This week, the Fed will continue to occupy the market “C”, Powell will at least three appearances. The Fed announced that the SLR will not be renewed when it expires, and the subsequent impact is still to be seen this week. After the worst week in nearly five months of Crude Oil, and will usher in a big turnaround? There’s still heavy U.S. data coming out, and the dollar push may intensify!
This week, Federal Reserve Chairman Powell will bring many central bank officials on stage, of which Powell has at least three public appearances. Their description of the bond market may be a source of triggering market volatility.
On Monday (March 22), Powell will speak at the Bank for International Settlements conference on innovation in the digital age. On the same day, FOMC 2021 member and Richmond Fed President Balkin, FOMC 2021 member and Atlanta Fed President Bostic, and FOMC 2021 member and San Francisco Fed President Daley will also speak.
On Tuesday (March 23), Fed Governor Bowman will speak on the economic outlook. In addition, the 2021 FOMC members, San Francisco Fed President Daley, St. Louis Fed President Bullard will also speak. On the same day, Bank of England Governor Bailey and Bank of England Chief Economist Haldane will speak.
On Wednesday (March 24), U.S. Treasury Secretary Yellen and Powell will give two testimonies at the House and Senate hearings. The same day FOMC permanent votes, the New York Fed President Williams, Fed Governor Brainard, St. Louis Fed President Bullard will also speak. The Bank of Japan will release the minutes of its January monetary policy meeting on the same day, and ECB President Lagarde will speak on climate change.
On Thursday (March 25), FOMC permanent vote member and New York Fed President Williams, 2021 FOMC vote member and San Francisco Fed President Daley, and Chicago Fed President Evans will speak. On the same day, the Swiss central bank will announce its interest rate resolution, and ECB President Lagarde, Governing Council member Weidmann, and Villeroy will speak at a meeting of the Bank for International Settlements.
On Friday (March 26), Fed Vice Chairman Clarida, 2021 FOMC vote member and San Francisco Fed President Daley, 2021 FOMC vote member and Atlanta Fed President Bostic, and Chicago Fed President Evans will make their appearances.
The market expects Powell and other Fed officials to continue to deliver dovish messages this week.
Federal Reserve Chairman Jerome Powell published an op-ed in the Wall Street Journal on the 19th, explaining why the U.S. even gave a heavy dose of Medicine to save the economy last spring. Powell said the light has dawned with the arrival of the vaccine, but the recovery is far from complete.
Top Fed officials continued to reiterate views consistent with Powell’s after last Thursday’s FOMC resolution. Powell stated that the Fed can tolerate Inflation above 2% temporarily without changing monetary policy. Richmond Fed President Balkin also said on Friday that he was not concerned about the current rise in long-term borrowing costs in the U.S., attributing it to optimism about the economy and rising expectations for inflation.
It is also worth noting that during the European stock market on Friday, the Federal Reserve announced that the policy of easing the Supplemental Leverage Ratio (SLR) for banks will expire at the end of this month and did not decide to extend the term. This decision is contrary to the mainstream expectations of Wall Street, market participants are concerned that once banks sell U.S. debt, U.S. bond yields in the market when inflation is expected to be high already not small upward pressure will continue to increase.
The 10-year U.S. bond yield spiked above 1.75% last week, reaching its highest level since January 2020. The yield on the 10-year U.S. bond rose nearly 10 basis points last week; the 30-year bond rose nearly 5.6 basis points; and the 2-year rose just under 0.3 basis points.
The Bloomberg Barclays U.S. Long-Term Treasury Total Return Index, which tracks Treasury bonds of 10 years and above, has fallen a record 22% from its all-Time high in March last year, leading the media to comment that the bull market in long-term U.S. bonds, which has lasted for four decades, has come to an end, and investment trends may change as a result.
Onada senior market analyst Edward Moya (Edward Moya) said.
“The biggest concern is that some banks may refuse to lend because they may retain more capital. Wall Street will be watching the upcoming U.S. Treasury auction closely, and if it falls short of expectations, the sell-off in the bond market could intensify.”
According to the schedule, the U.S. Treasury will bid for $60 billion of two-year Treasuries on Tuesday, $61 billion of five-year Treasuries on Wednesday and $62 billion of seven-year Treasuries on Thursday, local time. Three auctions totaling up to more than 180 billion U.S. dollars, investors need to pay close attention to the changes in the bid ratio.
