[Market Review]
The United States fears a new outbreak. In addition, we also need to pay attention to data showing that there are more than 121,000 new cases of coronary pneumonia in the United States on a single day. Some experts say that the epidemic will be raging in the United States in the coming weeks as about 6 million people traveled by plane during the Thanksgiving holiday. Faced with a worsening epidemic, U.S. federal and state governments, as well as public health experts, are focused almost exclusively on a vaccine. Currently, the first “massive airlift” of Pfizer vaccine has arrived in Chicago. In addition, the U.S. vaccine manufacturer Moderna has submitted an emergency use authorization application to the U.S. FDA. If authorized, Moderna’s entire stock will be sent to the federal government.
Gold prices fell to a five-month low. Gold prices continued their downward trend during the day, hitting a five-month low of $1,764.57 per ounce. The prospect of economic growth driven by the New Crown vaccine overshadowed the safe-haven asset.
Silver fell before rising. Not unlike gold, which fell slightly, silver rose slightly during the day. After hitting an intraday low of $21.87 per ounce, silver rebounded, recovering earlier losses and is now trading near $22.50. The euro failed to hold the 1.20 level.
The euro failed to hold the 1.20 handle. Non-US currencies. Earlier, the EURUSD once broke through the 1.20 barrier, but then failed to stabilize the rally. German CPI data fell short of expectations, German Chancellor Angela Merkel’s speech on the outlook for the epidemic continued to reveal cautious sentiment, coupled with the rebound in the U.S. dollar, making the currency pair under pressure to fall back below the 1.20 mark. Under the current circumstances, the IMF called for the ECB to take additional stimulus measures to push up inflation, and should also consider easing the terms of its targeted long-term refinancing operations to lower interest rates.
The UK-EU trade negotiations are in “considerable difficulty”. Next, let’s look at the British pound, the pound against the dollar intra-day narrow range. The European Union said that the UK-EU trade talks are in a “very difficult situation”. If no trade deal is reached with the UK by Wednesday or Thursday, the EU will launch a no-deal contingency plan. Let’s look at the UK’s epidemic control situation. At the moment, the British public does not seem to be paying much attention to epidemic prevention measures. British police say they dispersed a number of large illegal parties this past weekend. As previously reported, the UK will end its “national lockdown” on December 2, and in its place, a strict “tiered system of control” will be implemented by the government cabinet.
The OPEC meeting ended inconclusively. Finally, looking at the oil market, OPEC’s talks ended on Monday with members failing to agree on postponing next year’s oil production increase, and US oil fell slightly.
In the bond market
Overnight, the yield on China’s 10-year Treasury note fell by 1.44%, while the yield on the US 10-year Treasury note fell by 0.29% and the yield on the US 3-month Treasury note fell by 3.76%.
In the stock market
U.S. stocks closed all down, with the S&P 500 down 0.46%, the Nasdaq down 0.06%, and the Dow Jones down 0.91%; by this morning, China’s stock market opened mixed, with the Shanghai Composite Index down 0.08%, the ChiNext Index down 0.12%, and the Hong Kong Hang Seng Index up 0.31%.
[Risk Alert]
Euro: Multiple Factors Negative, Euro May Look Down at 1.18 Next Year
The Canadian Imperial Bank of Commerce expects the euro to be underperforming by the end of the first quarter of next year by 1.18. Long positions in the euro have fallen from record highs since the end of August. In addition, slowing economic growth in the euro zone, the ECB’s easing policy, and political concerns are weighing on the euro. As a result, the agency expects the euro to face more downside risks during 2021.
Pound: If the progress of the UK-EU negotiations is unclear, the pound fears downside
Crédit Agricole notes that in the short term, FX investors are likely to intensify their focus on the Brexit process, especially in the absence of important economic data from the UK this week. If the Brexit progress signal is unclear, the pound may even start to give back its recent gains.
Canadian dollar: risk premium may rise again U.S. and Canada expected upside
Bank of America expects the USD/CAD to rise to 1.31 by the end of the year. the agency says that Canada’s external financing risks remain significant, but expects the situation to improve as 2021 rolls around. Bank of America expects the pair to rise to 1.34 in the first quarter due to a temporary recovery in the Canadian dollar risk premium.
