields has outweighed concerns that additional U.S. spending could trigger an accelerated rise in inflation.
Fed officials have recently hinted that the Fed will temporarily tolerate higher U.S. bond yields, happy to see higher inflation and will continue its bond purchase program. So, the expansion of fiscal stimulus in the US has instead turned out to be bearish for gold.
Silver gained 0.8% during the week. Influenced by the above factors, silver also had a relatively flat week. However, relative to gold, silver’s performance is still relatively strong, silver prices rose by 0.8% this week.
The euro rose and then fell this week. Non-U.S. currencies, the euro against the dollar this week rose and then fell, currently trading at 1.2150 near. The trend of the euro is mainly influenced by the U.S. dollar. In addition, the European epidemic and the euro zone economy is full of uncertainty, also constitute a pressure on the euro. It is reported that the ECB lowered its outlook for short-term economic activity, with all members agreeing that additional support is needed.
The British pound rose more than 120 points during the week. Compared to the euro, the pound performed exceptionally strongly, with the pound rising more than 120 points against the dollar during the week. Earlier, the weakness of the dollar and the UK’s muted negative interest rate expectations greatly supported the pound. However, we still need to keep an eye on the potential pressure on the pound from the stronger dollar, the impact of the epidemic, and the legacy of the UK’s exit from the EU.
U.S. oil is back at the $53 mark. Finally, take a look at the oil market. Crude oil is off to a strong start this year, driven by Saudi Arabia’s unexpected announcement of voluntary production cuts and other news. And oil prices were also supported by the unexpectedly large reduction recorded in U.S. crude inventories. U.S. oil surged 2% this week and is now back above the $53 mark. However, we still need to keep an eye on the implementation of production cuts by OPEC members, as recent media reports suggest that some countries have now started to ease up on their production cuts, like Iraq where the implementation rate of recent production cuts is only 79%.
▼Bond Market
Overnight, China’s 10-year Treasury yield fell 0.74 percent, while the U.S. 10-year Treasury yield rose 4.04 percent and the U.S. 3-month Treasury yield fell 15.86 percent.
▼In the stock market
U.S. stocks closed in unison, with the S&P 500 down 0.38 percent, the Nasdaq down 0.12 percent and the Dow Jones down 0.22 percent; by this morning, Chinese stocks opened mixed, with the Shanghai Composite Index up 0.01 percent, the Growth Enterprise Market Index down 0.49 percent and Hong Kong’s Hang Seng Index down 0.36 percent.
[Risk Warning
Euro: the Italian crisis has limited impact on the euro fears range consolidation
Bank of Tokyo-Mitsubishi said that although the Italian political situation has recently fallen into turmoil again, but this has a limited impact on the euro. The euro trend still depends on the European Central Bank and the Federal Reserve policy contrast, as well as the economic outlook. At present, the European Central Bank and the Federal Reserve policy direction in 2021 may be further convergence, will be in the epidemic receded after the general economic environment to improve the background, the withdrawal of excessive easing measures. Against such a backdrop, the euro will trade in the 1.20-1.25 range for most of the year.
British pound: the pound is still undervalued in the year or rise to 1.40
Credit Suisse analysts pointed out that the pound against the dollar is actually still undervalued relative to the level of fair value. As long as the future, the British economy strong market recovery, then the pound exchange rate will follow the strength. In the absence of surprising conditions, the pound against the dollar will rise to 1.40 during the year, while the euro against the pound will fall back to the 0.87-88 range.
Australian dollar: double factors limit the Australian dollar’s annual rise or limited
Rabobank put the Australian dollar against the U.S. dollar in the next 12 months is expected to rise from 0.77 to 0.78. Rabobank pointed out that although the economic fundamentals of the news situation is indeed positive for the Australian dollar, but the Australian Federal Reserve’s current accommodative monetary policy, but still limit the upside of the Australian dollar. On the other hand, trade and geopolitical areas of friction, may also drag the Australian dollar.
Key Forecast
15:00 UK GDP fears declining performance
First of all, let’s pay attention to the UK will release the three-month GDP monthly rate in November. The UK’s October data declined, indicating that the pace of economic recovery in the UK has slowed. Some commentators pointed out that the UK’s economic recovery almost stalled in October, as the hotel industry was hit hard by the increasing number of confirmed cases of new coronary pneumonia. The reimposition of some of the epidemic prevention restrictions hit service sector growth, with the hospitality sector plummeting, meaning the overall economy grew only slightly, said the ONS deputy statistician.
Currently, the market expects the UK November three-month GDP monthly rate of 3.4%, if the published value is lower than expected, or bearish pound; conversely, may be positive pound.
In addition, the monthly rate of British manufacturing output and industrial output data will be released at the same time, the current market is not optimistic about these groups of data, you need to be alert to the pound retracement.
21:30 U.S. retail sales fear monthly rate or decline
Then, to focus on the United States will be released in December retail sales monthly rate. In recent months, the monthly rate of U.S. retail sales has been more volatile, recording 0.3% in October and -1.1% in November. Agencies commented that U.S. retail sales fell for the second consecutive month in November, likely dragged down by the epidemic and falling household incomes, with increasing signs that the pace of the U.S. economic recovery is slowing.
Current market expectations are for a monthly U.S. retail sales rate of 0% in December. If the figure meets or exceeds expectations, the dollar index is expected to gain support. Conversely, if it is lower than expected, the dollar index may suffer a blow.
Overall, the market is not optimistic about the data, and if the data released is much less than expected, the dollar index may come under pressure.
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