[Market Review].
Powell’s speech pushed up U.S. bond yields. This week, the 10-year U.S. Treasury yield shocked higher, and this morning it was once soared to 1.58%. U.S. bond yields rose sharply, and the Federal Reserve Chairman Powell’s speech related. Powell said that the recent volatility in the bond market has caught his attention, but he believes that now is not the Time to adjust the easing policy. Powell did not express concern about the recent sell-off in U.S. bonds, as some traders had expected, leading to higher Treasury yields and increased demand for the dollar.
The dollar index hit a 3-month high. As a result, the dollar index surged more than 40 points to reach the 91.7 mark upward, a new 3-month high. For most of the previous part of the week, the dollar index was mainly oscillating in a narrow range around the 91 handle. Regarding the dollar index, we now need to focus on the progress of the stimulus bill, as well as the upcoming non-farm payrolls report tonight. On Saturday, the U.S. House of Representatives narrowly passed the Democrats’ stimulus plan. The Senate is currently debating the stimulus bill. This sets the stage for approval of the bill at the end of the week. And I will expand on the interpretation of the non-farm payrolls report in detail in the key forward-looking section.
Gold plunged $30. Against the backdrop of sharply stronger U.S. bond yields and the U.S. dollar index, gold plunged $30 and has now fallen below $1,700, hitting a low of $1,687.24.
Silver traded weakly. While gold plunged, silver also extended its losses to 1%. At the start of the week, silver hovered above $26.60 and has now fallen to near $25.
The euro fell below 1.20. Also affected were non-US currencies, with the euro falling more than 80 points against the dollar this morning. Compared to the U.S., Europe’s economic recovery is in a slightly less favorable state. This has caused the pair to trade weakly around 1.20 for most of the week. Powell’s speech was a blow to the euro’s stick head.
The British pound gave back previous gains. In addition to the big drop in the euro, the pound is also under significant pressure this morning. However, on the whole, the pound has not fallen as much as the euro this week. This is thanks to the pound’s previous gains. Earlier, the pound saw a wave of gains based on good progress on vaccinations in the U.K. This, coupled with a positive annual budget announcement from the Chancellor of the Exchequer this week, has limited the pound’s losses.
OPEC+ not to increase production in April. Finally, a look at the oil market. There is no bigger event in the oil market this week than the OPEC+ meeting. It is reported that OPEC+ has reached an agreement on the scale of production cuts, and the other members, except Kazakhstan and Russia, will extend their production cut plans. OPEC+ will meet again in April to decide on production levels for May and beyond. Russia and Kazakhstan were allowed to increase production by 130,000 barrels per day and 20,000 barrels per day, respectively, in April. Saudi Arabia prefers to phase out its voluntary production cut of 1 million barrels per day starting in May. The amount of the gradual production increase will depend on the pace of compensatory cuts by members that violate the quota rules. The text of the OPEC+ agreement shows that oil-producing countries that violate their quota rules will need to compensate for their quota violations by July. As a result, oil prices surged above $64, erasing earlier declines caused by production increase worries. Analysts say OPEC+’s unexpected decision to keep production unchanged bodes well for tighter supply in the Crude Oil market in the coming months.
[Risk Warning].
Euro: Europe and the United States will go lower end of the year target 1.15
Bank of America maintains a bearish bias on the euro against the dollar in the medium term. According to the bank’s forecast, the U.S. economy will narrow the output gap this year, while the euro zone until 2024. This suggests that when the eurozone output gap is larger than the U.S., the euro should be below the long-term equilibrium level of between 1.20 and 1.25 against the dollar. The bank’s forecast for the euro against the dollar at the end of the year is 1.15. In contrast, the market generally believes that the euro will reach 1.23 against the dollar in 2021, and 1.25 in 2022.
Sterling: Greater stimulus from the UK budget will give support to the pound
Mitsubishi UFJ Research believes that the pound has room to expand its gains under the support of the U.K. budget announcement. The bank noted that the budget is a greater stimulus to the U.K. economy than expected. This should help support the recovery more as restrictions on the new crown pneumonia ease in the coming months. The Office for Budget Responsibility also expressed a more optimistic view of the short-term outlook for U.K. economic growth. They noted that the rapid introduction of an effective vaccine holds out hope for a faster and more sustained economic recovery.
Canadian Dollar: Rapid Appreciation of the Canadian Dollar Target Price Can Go to 1.24
Canadian Imperial Bank of Commerce research discussed the outlook for the Canadian dollar. The bank said the Canadian dollar has the potential to appreciate in the coming months given higher crude oil levels than previously assumed and the continued correlation between the Canadian dollar and U.S. dollar index movements, with the dollar expected to sit near 1.24 against the Canadian dollar by mid-year and possibly test even lower levels in the meantime.
[Key Forecast].
21:30 U.S. non-farm payrolls data may have a bright performance
First, let’s focus on the February non-farm payrolls data to be released in the U.S. Non-farm payrolls increased by 49,000 in January and the unemployment rate fell to 6.3%. CNBC commented that the employment situation remains challenging, with millions of people still unemployed after companies laid off workers in March and April 2020 to fight the Epidemic. More than half of those out of work have returned to work, but employment remains below pre-epidemic levels in most sectors, with the hospitality sector being particularly damaged. While the next few months are likely to remain challenging, the new crown vaccine offers hope that the U.S. economy will be running at full speed in the second half of the year.
On Wednesday, ADP employment data, known as the mini-nonfarm payrolls, was released, recording 117,000, with the previous value revised upward to 195,000. ADP’s chief economist said the job market continues to recover slowly across the board, with large companies increasingly feeling the impact of the New crown outbreak and stagnant job growth in goods-producing industries. With the epidemic still dominating, the service sector remains well below pre-epidemic levels; however, this sector is likely to be the biggest beneficiary as opening times approach and consumer confidence grows.
Currently, the market is expecting U.S. nonfarm payrolls to increase by 182,000 in February, with an unemployment rate of 6.3%.
With the widespread vaccination, the epidemic has been somewhat controlled, which will help the labor market to recover strongly and the dollar index is expected to gain support.
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