[Market Review].
This week, 10-year U.S. bond yields and the U.S. dollar index continued to be under pressure. Gold and silver, non-US currencies and crude oil were “up”. Let’s take a look at the details.
The 10-year U.S. bond yield fell from 1.7% at the beginning of the week to just below 1.6%.
A series of important data were released in the U.S. this week. Among them, the CPI rose 0.6% in March, better than expected and the previous value; the monthly retail sales rate in March recorded 9.8%, a new high since May last year; and the initial jobless claims released on the same day recorded 576,000, lower than the expected 700,000. Economic data showed strong performance, but the U.S. bond yields did not rise as a result, but under pressure to the downside. Some analysts say that this indicates that the market has digested the data strong expectations.
At the same time, the data released in Japan showed that Japanese investors bought a large number of overseas bonds, which may also contribute to the rise in U.S. bonds. In addition, and a large number of financial debt issuance related to the hedging demand, may also bring buying to the U.S. bonds. In addition, some strategists said that part of the reason may be related to geopolitical risks, but it may also be simply because yields have risen too sharply in recent months.
The dollar index fell below the 92 mark. U.S. bond yields hovering below their highs also weighed on the dollar index. Following the previous week’s selloff, the dollar index continued to swing lower this week and has now fallen below the 92 handle.
This week, Powell delivered a speech. He said that the U.S. economy is at an inflection point to accelerate growth, but also warned of the risk of a surge in new crown cases. Policymakers will wait until inflation continues to reach 2% and the labor market has fully recovered before considering raising interest rates. He said that these two conditions are unlikely to be fully realized by the end of 2022. In addition, Powell also said the Fed may gradually reduce the size of bond purchases before considering raising interest rates. It is worth noting that he did not specify when the reduction will be discussed, as St. Louis Fed President Bullard did earlier. Bullard said at the time that when the U.S. vaccination rate reaches 75 percent, discussions on QE tapering may begin. The media has since estimated that the U.S. will reach 75% vaccination in August of this year, as soon as June, using the current rate of vaccination.
This week, in addition to Powell’s speech, there was also news that San Francisco Fed President Daley called for reform of the U.S. debt market, and New York Fed Executive Vice President Logan said he would adjust management rates “as needed.
And about the progress of the Biden-based construction plan, also came out a lot of news. It is reported that, in order to minimize the differences between the two parties, some senators said that the infrastructure bill may be divided into two, the final scale may be reached, or between $800 billion to $1 trillion. In addition, there is news that the Republican Party has proposed a $650 billion infrastructure plan, and Republican senators are expected to announce the proposal during the “May recess. We can keep an eye on all this news.
Gold rose above $1760. Against the backdrop of weaker U.S. bond yields and the U.S. dollar index, gold saw a sharp rally, rising above $1,760 from near $1,740 earlier in the week.
Silver moved strongly higher. And silver’s gains were no less impressive. Silver was up 1.4% for the week and at one point was strongly above $30.
The euro rose for the second week in a row. In addition to the big gains in gold and silver, the euro also rose by more than 40 points this week, for the second consecutive week of gains. The currency pair is currently trading near 1.1960.
The British pound reversed the previous week’s decline. The British pound. The pound’s gains were not as pronounced as the euro’s, but it also rose more than 20 points, reversing the previous week’s losses.
U.S. oil jumped 6%. Finally, a look at the oil market. U.S. oil jumped 6% this week. API and EIA crude oil recorded big decreases, which greatly supported oil prices. In addition, the three oil market reports released this week by the energy triumvirate OPEC, IEA and EIA, which showed that crude oil demand will pick up, also fueled the optimism in the oil market. In addition, the steady pace of the U.S. and global economic recovery, as well as the still tense U.S.-Iranian relationship, also boosted oil prices. Of course, outbreaks and vaccine supply issues are still potential downside factors for the oil market, and we should always keep an eye on them.
[Risk Warning].
Euro: The euro is only corrective higher, there are still downside risks
Commerzbank analysts believe that the current EURUSD rally is a corrective move higher. The currency pair can only break through 1.1990-1.2014 upwards to remove downside pressure. However, downside risks are increasing now that EURUSD has fallen below the 1.1975-1.2014 range. On the downside, we can look down to 1.1835 and then 1.1704-1.1695. If it falls below 1.1695, we can look at 1.1648; and the 2008-2020 downtrend line at 1.1570, although the exchange rate is expected to hold that level.
British pound: the British political situation may welcome the waves of the British pound fear of downward pressure
According to ANZ, the possibility of a difficult political situation within the UK against the backdrop of Brexit uncertainty has raised questions about the medium-term trend of the pound.
The disagreement between the UK and the EU over the Northern Ireland border control issue remains. In addition, Scotland’s push for another independence referendum has heightened the political risks in the UK. Previously, Scotland published a draft independence referendum. Although the British government is unlikely to recognize the bill, with the new Scottish Parliament elections coming up on May 6, this bill is also likely to be passed if the Scottish National Party gains a majority.
The bank noted that the two issues, Northern Ireland and Scotland, are likely to moderate the market’s positive sentiment towards the pound. Therefore, it will be important to monitor these two major events in the coming weeks.
Australian dollar: positive factors highlighting the Australian dollar may climb to 0.7775
Westpac said that the pullback in the US dollar is still ongoing, pushing the Australian dollar to break out of the top of the range. Australia’s economic data performed well, with the bank’s survey of consumer confidence touching a 10-year high in April and March’s employment data beating market expectations, with 71,000 new jobs bringing the unemployment rate down to 5.6%. This all strengthens the case for a bullish Australian dollar. Given the likely elevated global risk appetite and the muted trend in the US Dollar Index, the AUDUSD could extend its gains to near 0.7775.
[Key Outlook].
17:00 Eurozone March CPI expected to shine
This afternoon, the eurozone will release CPI data. The annual CPI rate remained at -0.3% from September to November last year, then quickly picked up, with the previous two months’ data recording 0.9%. the preliminary annual CPI rate for March recorded 1.3%, and the preliminary monthly CPI rate recorded 0.9%.
Currently, the market expects the final value of March CPI annual rate of 1.3% in the euro zone, if the published value is greater than expected, or good for the euro; conversely, will be negative for the euro.
Also published is the final CPI monthly rate, the current market is expected to record 0.9%. According to the historical pattern, the CPI final value of the euro is not very influential, you pay attention to it.
The current vaccination rate in Europe is slowly increasing, and the 7-day average new cases are slowing down. This will help the economy to gradually recover, and there is some support for the euro.
Saturday 01:00 US oil drilling total fears increase
Next to focus on the total number of U.S. oil drilling, the data released last week was 337, unchanged from the previous value, but generally maintaining an upward trend. This indicates that the U.S. economy is recovering, increasing the expectations of extractors for economic recovery.
Currently, the market expects the total number of U.S. oil drilling to 343 for the week of April 16, if the published value is larger than expected, or bearish oil prices; conversely, it will be bearish oil prices.
The current orderly vaccination process in the U.S. and the continuation of the massive monetary and fiscal stimulus in the U.S. will increase the demand for crude oil in the U.S. Vaccinations and the epidemic in Europe have improved, which also benefits the oil market. On the negative side, one needs to be wary of the gradual increase in OPEC+ production and the doubts about the safety of AstraZeneca and Johnson & Johnson vaccines. Again, there is the process of US-Iran negotiations. All in all, there are both long and short factors in the oil market.
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