[Market Review].
U.S. Treasury yields spiked at one point. At last night’s hearing, U.S. Treasury Secretary nominee Yellen made remarks. She said she believes in exchange rates determined by the market, that the U.S. is not seeking to gain an economic advantage by suppressing the dollar exchange rate, that the Fed’s low interest rate policy could last a long time, and that it will look into issuing 50-year Treasuries. After her remarks, the U.S. 30-year Treasury yield rose 1.6 basis points. Some analysts say Yellen’s willingness to consider issuing ultra-long-term U.S. Treasuries is enough to drive traders to sell 30-year bonds.
The dollar index came under pressure. On top of that, the dollar index’s movement was also influenced by Yellen’s comments. Yellen urged lawmakers to take “big action” to save the economy, which has been hit hard by the new epidemic. This weighed on the dollar index. The U.S. index fell 0.3% to 90.49.
Gold is trading sideways. And gold prices were largely flat during the day around $1,840. U.S. stocks are approaching all-time highs and U.S. Treasury yields are rising, both to the detriment of gold demand.
Silver is narrowly oscillating. Silver is moving roughly similarly to gold. Silver prices traded sideways on the $25 line during the day, touching a high of $25.39 per ounce.
The euro oscillated to the upside. Moving on to the euro. The euro oscillated to the upside against the dollar during the day. This follows a sharp improvement in the overall ZEW economic sentiment index for Germany and the eurozone, easing investors’ concerns about the European economy. And the dollar was simultaneously weighed down by the residual risk of political uncertainty in the U.S., as well as future policy easing, which led to further strength in non-U.S. currencies led by the euro.
The British pound shook higher. Like the euro, the pound also saw gains, with the pound currently trading around 1.3650 against the dollar. The weaker dollar has supported the pound. In addition, the pace of vaccination in the UK is much faster than in the EU, which is also positive for the pound. The Bank of England’s chief economist Haldane said that the economic rebound after the epidemic is expected to be greater than that after the financial crisis.
U.S. oil returned to the $53 mark. Finally, a look at the oil market. U.S. oil continues to move higher, returning to the $53 mark. Investors expect the introduction of further stimulus measures in the U.S. to boost the economy; and a weaker dollar has added to the appeal of dollar-denominated commodities. However, the IEA’s monthly report showed that new embargo measures will hurt the economic recovery, and the IEA lowered its global oil demand forecast by 600,000 barrels per day in the first quarter of this year and cut its full-year oil demand forecast by 300,000 barrels per day; it also expects global refinery production to increase by 4.5 million barrels per day year-on-year this year.
[Risk Warning
Euro: upside risks fear weakening Euro down to 1.22
Denmark’s Danske Bank pointed out that after the U.S. Democratic Party’s victory in Georgia, the euro rose to 1.23 against the dollar, but recently began to slide again as the market began to question whether the Federal Reserve will keep interest rates as low as currently indicated, the euro is expected to trade near 1.22 against the dollar in the first quarter. With the Fed leaning toward a new narrative of a strong U.S. economy and the likelihood of more easing in the U.S., upside risks to the EURUSD have weakened and are expected to fall toward 1.16 in twelve months.
Japanese yen: market sentiment is cautious U.S. yen blocked at 104
Some analysts say that the dollar against the yen is still facing some resistance at the 104 handle before the regime change in the United States. This is because the market sentiment is cautious. And previously analysts expected that, according to historical models, the dollar index will continue to rise within a month after the inauguration of the new president, which is expected to push the dollar against the yen further back to the psychological level of 105.
Gold: Gold long positions reduced buy signal is not strong
Saxo Bank’s head of commodity strategy said gold traders and investors are experiencing a crisis of confidence after the recent spike in the dollar and U.S. yields, with hedge funds cutting their long positions by 31% last week, suggesting that the current gold price action is not sending any strong buy signals. And Standard Chartered Bank has also readjusted its expectations for the average gold price in 2021 to $1,958 an ounce.
[Key Forecast
15:00 UK December CPI monthly rate is afraid to remain decadent
First, to focus on the UK will be released CPI data. The last two months, the UK CPI monthly rate performance is sluggish, November recorded -0.1%. Some financial websites commented that November’s data fell too far short of forecasts for inflationary pressures, as the report only reiterated a more moderate overall price pressure going into the end of the year. This will keep the Bank of England on its toes.
By December, combing through the relevant UK data reveals that: UK consumer spending fell 2.3% year-on-year in December, the biggest drop since June last year. Construction PMI and services PMI were not as good as the previous value, while manufacturing PMI performed slightly better. So it seems that the UK CPI data may not perform too well.
Currently, the market is expected to December CPI monthly rate of 0.2%, if the published value is greater than expected, or good pound; conversely, will be negative pound.
At the same time, investors also need to pay attention to the same time the CPI annual rate and the monthly retail price index, if this set of data better than expected, the pound may strengthen.
23:00 CBC is likely to stay put
Then look at what the Bank of Canada will do on Wednesday. In the last month, the Bank of Canada kept its benchmark interest rate, forward guidance on interest rates, and its C$4 billion per week bond purchase program unchanged. In mid-December, Bank of Canada Governor McCollum said the downside risks to the economy are more serious and more action is needed, possibly lowering the effective interest rate floor, but the likelihood of implementing negative rates is low.
On balance, we expect that the Bank of Canada will keep the interest rate level unchanged at 0.25%, keep the scale of bond purchases unchanged, emphasize that the economy faces downside risks and may take more accommodative measures if necessary. If the Bank of Canada’s concerns about the economic downside intensify, the Canadian dollar is at risk of coming under pressure.
Thursday 01:00 Bailey may highlight the problems with the existence of negative interest rates
In the early hours of tomorrow morning, Bank of England Governor Tony Blair will give a speech. In the last week he said that the British economy is in a “very difficult” period, the economic recovery may come later than expected, and the real unemployment rate may be higher than the official estimate, probably at around 6.5%. production was flat with a slight decline. As a result, the UK will be in a world of low interest rates for a long time. The interest rate outlook depends on productivity growth, but there are many problems with negative interest rates.
Based on this, we expect that Bailey may emphasize that the epidemic blockade will not affect the economy more than last spring and remain cautious about adopting negative interest rates.
In the last week money markets are expecting the Bank of England to cut its benchmark interest rate to negative as early as May, and the pound could strengthen if Bailey’s speech dampened the delayed expectations.
Thursday 05:30 API crude oil inventories may decrease
Finally, come to focus on API crude oil inventories. Last week, API reported that US crude oil inventories decreased by 5.821 million barrels. The subsequent release of EIA crude oil inventories was even lower by 3.248 million barrels, both dropping more than expected.
By the end of the week, the market was expecting a decrease of 280,000 barrels in U.S. API crude oil inventories for the week ending January 15. If the published value is larger than expected, oil prices may come under pressure; conversely, oil prices may rise.
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