[Market Review].
The 10-year U.S. bond yield rose above 1.6%. After two mixed U.S. bond tender sales on Monday, the U.S. Treasury Department continued to tender $62 billion of 7-year U.S. Treasuries during the U.S. stock market lunch session on Tuesday. Thanks to the expected improvement in the supply and demand situation as well as the end-of-month demand, the 7-year U.S. bond tender sale results showed solid demand. The bid rate was 1.306%, the highest level since last January. And the subscription multiple was 2.314 times, a new high since last December.
The 10-year U.S. bond yield had fallen back briefly to below 1.6% after the bid results were announced. Surprisingly, however, U.S. bond yields in the secondary market did not continue their downward movement, but remained generally oscillating upward, with a significant rise in medium- and long-term U.S. bond yields. The 10-year U.S. bond yield rose above 1.63% during the U.S. equity closing session.
This may indicate that investors remain cautious ahead of two other major events. In terms of the U.S. bond market, one of the most critical trading days of the week is undoubtedly this Wednesday. The “collision” between the details of Biden’s tax increase plan and the Federal Reserve’s interest rate resolution is expected to set off a climax in bond market trading.
According to local media reports, U.S. President Joe Biden on Wednesday will be announced in the “American Family Plan” at the same time, the official disclosure of the tax increase plan, hope that the rich in the United States in income, investment and other aspects of the tax rate to the highest since more than 40 years. Some analysts say that Republican lawmakers are likely to collectively oppose the tax hike, and the White House may also encounter challenges from Democratic lawmakers. Goldman Sachs expects that the U.S. Congress will only pass a scaled-down version of the tax increase bill, with the long-term capital gains tax most likely to rise to a rate of 28 percent instead of 43.4 percent. Moreover, the new tax rate is unlikely to apply to gains realized before May, and the increase is more likely to take effect only on Jan. 1, 2022.
In addition, Biden’s infrastructure plan is difficult. A Republican senator said Tuesday that a bipartisan group of U.S. lawmakers is drafting a replacement for President Biden’s $2.3 trillion infrastructure plan that is about half the size of the program.
The dollar index held steady near the 91 handle. Next, let’s focus on the U.S. Dollar Index. The U.S. index largely held steady near the 91 handle during the day. Forex trading was largely subdued ahead of the Fed’s interest rate resolution.
The euro edged up. The European currencies also had modest gains, with the euro edging up against the dollar during the day. France plans to gradually unblock from May. In order to stimulate economic recovery, European Commission President von der Leyen said that the EU will implement a 750 billion euro economic recovery plan. Discussions on the minimum tax rate. France and Germany support the U.S. proposal to impose a 21% minimum tax rate on multinational corporations. However, some smaller European countries are reluctant to accept the plan.
Sterling rangebound. Let’s look at the British pound again. GBPUSD is mainly oscillating in a narrow range of 1.3860-1.3930 with a small intra-day gain.
The U.S. yen is approaching the 109 mark. In the yen, the dollar oscillated upward against the yen during the day and is now approaching the 109 mark.
Gold fell below the $1770 mark. In precious metals, gold oscillated narrowly around $1,780 yesterday. However, by this morning, gold broke through the sideways range and fell below the $1,770 mark.
Silver is under pressure sharply. Likewise, silver is under pressure this morning and is currently trading around $26.
U.S. oil is shaking to the upside. Finally, let’s look at the oil market. U.S. oil has been swinging higher during the day. On the positive side, global oil demand is recovering from the epidemic despite the new crown epidemic raging in India. Against this backdrop, the OPEC+ Joint Ministerial Oversight Committee held on Tuesday recommended keeping the production policy unchanged, which means that the OPEC+ coalition of oil producers will gradually increase production by 2 million barrels per day from May to July. At the same time, the ministerial oversight committee decided that the full ministerial meeting scheduled for this Wednesday will not be held and the next OPEC+ ministerial meeting will be held in early June.
In addition, the attack on a Saudi oil tanker in the Red Sea also supported oil prices. And the U.S. consumer confidence index climbed to its highest point since the outbreak in April, adding to optimism. On top of that, France’s plan to discuss with the U.S. the resumption of air access is also positive for crude oil.
On the negative side, the US API crude oil inventory increased by 4.319 million barrels, the accelerated process of US-Iran negotiations, the Indian epidemic and so on. In addition to paying attention to the follow-up of these events, we can also pay attention to the EIA data in the evening.
