At 16:51 on Monday, the dollar index stood at 93 for the first time since April 5, and the market reacted strongly.
In the currency market, the euro fell 0.3% against the dollar to 1.1766, a new low since April 5; the pound lost the 1.37 mark against the dollar, down 0.45% during the day; the Australian dollar was nearly 20 points lower against the dollar in the short term, down 0.57% during the day; the New Zealand dollar fell 1% against the dollar; the dollar rose 1% against the Norwegian krone during the day to 8.9341, a new high since November last year; the dollar broke through the Canadian dollar 1.28 mark, up 1.5% intraday, continued to brush new highs since February, pulling up 60 points in 15 minutes, the largest one-day gain in a year; the dollar rose above 8.6 against the Turkish lira, up more than 0.8% intraday.
In the bond market, the U.S. 10-year Treasury yield lost 1.20% in U.S. trading, a new low since February; the German 10-year inflation-linked bond yield fell to its lowest level since August 2019, at -1.686%.
In the stock market, European shares fell further during U.S. trading, with Germany’s DAX30 down more than 3%, Italy’s FTSE MIB down 3.76% and the Euro Stoxx 50 down 3.07%. Britain’s FTSE 100 index fell 2.7%, the worst record performance since September 21, 2020.
U.S. stocks fell further, with the S&P 500 down 2% and the Dow down more than 800 points intraday.
In the commodities market, the WTI crude oil futures contract for September fell 6% at the beginning of the U.S. session, dropping more than $4 during the day, now at $67.50 per barrel; Brent crude oil futures lost ground at $70 per barrel, extending the decline to nearly 5% for the first time since June 1.
Near 20:00, spot gold lost the $1,800/oz mark, down 0.67% intraday, but then rebounded, and near 21:00, spot gold pulled up $16 in 30 minutes to return to $1,810/oz, now near flat; spot silver narrowed to less than 2%. Spot platinum fell more than 3% to $1,067/oz.
Another important reason for the fall in crude oil prices is because of the previous agreement between OPEC and its allies to resume crude oil production of 400,000 barrels per day per month from August until its halted production is fully restored. In addition, Saudi Arabia, the UAE, Iraq, Kuwait and Russia all raised their benchmarks for production cuts starting in May 2022.
Meanwhile, the spread of the Delta variant of the New Crown strain has raised potential concerns about global oil demand, undermining investor confidence in the organization’s production plans. Nonetheless, as inventories dwindle, market watchers say more oil supplies are expected to be needed to fill the existing demand gap.
In addition, NYMEX New York crude oil August futures were affected by the shift to the month, with the last trading completed on the floor at 2:30 a.m. and the last trading completed electronically at 5:00 a.m. on July 21. In addition some trading platforms U.S. oil contract expiration time is usually one day earlier than the official NYMEX, oil prices fell may also be affected by delivery activities.
How do various Wall Street institutions view OPEC+ reaching an oil quota agreement?
Citi believes that the OPEC+ production increase has played a “modest role” in a tightly supplied market. Ed Morse, Citi’s global head of commodities research, said the oil market is currently very tight and an increase in OPEC+ production of 400,000 barrels per day per month would be insignificant. Despite the outbreak in parts of the world, demand is now increasing significantly and oil prices could climb further by the end of the summer, with U.S. and BOP oil likely to touch $85 a barrel in the second half of 2021.
Ed Morse said global oil inventories may have fallen by 3 million barrels per day last month. Although the U.S. may lift sanctions on Iran as early as September, Iran’s oil supply will not pose a threat to the market for the rest of the year.
Goldman Sachs also believes the OPEC+ agreement could support oil prices. Goldman Sachs said the OPEC+ agreement to moderately increase oil production should still keep the market in a “supply deficit” for the next few months. The investment bank said that although oil production will recover by 400,000 barrels per day per month by the end of 2022, this still means that production in the first half of 2022 will be 650,000 barrels per day lower than previously expected.
The agreement is in line with our long-held view that to maintain the spot premium, OPEC+ should tighten the spot market while steering future capacity increases and reducing competitive investment. Therefore, we believe Sunday’s agreement supports our “constructive” view on oil prices.
Daniel Hynes, senior commodities strategist at ANZ, said the agreement could lead to some short-term weakness in oil prices as investors close out their positions due to increased oil production. He added that the market remains relatively tight and the oil price drop should only be temporary.
But Will Sungchil Yun, a senior commodities analyst at VI Investment in Seoul, believes the focus will now shift to demand, given that the uncertainty over supply has disappeared. He added that the agreement is predicated on the fact that the New Crown epidemic will end next year, but for now the Delta mutated virus is still spreading rapidly and the epidemic will continue to affect the oil market for some time.
As for the U.S. dollar, the Commonwealth Bank of Australia said the greenback looks set to remain high this week. The relative trends in monetary policy of central banks, especially between the U.S. and the Eurozone, will be in focus. The European Central Bank is expected to demonstrate a more moderate policy framework when it meets on Thursday. In contrast, market participants continue to look for signs that the U.S. Federal Open Market Committee (FOMC) will begin to scale back its asset purchases in the coming months. The Commonwealth Bank of Australia said that after a year of watching, the impact of Treasury spreads on the foreign exchange market is once again evident.