[Market Review].
The US dollar index traded weakly. This week, the volatility in both the foreign exchange and precious metals markets was relatively sharp. In the U.S., U.S. Initial Jobless Claims registered 853,000, beating expectations. An increase in the number of new coronary pneumonia infections in the U.S. led to more business restrictions, which is further evidence that the epidemic and the lack of additional fiscal stimulus are hurting the U.S. economy. On the vaccine front, a U.S. Food and Drug Administration FDA external panel of experts recommended approval of Pfizer’s New Crown vaccine. It is reported that the FDA could approve the Pfizer vaccine for emergency use as early as Friday local time. On the fiscal stimulus front, although U.S. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi said progress has been made toward a New Crown bailout agreement. However, at this point, Congress has not made a breakthrough on the two major hurdles of aid to states and New Crown-related litigation. This week, the dollar index jumped up and down on news of the U.S. economic stimulus, although it was generally weak and is currently trading near the 90 mark.
Gold rose and then fell. The U.S. economic stimulus talks did not make substantial progress, the overall optimism driven by vaccines continued, investors’ risk appetite increased, making gold less attractive, the global gold ETF in November hit the second largest monthly net outflow in history, gold prices early this week, although once upwards through the $1870 mark, but then fell back to below the $1840 mark.
Silver is back near $24. Silver is moving in a roughly similar fashion to gold. Earlier this week, silver once soared to a high of $24.84 per ounce, then fell back to near the $24 mark.
The outlook for the UK-EU negotiations is not good. Moving on to the British pound. This week, the British pound was heavily influenced by the news of the UK-EU exit negotiations. This followed news that British Prime Minister Johnson had let slip that he was ready to pull out of the Brexit trade deal negotiations, and the pound plunged 200 points against the dollar at one point. Although there has since been some relatively optimistic news, but Johnson’s latest statement that the “hard Brexit” is very likely. This seriously undermined the confidence of the pound bulls, the pound against the dollar again approaching this week’s low of 1.3223.
The ECB has stepped up its easing. In the euro. The ECB maintained the three key interest rate levels unchanged, and will increase the scale of bond purchases in 1.35 trillion euros on the basis of another 500 billion euros, while saying that the bond purchase program will continue until at least the end of March 2022, previously lasted until the end of June 2021. After this interest rate resolution, the ECB will be based on the asset purchase program to buy debt 20 billion euros per month, consistent with the previous, lower than the market expectations of 40 billion euros per month. For exchange rate policy, the ECB said it will continue to monitor exchange rate movements. After the announcement of the ECB interest rate resolution, the euro rose 30 points against the dollar in the short term.
The EU approved a $2.2 trillion stimulus package. In addition, with Poland and Hungary no longer voting no, EU heads approved a $2.2 trillion budget and stimulus plan backed by common debt at the EU summit. This latest agreement paves the way for the implementation of the EU’s 1.1 trillion euro seven-year budget for 2021 to 2027.
U.S. oil rallied sharply. Finally, a look at the oil market. This week, API and EIA crude oil recorded a big increase, pressuring oil prices. But the upbeat outlook on the demand side has since still pushed oil prices back up, with news showing that approval for the Pfizer vaccine on U.S. soil is imminent. U.S. oil has now climbed above the $47 mark. However, in the big picture, oil prices are still running in a sideways channel. Although the positive vaccine news keeps giving the market bulls a shot in the arm, the uncertainty about the future of U.S. fiscal and energy policies and the impact of the current epidemic on Christmas and New Year travel activities are still lingering sources of market resistance, while OPEC+’s progressive production increase plan starting early next year is also racing against demand recovery, keeping oil prices limited consolidating in a sideways range.
The Canadian dollar is performing strongly. U.S. oil surged and the Canadian dollar followed suit. Yesterday, the dollar fell sharply by more than 100 points against the Canadian dollar, and the pair is now trading around 1.27.
▼Bond Market
Overnight, China’s 10-year Treasury yield rose 0.06 percent, while the U.S. 10-year Treasury yield fell 2.03 percent and the U.S. 3-month Treasury yield rose 3.98 percent.