[Key Outlook]
11:30Australian Fed may stay put
At noon today, the Australian Federal Reserve will announce its interest rate decision. At the beginning of November, the Fed lowered its benchmark interest rate, as well as its 3-year Treasury yield target, from 0.25% to 0.1%. The Fed also said that it will implement a new round of QE program of 100 billion Australian dollars and is prepared to purchase sufficient amount of bonds to meet the 3-year Treasury yield target. The President of the Australian Fed, Mr. Lowe, said that it is not possible to use negative interest rates.
Based on this, we predict that the Australian Fed will probably keep interest rates unchanged, emphasizing that it will adjust the size of bond purchases according to the situation.
According to Bloomberg data, the Australian dollar has risen after 12 of the 13 previous meetings of the Australian Fed. Therefore, the Australian Fed’s decision-making meeting may boost the Australian dollar.
23:00 Powell expected to maintain a cautious stance
This evening, Federal Reserve Chairman Jerome Powell will appear at a Senate hearing to answer questions about outbreak assistance, relief. Earlier this month he stated that the increasing likelihood of an effective new coronavirus vaccine becoming available is good news for the economy in the coming months. However, short-term risks remain as the neo-crown epidemic continues to spread. Now is not the time to call off emergency programs, and with the number of cases spiking again, the economic recovery has a long way to go. Although Powell agreed to return unused funds from the CARES Act, yesterday he reiterated the importance of the loan program.
Based on this, we believe that Powell is likely to emphasize that the number of new crown cases in the U.S. continues to surge, that the Fed will take steps to support the economy, and that he will call for fiscal support.
Overall, Powell will maintain a cautious stance and while the vaccine may be rolled out gradually, there is still uncertainty.
Pending OPEC + internal divisions grow
Moving on to OPEC+’s upcoming ministerial meeting. Previously, it was reported that OPEC+ was considering extending the current 7.7 million barrels per day production cut by three to four months, or gradually increasing the amount of oil produced. However, yesterday the organization did not reach any agreement.
Some OPEC+ members, including Russia, have insisted on a gradual increase starting in January; however, some have proposed a three-month delay. Delegates said that the OPEC+ ministerial meeting was rescheduled for December 3 because more negotiations were needed.
Currently, the positions of Russia, Kazakhstan and the UAE are in doubt. Kazakhstan is strongly opposed to extending the current scale of production cuts into next year, insisting that it should start scaling back production as originally planned. Russia also showed some resistance to the extension, but did not directly deny it.
The UAE, OPEC’s third-largest oil producer, has not formally communicated its position, choosing instead to wait and see. In the middle of last month, the UAE hardened its stance on compliance, saying there was little reason to extend the current cuts if some countries could not fully meet their commitments and fell far short of agreed production quotas. This may have been a factor in the UAE’s refusal to communicate about extending the cuts.
There is also a significant risk that Saudi Arabia is considering stepping down from its role as co-chair of the OPEC+ Joint Ministerial Oversight Committee. While the UAE has been proposed to take over this role, the country has not agreed. This adds uncertainty to the OPEC+ meetings. If Saudi Arabia were to step down, Russia would be the only country to lead the JSC. This could increase the risk of the alliance breaking down.
All in all, divisions within OPEC+ have intensified, with members disagreeing on an extension of the production cut agreement.
If the parties do not ultimately reach an agreement to postpone production increases, oil prices will come under pressure. Another thing to watch out for is Saudi Arabia’s formal resignation as co-chair of the OPEC+ Joint Ministerial Supervisory Committee. This will also put pressure on oil prices.
Wednesday 05:30 API crude oil inventories expected to decrease
Lastly, let’s focus on the U.S. crude oil inventories that will be released by API. Last week, the API report showed that US crude oil inventories increased by 3.8 million barrels, much more than expected.
By this week, the market expects that the U.S. API crude oil inventories will decrease by 2.272 million barrels in the week ending November 27th. If the published value is larger than expected, oil prices may come under pressure; otherwise, oil prices may rise.
The recent rise in the number of new U.S. new coronary cases will dampen market expectations for crude oil demand and may put pressure on oil prices.
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