This week, U.S. bond yields and the U.S. dollar index recovered, while gold and silver, as well as non-U.S. currencies, came under pressure, while oil prices fluctuated, but generally remained above $60. Let’s look at the details next.
The dollar index has recovered. The U.S. economic data released this week was very good. April’s unadjusted CPI registered an annualized rate of 4.2%, the highest since September 2008. the CPI data soared, pushing up U.S. bond yields and the dollar index, which climbed to around 90.7.
In addition, the data also intensified market discussions about rising inflation. Market expectations for a rate hike have also risen as a result. The U.S. money market sees a 100% probability of a 25 basis point rate hike by the Fed by December 2022, compared to 88% previously.
And last night’s April monthly PPI release recorded a 0.6% rate, the largest year-over-year gain recorded since the series was revamped in 2010, following a 4.2% increase in March. This further fueled concerns about rising inflation.
However, judging from the recent statements of several Fed officials, the Fed still does not seem to be in a hurry to taper its easing policy. Federal Reserve Vice Chairman Clarida said the double surprise of weak job growth and stronger inflation in April did not affect the Fed’s plans. He stressed that there is still some time before the U.S. economy heals enough for the Fed to consider withdrawing easing.
As for Biden’s economic plan, the plan was discussed this week between Biden and Republican lawmakers. Biden expressed a willingness to make compromises. And those lawmakers highlighted the significant differences with Biden, but said it might be possible to reach an agreement. We all know that there is widespread opposition within the Republican Party to the size of Biden’s plan and the tax increases that would fund his spending plan.
And according to market sources, Biden will release his first detailed budget proposal on May 27, so we can keep an eye out for it then.
Gold retraced its gains. U.S. bond yields and the U.S. dollar index rebounded, depressing gold. Gold fell to near $1,800 for a while before recovering to above $1,820.
Silver was under slight pressure. Silver is moving roughly similar to gold. Earlier in the week, silver mainly oscillated in a narrow range around $27.50, then came under pressure to the downside and is now trading around $27.
The euro fell below the 1.21 handle. In addition to gold prices, non-U.S. currencies also saw declines. The euro fell more than 80 points against the dollar this week, and has now fallen below the 1.21 mark.
The British pound rose and then fell. Likewise, the pound gave back some of its gains against the dollar this week. However, the fundamentals of the pound are still good, limiting the pair’s losses. The UK vaccine process remains ahead of most countries. In addition, the easing of restrictions in the UK has helped the economy recover.
U.S. oil fell to near $63. Finally, let’s take a look at the oil market. U.S. oil touched a high of $66.59 this week, then fell to near $63. Overall, the lack of fundamental factors to help oil prices rise in the short term, with the resumption of operations of U.S. energy pipelines shut down by hacking attacks, has put short-term oil price momentum on hold. And U.S. inflation caused interest rate hike concerns, as well as the spread of India’s mutated strain of poison in countries around the world, all constitute factors for the downside of oil prices.
U.S. dollar: U.S. bond yields may continue to rise U.S. dollar index to move higher
Capitol Macro said that risk appetite will not weaken further, given the optimistic outlook for economic growth. Nonetheless, most measures of global risk premiums are currently at or below the levels prior to the outbreak, so risk appetite will not pick up significantly.
The U.S. vaccine rollout, on the other hand, has been particularly rapid and financial support has been particularly large. The outlook for U.S. economic growth and inflation ranks among the top developed countries, which will eventually drive U.S. Treasury yields to start rising again, and faster than most other countries. In doing so, the dollar will move higher.
Euro: vaccine injection if the turn optimistic Euro-Swiss will break upward
Commerzbank analysts pointed out that the eurozone countries are now further on track for vaccination action, which will constitute a continued positive for the euro, the euro against the Swiss franc will be broken to the upside. This Tuesday’s low of 1.0927 is expected to become the stage of the bottom level, above the short-term target will be re-looked at the March high of 1.1152.
In addition, the analyst pointed out that once the epidemic in the euro zone under the concerted efforts of vaccines as expected to fall further, the time will also come for the ECB to reduce policy easing efforts. This news background will eventually strengthen the euro further, and eventually the euro will attack the 2018 high of 1.1255 against the Swiss franc, and in the longer term will look up to 1.1325.
New Zealand dollar: New Zealand US stops falling at 0.71 rally about to restart
Economists at Westpac said the impact of the U.S. CPI data on the NZDUSD should be repaired soon. As long as the NZDUSD holds 0.71, it will remain bullish.
In essence, the New Zealand government’s finances are far less affected by the New Zealand crown epidemic than anyone feared. As the fiscal situation improves, the New Zealand government has also indicated that it will adjust its spending and investment plans so as to maintain its stimulus to the economy.
19:30 ECB may maintain a cautious stance
First, let’s focus on the ECB’s upcoming monetary policy meeting minutes. Last month, the central bank announced its interest rate resolution, keeping three key interest rates unchanged and maintaining the monthly bond purchase scale of 20 billion euros. In terms of interest rate policy, the ECB expects that interest rates will remain at current or lower levels until the inflation outlook converges steadily within the forecast range but below the 2% level. In terms of asset purchases, the ECB said that the size of the 1.85 trillion euro emergency anti-epidemic bond purchase program, will continue until at least the end of March 2022, and committed to the asset purchase program will continue until the interest rate hike. The central bank confirmed that it will significantly accelerate the pace of bond purchases in the current quarter.
Later, ECB President Lagarde said that the recovery in global demand supports the economy, but that the rebound in inflation is temporary and that headline inflation is likely to rise in the coming months. She also reiterated the ECB’s very accommodative monetary policy stance. She believes the economy may contract again in the first quarter, but growth is likely in the second quarter, and by mid-2022, the eurozone economy will return to pre-epidemic output levels.
On balance, we expect the ECB to emphasize that it will maintain its accommodative stance, that higher inflation is only temporary, and that it will accelerate bond purchases in the current quarter. All in all, the central bank’s policy statement will not contain many surprises, so just keep an eye on it.
20:30 U.S. retail sales data may increase slightly
Next, let’s take a look at the monthly retail sales rate for April, which will be released in the US. The monthly U.S. retail sales rate has been volatile in recent months, falling to -3% in February and soaring to 9.7% in March. Some agencies commented that U.S. retail sales rebounded sharply in March as Americans received additional aid checks from the government and increased vaccination numbers allowed the economy to restart more broadly, solidifying market expectations for strong growth in the first quarter. At the same time, rising temperatures and rapidly improving sanitation conditions have allowed more restaurants to offer food service.
The market expects retail sales to return to modest growth in April. The University of Michigan Consumer Confidence Index rose in April’s final reading, with about 64% of consumers saying the economy is doing well. More respondents also cited job growth. This data is expected to maintain an upward trend as consumer confidence is increasing as vaccinations accelerate and more states and businesses reopen.
Currently, the market is expecting a monthly U.S. retail sales rate of 1% in April. If the data meets or exceeds expectations, the dollar index is expected to gain support. Conversely, if it is lower than expected, the dollar index may suffer a blow.
Recent data released by the U.S. are good performance, retail sales may also be better than expected, the dollar is expected to gain support.