Crude oil bulls make a comeback as U.S. bond yields stop rebounding?

[Market Review].

U.S. bond yields stopped rebounding. On Friday, the yield on the 10-year U.S. Treasury note rose about 6 basis points to 1.35%. Some recent weak U.S. data releases, coupled with a surge in new crown cases in many parts of the world, fueled fears that the global economic recovery is losing momentum, causing the 10-year U.S. bond yield to grind to a halt on Friday after eight straight days of declines. Rising yields supported riskier assets and currencies, with global stocks rising and commodity-related currencies the Australian and New Zealand dollars gaining traction.

Gold posted three consecutive weekly positives. Gold prices recorded a third consecutive positive week, ending up 1.22%, which was the largest one-week gain in nearly seven weeks. There are growing concerns that the spread of the Delta variant of the virus could hamper the global economic recovery. The unsteady pace of recovery in the U.S. labor market and expectations of a tighter monetary policy by the Federal Reserve followed and cooled, also boosting the appeal of gold.

EU raises economic forecasts. The European Union’s executive committee last Wednesday raised its economic growth forecast for the eurozone, which is expected to grow 4.8% this year, led by hopes of an economic reboot in the second quarter and improved conditions in the peak tourism season. The momentum of the economic recovery is expected to continue next year, when the eurozone is expected to grow by 4.5%. In addition, the European Central Bank set its medium-term inflation target at 2%, abandoning its previous target of “below but close to 2%”.

The UK may lift restrictions next week. Last week, the pound closed slightly higher, with the UK’s reopening plan accounting for the pound’s strength. The U.K. is expected to lift restrictions related to the new crown outbreak next week, becoming the first major country to officially begin accepting the presence of the new crown virus.

Crude oil volatility increased. OPEC+ talks to increase production collapsed and the UAE rejected a proposal to extend the deal to cut output for eight months, creating a drag on oil prices, which fell from multi-year highs to a three-week low at one point. But the shale oil industry has remained fairly restrained so far in the year, and the market responded positively to last week’s decline in U.S. oil inventories, with oil prices eventually recovering most of their losses for the week.

[Risk Warning].

Inflation continues to support gold prices Gold may look to 1900

Bank of America said that although inflation expectations continue to support gold prices, the trading range for gold prices has narrowed and the possibility of Fed tightening has kept the market in line for gold. As a result, Bank of America has sharply lowered its expectations for the precious metal, expecting gold to average $1,828 this year, while by the fourth quarter, the price will rise back above $1,900.

U.S. Swiss may test upward Focus on April highs at 0.9472

Commerzbank’s technical analysis suggests that in the longer term, the dollar will test upward against the Swiss franc at the April high of 0.9472. The general risk aversion in the market led to a spike in the Swiss franc, which was again stopped at 0.9264 and came under selling pressure. The recent weakness is now seen as only a corrective adjustment and a pullback to the 0.9115-0.9080 range is still possible.

Canadian data improving, US-Canada eyes support at 1.2405

Public health restrictions were eased in several Canadian regions because of higher oil prices and data showing that Canada added more jobs than expected in June. Canada added more jobs than expected in June, which also put pressure on the dollar against the Canadian dollar. Some analysts point out that the 1.2405-1.2610 area is key and could be a new short-term limit.

[Key Outlook].

Wednesday 10:00 New Zealand Fed may stay put

The New Zealand Fed has kept interest rates at record lows, but with New Zealand quickly shaking off an epidemic-induced economic downturn, the central bank hinted at a rate hike as early as next September, one of the first global advanced economies to say it wants to exit stimulus.

New Zealand’s gross domestic product grew 1.6 percent in the first quarter, well above expectations, and the country’s economy is recovering and monetary policy may tighten sooner than previously expected. The New Zealand Federal Reserve previously said that economic activity is returning to levels seen before the new crown outbreak.

However, fragile links remain, and the recovery will require continued monetary and fiscal support. The New Zealand Fed has also indicated that it is adding debt service limits to its policy toolkit to support the sustainability of house prices.

Some analysts expect that the New Zealand Fed may announce an end to its plans for large-scale asset purchases at its August meeting. And it may release a clear signal to raise interest rates. Last week several investment banks brought forward the New Zealand Fed’s rate hike expectations to November this year. If the New Zealand Fed sends such a signal to the market, the New Zealand dollar may gain support.