[Risk Warning
Gold: If the Fed “doves” gold prices fear to 1850
Some analysts believe that the key to gold prices this week is the outcome of the Federal Reserve meeting. If the Fed said that despite very strong economic data and optimism that the economy will reopen before June, the Fed will not reduce the size of bond purchases for the time being, then gold prices will rise further. In addition, if the Fed can convince the market that the economy is still far from a full recovery, gold prices could easily surge to $1,850 this week. However, if gold bulls are disappointed with the Fed meeting and gold prices fall below $1746, gold prices may consolidate for some time until after the dollar short sentiment is firm before returning.
Yen: If U.S. bond yields continue to rise U.S. yen will rise to 107-112
National Australia Bank believes that the fair value of the dollar against the yen is around 108, and the U.S. yen is expected to fluctuate in the 105-110 range in the coming months. If the 10-year U.S. bond yield rises again, the U.S. and Japanese are expected to gradually move toward the 107-112 range in the second half of this year. The bank expects U.S. bond yields to close at 2.25% by the end of the year after a period of consolidation and with further improvement in global macroeconomics.
Canadian dollar: Canadian dollar trend is fragile Suggest long U.S. Canada at low
TD Securities said that the Canadian dollar is oversold due to its oil currency properties and that the Canadian dollar position is overcrowded and the Canadian dollar trend has become fragile and vulnerable to the global environment. While the dollar could fall to 1.20 against the Canadian dollar next year, it is unlikely to do so in the near term. In the near term, the Canadian dollar should continue to outperform European currencies such as the British pound and the euro, but a new breakout at current levels is unlikely. Therefore, the bank is inclined to go long on the U.S. dollar, which could rise to 1.26. For now, the Bank of Canada has become hawkish, which has given the Canadian dollar a boost. However, traders are waiting to see if the Bank of Canada will follow through with its forward guidance in the coming months.
[Key Outlook].
22:30 US EIA crude oil inventories for the week ending April 23: expected to increase
First, let’s focus on US crude oil inventories. Last week’s inventory data was released with an increase of 594,000 barrels. This morning, API crude oil inventories have been released, increased by 4.319 million barrels, far exceeding market expectations. Financial blog Zero Hedge commented that for now, while concerns about the Indian epidemic remain, many remain confident that the rest of the world will recover.
Based on past experience, API inventory data and EIA inventory data have a relatively strong positive correlation, so EIA crude oil inventories may also increase.
Even so, it is still necessary to pay attention to the current market expectation that the US EIA crude oil inventory may increase by 375,000 barrels in the week to April 23. If the published data exceeds the expectation, oil prices may dip in the short term; if the inventory data is less than expected, oil prices are expected to strengthen.
This comes after OPEC+ said it cancelled a ministerial meeting today and is confident in the current plan to cut production. Last night, Russian Deputy Prime Minister Novak said OPEC+ said it would increase oil production from May to July. And he said that oil demand is recovering and that crude demand is expected to increase to 6 million barrels per day in 2021 and that he hopes oil prices will remain stable through the end of the year.
Thursday 02:00 Federal Reserve FOMC announced interest rate resolution: expected to stay put
Next, take a look at the Federal Reserve’s upcoming interest rate resolution. Most investors expect that the economic outlook will improve and there will be no new changes in policy. However, policy expectations may shift once the Fed reveals that it is considering tapering measures for the special period.
Allianz chief economic adviser pointed out that although the Fed officials in the last meeting, has been a significant upward revision of economic growth expectations. But after the recent release of a series of beautiful economic data, the Fed may again raise its economic expectations for 2021. However, even if the economic outlook improves further, the Fed is unlikely to change its policy guidance.
On balance, the Fed is likely to maintain existing policy and has indicated a willingness to take additional measures to remedy downside risks to the economy if they arise, and to treat inflation and other overheating risks as temporary.
Alternatively, if the Fed acknowledges the potential strong economic momentum, it implies a hawkish stance, which could support the dollar’s renewed upside.
Thursday 02:30 Fed Chairman Powell’s conference: or the same old story
Later, Fed Chairman Powell will hold a conference. Although it seems that the U.S. economic recovery is getting better from a lot of economic data, many analysts believe that Powell will still repeat the same old story and remain cautiously optimistic about the recovery.
Powell may emphasize that the huge gap in the labor market will still exist. The Fed wants to see “real” progress before it starts discussing the issue of eliminating extraordinary support efforts. Powell will adhere to the Fed’s ultra-loose stance, which will put pressure on U.S. bond yields and the dollar.
ABN AMRO said the bank predicted that until the end of the third quarter of 2021, the content of the Fed’s external communications may be somewhat larger changes. And the increase in the number of the Fed’s external communications may indicate that the Fed will continue to fully support the economy for some time to come, even in the face of a strong recovery and rising inflation expectations.
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