▼On the stock market
U.S. stocks closed mixed, with the S&P 500 down 0.13%, the Nasdaq up 0.54%, the Dow Jones down 0.23%; by this morning, Chinese stocks opened in the red, with the Shanghai Composite Index up 0.23%, the Growth Enterprise Market Index up 0.35%, and Hong Kong’s Hang Seng Index up 0.85%.
[Key Forecast
U.S. dollar: economic stabilization gradually dollar decline is expected to slow down
Scotiabank said that the dollar’s decline may slow as the economy stabilizes. Strategists said the medium-term bearish dollar, but stressed that once there is some form of economic “normalization”, may see a moderation in the dollar sell-off in the coming weeks. In the medium to long term, the broader trend still tends to be towards further dollar weakness.
Crude Oil: Crude Oil Demand Recovery Expected to Heat Up, U.S. Oil May Approach $50
Despite a sharp increase in U.S. crude oil inventories last week, news of the launch of the New Crown pneumonia vaccine in the U.K. and the imminent approval of a vaccine in the U.S. have led the market to expect that demand for crude oil will recover. Optimism about the New Crown vaccine dominated and continued to limit significant oil price weakness. TD Securities said U.S. oil will approach $50 a barrel once the economy returns to normal.
Gold: Gold still has upside potential may rise to $2200 next year
Wells Fargo said: Although economic growth is expected to be strong, but low interest rates and loose monetary policy is expected to support the price of gold. The bank said that the current central banks, led by the Federal Reserve, still have a lot of money in the hands of the printing, which is good for the price of gold and silver. The bank’s analysts believe there is still a lot of potential for gold prices to rise next year, and the price is expected to rise to $2100 to $2200 by the end of next year.
[Key Forecast].
The risk of Britain’s no-deal Brexit is heating up
Yesterday, British Prime Minister Johnson warned businesses and the public to be prepared for a no-deal Brexit. He said the current negotiations between the U.K. and the EU are not promising and that the U.K. could leave the EU’s single market without a trade deal.
He said talks with European Commission President von der Leyen had made no progress, but the U.K. would continue to seek a deal. But he also warned that the EU’s demand that Britain follow the EU’s future changes in rules is the main obstacle to a deal between the two sides.
Despite months of negotiations between the U.K. and the EU on a trade deal, the two sides remain deadlocked on fishing rights, fair economic competition and dispute settlement. The two sides have set Sunday as the deadline for reaching a deal. If a deal cannot be reached, the U.K. is likely to leave the EU without a deal.
According to the agreement previously reached between the two sides, the United Kingdom will end the “Brexit” transition period at the end of this month. If no trade agreement is reached during the transition period, trade between the two sides will return to the WTO framework from 2021, re-implementing border controls and tariffs.
The European Commission proposed a number of targeted emergency measures to ensure that the UK and Europe in the case of failure to reach a trade agreement as scheduled, to continue to maintain the basic smooth flow of air and road transport, while ensuring that both sides continue to give reciprocal access in the field of fisheries.
The European Commission said in an announcement released on the same day that the contingency measures only apply to the period when the two sides have not yet signed an agreement, but after a certain period, if the two sides still have not reached an agreement, the contingency measures will expire.
In the area of air transport, the EU proposed that both sides provide specific reciprocal services for six months; in the area of fisheries, the EU proposed that both sides maintain the status quo in fishing until December 31, 2021, and continue to allow each other’s vessels to enter their own waters for fishing.
On balance, the risk of the UK and EU failing to reach a trade deal is rising, and the pound could dive sharply if the two sides still fail to reach an agreement on Sunday.
But one needs to be wary that the pound could pull up in the short term once a deal is on the table. There is also a possibility that the British and European sides extend the negotiation period again, which will be supportive of the pound.
In addition, today is also worth paying attention to the following data
15:00 German November CPI final monthly rate: previous value -0.8%, forecast value -0.8%.
15:00 German November CPI final annual rate: -0.3% previous, -0.3% forecast.
21:30 U.S. November PPI monthly rate: Previous 0.3%, Forecast 0.2%.
23:00 U.S. December University of Michigan preliminary consumer confidence index: 76.9 previous, 76.5 forecast.
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