Last week, the bond market riots again set off the Gold, foreign exchange and stock markets. 10-year U.S. bond yields broke through the 1.50% line during the week, the rise in yields weakened the attractiveness of gold, spot gold shock downward, the week’s lowest had touched $ 1687.24 / ounce, hitting a new nine-month low. The final weekly line barely closed above $1,700 but still picked up a third negative line. Spot silver hit a low of $24.81 last week, for a cumulative weekly loss of 5.35%.
Rising U.S. bond yields pushed the dollar higher, and the U.S. index rose 1.16% last week, once above the 92 mark, but ultimately failed to stabilize above that level. Non-U.S. currencies weakened collectively. The euro hovered near a 3-month low against the dollar; the Australian dollar also fell for three days in a row, losing ground to the 0.77 mark.
In the oil market, international oil prices showed declines in the first two trading days last week, but rebounded strongly in the next three trading days in defiance of pressure from the rebounding dollar. In the end, WTI crude closed above $66, a high since April 2019; Brent crude pushed straight to the $70 mark, a new high since January last year. At the open on Monday, WTI Crude Oil futures stood at $67 for the first Time since October 2018, and Brent crude oil futures rose above $71 per barrel.
[This week’s events at a glance
- Stimulus bill clears Senate, will be voted on in the House on Tuesday
On Saturday, President Joe Biden‘s $1.9 trillion stimulus package passed the Senate by a 50-49 vote.
U.S. House Majority Leader Hoyer issued a statement after the Senate passed the stimulus bill, saying the House will vote on the rules for consideration on Monday night and vote on the Senate version of the stimulus bill on Tuesday. Since the House is currently controlled by the Democrats, the final passage of the stimulus package is almost a “foregone conclusion. Democrats hope to have it signed into law by March 14 next week, when the already extended unemployment assistance expires. Biden said Americans will start receiving checks from the new stimulus package this month.
The $1.9 trillion stimulus sailed through the Senate beyond many previous Wall Street expectations, given Democrats’ meager control in the chamber. Although it still has to face a second vote, many economists have raised their forecasts for U.S. economic growth. Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd. said.
“News of the stimulus bill’s passage could again put pressure on U.S. bond yields early this week as the proposal comes closer to passing in its entirety than expected.”
- Fed enters silent period, two head central bank resolutions to come
This week, the Fed enters a silent period before the March interest rate resolution, we can first focus on the other two head central bank resolutions.
On Wednesday, the Bank of Canada announces its interest rate resolution.
On Thursday, the European Central Bank announces its interest rate resolution, followed by a press conference by ECB President Lagarde.
Economist Mohi-uddin said investors will be watching to see if other central banks will follow the Fed’s lead and adopt an accommodative stance on rising bond yields.
In this ECB resolution, it will publish its latest economic forecast. Last week, German and French government bond yields rose, sparking market concerns that corporate borrowing costs are climbing and hindering economic recovery. Some investors now expect the ECB to increase its support to prevent a tighter financing environment. Some experts believe that the ECB may accelerate the pace of purchases under the pandemic emergency purchase program (PEPP). Some analysts also expect the ECB to continue to appease the market through verbal rather than adjusting monetary policy.
As for the Bank of Canada resolution, an agency survey showed that 15 out of 21 analysts said the Bank of Canada will scale back its asset purchases next; it is expected to keep the Bank of Canada’s interest rate at 0.25% until 2022. The Reuters survey showed that analysts’ estimates for the Canadian dollar in the coming months have been revised upward, reflecting not only the recent rise in the Canadian dollar, but also the expectation that the unsealing of the global economy will benefit commodity prices.
Some traders mentioned that the two resolutions may affect the dollar exchange rate changes, which in turn will affect the movement of gold.
- Two oil reports will be made public
This week, two oil reports will be published.
On Wednesday, the EIA publishes its monthly short-term energy outlook report.
On Thursday, OPEC publishes its monthly crude oil market report.
From these two reports, investors can get the latest oil market supply and demand situation. Over the weekend, Saudi Arabia raised the price of crude oil sold to Asia and the U.S. in April, which agency analysts say indicates tightening supply in the spot market. Saudi Arabia, the world’s largest exporter of crude oil, exported crude oil to Asia at the highest level since March last year, after leaving the selling price unchanged for two months. This indicates that Saudi Arabia believes crude oil demand will continue to grow.
It is worth noting that the current geopolitical crisis in the Middle East is showing signs of heating up. Citing foreign media reports, CCTV said the Houthis have intensified their attacks on Saudi Arabia, with this latest one being the most serious one against Saudi oil facilities since September 2019.
The attacked site is in the city of Dhahran, an eastern Saudi oil town and Home to the headquarters of Saudi Aramco, the world’s largest oil company; and the Rastanullah port there is one of the most important oil ports in the Gulf and globally, exporting about 6.5 million barrels of oil per day (equivalent to current global demand (nearly 7% of current global demand). A statement from the Saudi Ministry of Energy condemned the attacks as affecting the security and stability of the world’s energy supply.
- U.S. CPI Data Release
On Wednesday, U.S. CPI data for February will be released. Analysts believe that higher gasoline prices in February are expected to push up the overall U.S. consumer price index in February, but the core CPI (excluding Food and energy) is likely to remain moderate as the U.S. economy is still affected by the new crown Epidemic. Stronger-than-expected data could further push up U.S. bond yields.
On Friday, U.S. Treasury Secretary Yellen said she does not see out expectation that Inflation will exceed the 2% target set by the Federal Reserve for the long-term average inflation rate, and while long rates have risen a bit, she believes the reason behind this is mainly because market participants are seeing a stronger recovery. However, many economists predict that the U.S. will face at least a brief round of inflationary pressure later this year as a new stimulus bill hits the ground, coupled with expectations of a quicker exit from the epidemic.