Reuters media IFR analyst John Noonan believes that the main focus of the market in the coming week will continue to be the volatility of long-term bond yields, especially U.S. Treasury yields. The current market seems to have reached a consensus that the U.S. 10-year Treasury yield will rise to at least 2.00%, which will have the greatest impact on risk assets. A sharply volatile move higher in U.S. bond yields could be the catalyst for a stock market pullback and a higher dollar.
In the latest Kitco News Weekly Gold Survey, while confidence in the gold market is still improving among Wall Street analysts and general investors, there are concerns that rising bond yields are making it difficult for gold prices to break through the key resistance level of $1,750 in the near term.
U.S. GDP + PCE and other heavyweight data out, the emergence of long fears to help the U.S. index to hold steady at the 92 mark!
This week, Europe and the United States will come out one after another some important economic data. Including.
Wednesday (March 24), France, Germany, the eurozone and the United Kingdom in March manufacturing PMI preliminary value, the United States in March Markit manufacturing PMI preliminary value, the United States in February durable goods orders, the United Kingdom in February CPI.
Thursday (March 25), U.S. initial jobless claims, final U.S. fourth-quarter annualized quarterly real GDP, final U.S. fourth-quarter annualized quarterly core PCE price index.
Friday (March 26), the U.S. core PCE price index annualized rate and personal spending (a key measure of inflation) in February, the final U.S. University of Michigan consumer confidence index in March.
Last week the Fed downplayed economic overheating concerns, this week’s actual economic data will reveal more “truth”. If the data performance is good, it is expected to intensify the already existing inflationary concerns and monetary policy tightening expectations, favoring the dollar and U.S. bond yields higher.
The dollar index closed close to 91.95 on Friday, up more than 0.3% last week. Analysts say the dollar still has momentum to move higher as hedge funds turned long for the first time since last July.
For the week ended March 16, non-commercial investors bought a net $10.3 billion long position in the dollar, compared with a net $5.6 billion in the previous week.
Goldman Sachs noted that this was the largest week of net dollar buying by non-commercial traders since June 2018, with leveraged funds turning net long on the dollar, while asset managers, who typically move in the opposite direction of non-commercial speculators, continued to short the dollar.
Another analysis of CFTC COT data by Khoon Goh of ANZ Bank (ANZ) found that the dollar shorting situation is even more dire: he calculated that the dollar buying volume in the past week was $7.2 billion, the largest since August 2014.
As you can see, the situation in the dollar index has reversed, and risky assets have to be even more careful. The question now is how many long dollar bets will hedge funds put in as the shorts gradually capitulate?
Saudi refinery attacked again, Goldman Sachs shouted “buy low”, will crude oil turn around?
According to Xinhua, on the 19th, an oil refinery in the Saudi capital Riyadh was attacked by multiple Drones and caught fire. The fire was later brought under control, with no casualties and no major impact on fuel supply. Although Saudi officials have intentionally downplayed the incident and have not even announced the specific name of the refinery attacked, several Middle East media said that the attack was on a refinery owned by Saudi Arabia’s state-owned oil giant Aramco.
This is the second major attack on a Saudi oil facility since March. The Houthis claimed responsibility for the attack on the 19th, saying their militants operated six drones that struck the refinery in response to the Saudi-led multinational coalition’s military operations in Yemen.
In the early hours of 21 local time, the Saudi-led multinational coalition launched an airstrike on the Houthi base of Yemen’s anti-government group in retaliation for a previous attack on its oil refinery by the forces.
International oil prices rebounded on Friday, but last week WTI crude oil fell nearly 6.4% a week, and Brent crude oil fell nearly 6.8%, both the largest single-week decline since October last year, mainly because of market concerns about rising inflation, slow vaccination in Europe, the blockade of Epidemic areas, U.S. bond yields and the higher impact of the dollar.
The frequent attacks on Saudi oil facilities are expected to bring a counterattack for crude oil bulls.
In addition, the U.S. airline industry is recovering and the number of passengers flying is surging. The U.S. Transportation Security Administration (TSA) data show that last week for five consecutive days, more than 1 million passengers a day on U.S. aircraft. Market analysts believe this trend is likely to continue, with more vaccinated Americans flying this summer.
A strong aviation fuel market is one of the keys to the overall recovery in the oil market.
Goldman Sachs believes that last week’s selloff in oil prices was just a retreat on the way up, and that a fall in oil prices is just the right opportunity to buy. Goldman Sachs shouted the “buy low” slogan, still bullish on oil in the summer to reach the target level of $ 80 / barrel. Natasha Kaneva, an analyst at JPMorgan Chase, also urged clients in a report, “Don’t mistake a pullback for a derailment.”