Wednesday 22:00 Bank of Canada may reduce the size of bond purchases

The Bank of Canada said in June that the economy will “rebound strongly” as vaccinations accelerate. But the central bank reiterated that interest rates remain unchanged until at least the second half of 2022, noting that there is still considerable idleness in the economy. If supply imbalances and capacity pressures persist, inflation could remain higher than expected, which could lead the central bank to scale back stimulus measures sooner than currently expected. Governor McCollum said growth took a few twists and turns in the second quarter of 2021 after the economy recovered quickly from the new crown epidemic earlier in the year.

The Canadian labor market is now rebounding, while restrictions to contain a third wave of New Crown infections have been lifted. Data released on Friday showed that Canada added 2.307 million jobs in June and the unemployment rate fell to 7.8%, which should allow the Bank of Canada to further scale back its bond purchase program. The Bank of Montreal believes that the Bank of Canada will scale back its bond purchases again.

In addition, an agency survey shows that the Bank of Canada may cut the weekly asset purchase size by C$1 billion and will raise interest rates to 0.5% in the fourth quarter of 2022. Some industry insiders said that the reduction of bond purchases may support the Canadian dollar, but the Bank of Canada does not want the Canadian dollar to appreciate to a level that weakens the competitiveness of Canadian exports.

Thursday 00:00 Powell hardly a surprise word

The semi-annual monetary policy report released earlier showed that the expansion of the new vaccination program has helped the U.S. economy rebound strongly and that monetary policy will continue to provide “strong support” for the economy. Progress in vaccination, supported by accommodative monetary and fiscal policies, has pushed the economy to reopen and grow strongly, but the impact of the outbreak continues to put pressure on the U.S. economy, and employment remains well below pre-outbreak levels.

The Federal Reserve said the labor force participation rate has picked up over the past few months, but is less consistent than the unemployment rate data. Many people are still not employed because of concerns about the virus and the need to care for children in online classes.

Some analysts say that Powell may have said that the economic recovery is not complete, inflation is temporary and there should not be a rush to tighten monetary policy.

Analysts believe that since the June FOMC meeting, there have been many speeches by Fed officials, coupled with mixed economic data, meaning that the probability of a surprise at this hearing is low. It is unlikely that there will be a clear statement about the size reduction before the annual Jackson Hole central bank meeting in late August or in September.

Thursday TBD OPEC crude oil production expected to increase in June

Last month, OPEC released its monthly report showing that OPEC crude oil production rose by 390,000 barrels per day to 25.46 million barrels per day in May. Meanwhile OPEC expects a strong recovery in oil demand in the second half of the year.

By this month, an agency survey showed that OPEC oil production increased by 855,000 barrels per day to 26.47 million barrels per day in June.

Last week, OPEC + production increase agreement talks collapse, but oil-producing countries for their own interests, should not let international oil prices huge shocks, in order to avoid market panic, OPEC + is expected to restart talks again in the short term, the parties to reach a compromise is more likely.

However, the contradictions between Saudi Arabia and the UAE in other areas may intensify, and it is still worth paying close attention to whether the two sides can properly handle their differences and whether the confrontation will extend to OPEC+.

Friday 20:30 U.S. retail sales data may strengthen

Finally, take a look at the monthly retail sales rate for June that will be released in the US. The monthly U.S. retail sales rate has been volatile in recent months, spiking to 9.7% in March and falling to -1.3% in May. Some agencies commented that the monthly U.S. retail sales rate fell more than expected in May, where spending shifted from goods consumption to services. During the new crown pandemic, consumer demand shifted to goods such as electronics and motor vehicles as millions of people worked from home. More than half of U.S. adults are now fully vaccinated, driving demand for activities such as air travel, hotel stays, dining out and entertainment. Vaccinations, a trillion dollar government stimulus and record low interest rates are all fueling demand.

Current market expectations are for a monthly U.S. retail sales rate of 0% in June. If the figure 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.

At the same time, this week’s U.S. June CPI monthly rate, June PPI monthly rate and a number of other important economic data also deserves a closer look. Data from the Chicago Fed showed that U.S. retail sales strengthened in June. The issue of inflation will be the main driver of gold’s movement this week, so pay particular attention to the economic data.