[Market Review].
The US dollar index recovered slightly. The U.S. dollar index rose slightly. The number of job openings in the US jumped in April. It can be said that the Fed is currently facing the dual pressure of inflation and employment. This makes the Fed in the dilemma of monetary policy making. However, in general, the Fed has maintained a largely dovish stance, but has also begun to work on reducing its holdings of corporate debt and other items. As there are no new signals now, investors are keeping a wait-and-see attitude and are waiting for information on inflation levels and global central bank policies to set further direction.
Infrastructure talks between Biden and the Republicans broke down. As for Biden’s stimulus plan, according to U.S. media reports, negotiations between Biden and a group of Republican senators on an infrastructure bill have broken down, with serious differences between the two sides on the composition of infrastructure and the allocation of funds. With no agreement reached, a number of other bipartisan lawmakers are quietly drafting an alternate infrastructure bill. According to local media, if the talks continue without results, Biden will likely have to consider whether to rely solely on Democratic votes to advance the infrastructure plan.
Gold is battling between the long and short sides for the 1,900 mark. Next, let’s focus on gold. Gold prices pulled back slightly, jumping to an intra-day high of $1,903.4 early in the U.S. session before turning back down and eventually closing down 0.37% at $1,891.80 an ounce. Gold prices saw a long-short tug-of-war at $1,900. Sliding U.S. bond yields have been the driving factor for gold prices recently, while a stronger dollar and rising stock markets have been the downside.
Silver fell 1% during the day. Likewise, silver saw an intra-day decline. Silver prices fell 1% from a high of $27.95 to near $27.6.
The euro came under slight pressure. In non-U.S. currencies, the euro also fell by more than ten pips against the dollar and is now trading around 1.2170. Regarding the aftermarket, we can shift our focus to Thursday’s ECB interest rate resolution.
Delayed easing of the embargo fears have resurfaced to weigh on the pound. Moving on to the British pound, the pound was also under slight pressure against the dollar during the day. There are reports that after being briefed by British medical officials, British cabinet ministers are pessimistic about easing the anti-epidemic embargo. Meanwhile, some strategists said that the pound is set to enter a period of uncertainty as talk continues about the possibility of a delayed economic restart. Also, the UK is set for another round of negotiations with the EU.
U.S. oil rages through the $70 mark. Finally, a look at the oil market. U.S. oil broke the $70 mark strongly. Secretary of State Blinken said that hundreds of U.S. sanctions against Tehran will remain in place even if the U.S. and Iran reach a deal. This could mean more Iranian oil supplies will not return to the market soon. The news boosted oil prices significantly. In addition, API crude oil inventories fell by 2.1 million barrels, which also supported oil prices.
[Risk Warning].
OPEC+ may continue to raise production as global demand recovers
An energy consulting firm said that OPEC+ may continue to increase production after July as soaring gasoline consumption leads global demand recovery. The recovery in global oil demand is expected to accelerate to 98 million barrels per day by the end of the year, compared with about 94 million barrels per day at present, as Western countries ease restrictions. Brent crude is expected to be between $58-65 per barrel by early 2023 and below $50 per barrel by the end of 2025.
Institutions keep a wait-and-see attitude European and American end of the year look to 1.15
United Nordic Bank said the euro was previously boosted against the dollar due to a combination of momentum from the reopening European economy and euro rate hike bets. However, considering that the economic reopening in southern Europe may bring more good news in June. Therefore, until the end of summer, the bank will remain on the sidelines and expects the year-end target for Europe and the United States to remain around 1.15.
Australian economy expected to be strong Australia and the United States will rise to 0.82 at the end of the year
Westpac economists expect the Australian dollar to rise to 0.8 against the U.S. dollar by the end of September and 0.82 by the end of the year, mainly on the grounds that Australia has achieved a trade surplus for 40 consecutive months and a record current account surplus for eight consecutive quarters. As the global economy recovers in tandem this year, the Australian dollar is expected to benefit from it. It should be noted that the slow pace of vaccination for the new crown in Australia has limited the economic recovery after the epidemic to some extent, and the AUDUSD is expected to consolidate for some time before it is likely to turn higher.
[Key Forecast].
22:00 CBC may continue to scale back bond purchases
First, to focus on the Bank of Canada’s upcoming interest rate resolution. In the April interest rate resolution, the central bank maintained the original policy rate, while announcing a cut in the Canadian Treasury bond purchase program from C$4 billion to C$3 billion. The central bank also brought forward the expected schedule for raising the benchmark interest rate to the second half of 2022, from the previous 2023.
Last week, Canada released job market data for May, which showed that employment in Canada fell by 68,000 in May, while the unemployment rate was 8.2%. Among the employed population, the number of full-time employment decreased significantly compared to the previous value, while the number of part-time employment also decreased slightly less than the previous value, which indicates that the Canadian job market is still not optimistic, but there are signs of a slow recovery.
Some analysts pointed out that after the gradual vaccination, the Canadian job market is in a slow recovery phase, but there is a large gap compared to the continued growth of employment, so the Bank of Canada is estimated to be difficult to quickly advance the tightening policy. In the context of rising house prices and inflation in Canada, the Bank of Canada is indeed in a dilemma. And late last month, Bank of Canada Governor McCollum said that Canada’s economic data in the first quarter was strong and did not mind withdrawing the unconventional stimulus measures extended during the epidemic.
Taken together, we expect the Bank of Canada to keep interest rates unchanged at 0.25%, possibly releasing a signal to continue tightening bond purchases. With the Canadian job market as well as the economic recovery, the BoC may continue to taper its bond purchases, which would support the Canadian dollar.
22:30 EIA crude oil inventories expected to decrease
Next, come to focus on U.S. crude oil inventories. Last week’s inventory data was released with a decrease of 5.079 million barrels. This morning, API crude oil inventories have been released and decreased by 2.108 million barrels, which is less than the market expectation. Based on past experience, API inventory data and EIA inventory data have a relatively strong positive correlation, so EIA crude oil inventories may also decrease.
Even so, it is still necessary to pay attention to the current market expectation that the EIA crude oil inventory in the week of June 4 may decrease by 3.576 million barrels. 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.
Oil prices have rallied to their highest in about two years, driven by OPEC+’s efforts to limit supply. Higher oil prices have prompted some U.S. producers to increase drilling activity, with the number of active rigs rising for the 10th consecutive month in May.
Yesterday, the EIA said that based on current forecasts that U.S. crude prices will remain above $60 per barrel in 2021, producers are expected to drill and complete enough wells to produce more in 2022 than they did in 2021. Overall, U.S. crude oil demand is expected to increase by 1 million barrels per day in 2022, to 20.61 million barrels per day.
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