[Hot Species Outlook].
U.S. Bonds: Beware of $62 billion bond auction that triggers another wave of selling
Last week’s CFTC position report showed that as of the week of March 2, CBOT U.S. 2-year and 10-year Treasury futures short positions have increased, and 5-year U.S. bond futures net long positions fell by a whopping 68,919 lots to 26,487 lots. This shows that the bond market bearish sentiment is still quite strong.
This week, the U.S. Treasury auction will be the focus of the market, the U.S. Treasury will sell a total of $62 billion in size of 10-year and 30-year bonds. As you may recall, the dismal 7-year Treasury auction at the end of February pushed the 10-year Treasury yield above 1.6%, which triggered a double kill in the stock and bond markets. If demand for this upcoming auction is as sluggish as the last one, bond shorts could accelerate their entry.
Positive non-farm payrolls data, coupled with the passage of the stimulus bill will spur a rise in risk sentiment early this week. The interplay between the bond and equity markets is bound to be the focus of market attention next. Investors can focus on two levels of U.S. bond yields: 1.75% and 2%.
The Bank of Montreal notes that the last time the 10-year U.S. bond yield touched 1.75% was in January 2020, a few weeks before the market descended into chaos due to the epidemic. So this is the next key hurdle for U.S. bond yields.
For his part, Bart Melek, head of global strategy at TD Securities, noted that once the U.S. 10-year Treasury yield starts hitting the 2 percent level, it will sound the alarm and the U.S. stock market will react negatively.
Today, real yields have picked up. The 10-year real yield closed at -0.67% last week, near its highest level since June; it was at -1% 1 month ago, according to Eaton Vance Corp.
Gold: Bulls retreat for 5th straight week, downside trend turning point is ……
Gold prices continued to suffer heavy losses last week and have fallen more than $200 since the beginning of the year, mainly due to rising yields on U.S. 10-year Treasuries. Last week, the message from Fed Chairman Jerome Powell ignored inflation concerns and rising yields and failed to boost gold prices.
Edward, senior market analyst at OANDA, said Powell’s speech last week failed to stop the recent rise in Treasury yields, which took the shine off gold; the dollar gained a short-term bullish outlook, putting pressure on gold. He expects that the Fed will not comment on the market until the monetary policy meeting on March 17, and the bond market is thus free to run its course. For now, some short-term pressures are making gold more vulnerable, even as some analysts are beginning to question gold’s long-term bullish prospects.
Peter Hug, global head of trading at Kitco Metals, noted that this week, gold prices are likely to hover above $1,685, perhaps holding that level. The Fibonacci indicator shows that gold is at a key technical point, and from a technical point of view, gold is expected to rebound. FXEmpire analyst Christopher Lewis also believes that $1750 will be an important position, which is the 61.8% Fibonacci retracement, and if gold reverses to the upside and breaks above this level, its downtrend will be reversed. However, gold prices are expected to face short-term resistance around $1725.
A trend that should not be overlooked is that gold market funds are flowing out, the long side continues to retreat. CFTC position report shows that as of March 2 week, COMEX gold futures speculative net long position decreased 25,538 hands to 57,856 hands, of which 15,848 long hands; COMEX silver futures speculative net long position also decreased by 7,915 hands to 31,506 hands.
Crude oil: U.S. oil hits two-and-a-half-year high, what headwinds will it face?
International oil prices have risen unstoppably since OPEC+ announced its decision to extend production cuts. WTI crude oil closed up 7.5% last week, standing firmly above $66/barrel. On Monday, WTI crude oil futures even stood at $67 for the first time since October 2018; Brent crude oil futures rose above $71 per barrel. the CFTC report showed that the speculative net long position in WTI crude oil futures increased slightly by 7,179 lots in the week ended March 2.
Robbie Fraser, global commodities analyst at Schneider Electric, said that (in addition to the OPEC+ agreement) Saudi Arabia’s extension of voluntary production cuts also fueled oil price gains. Meanwhile, the basis for increased demand appears to be increasingly solid due to widespread vaccination campaigns worldwide and the growth of personal travel.
The strong rally in oil prices has led some analysts to worry about the risk of an overbought pullback. Analysts point out that the recent rally may be driven more by speculative buying as physical crude oil sales are slow and a recovery in crude oil demand may not be reached until around the third quarter, suggesting that the rise in crude oil prices is unfounded.
In addition, the market may start to face some headwinds if the dollar continues to move higher. A strong dollar tends to reduce foreign demand for dollar-denominated assets.
FX: Dollar uptrend may continue, GBP outlook turns cautious
The dollar has recently moved higher with rising yields, a trend that is likely to continue as the U.S. economic outlook improves. This week, investors can focus on CPI data, if the data is better than expected, or will continue to support the dollar’s rise.
So far this year, the best performing currency in the foreign exchange market is the British pound, which has appreciated by 1.25% compared to the U.S. dollar. the CFTC position report showed that the net long position in the pound recorded its fourth consecutive week of increase.
However, the pound and the United States in the last two weeks from the highs above 1.42 retreat, the trend showed decadence, Credit Agricole is cautious about the outlook for the pound.
The bank noted that the outlook for the pound warrants caution given that many of the positive factors regarding the economic rebound appear to have been priced in. This week’s focus will be on January’s monthly GDP data and a speech by Bank of England Governor Tony Blair. There are signs that the epidemic blockade is hitting the economy harder than expected and could weigh on the pound if the BoE begins to tighten the financial environment.
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