[Market Review]
Britain and the EU have agreed to continue brexit negotiations. Let’s start with the pound. Sterling fell sharply against the dollar on Friday afternoon, hitting as low as 1.3134 from above 1.33 as the EU summit shelved brexit talks, but jumped 130 points on Monday to break through 1.33 after Britain and the European Union agreed on Sunday to continue negotiations on a brexit deal. However, The latest comments from British Prime Minister Boris Johnson set the stage for a no-deal Brexit. The British Navy has been put on standby to enforce laws against EU fishermen in the event of a no-deal brexit. Sources said the next few days would be important as the eu’s 27 member states coordinate their response to the extension of brexit trade talks. The EU’s chief Brexit negotiator Michel Barnier will brief EU ambassadors on the status of the brexit negotiations at 3:30 PM Beijing time on Monday.
Talks on a US fiscal bail-out are in limbo. Then there is the dollar index. In the past week, the US dollar index remained largely volatile, with the us fiscal bailout negotiations pending and the market waiting for the outcome. The severe epidemic situation in the United States has brought a safe-haven demand for the dollar. But the weak U.S. economic outlook has put downward pressure on the dollar. With the development of a COVID-19 vaccine, the US government has pinned its hopes on a vaccine to contain the COVID-19 outbreak. Now, the US Food and Drug Administration (FDA) has officially granted Pfizer an emergency license to use the COVID-19 vaccine.
Gold moves in shock. In gold, prices remained volatile last week as the market anxiously awaited the outcome of the U.S. fiscal stimulus talks, which had some progress but still had significant headwinds. The deteriorating situation in the US has also put pressure on gold prices. However, easing measures in economies such as Europe and Japan, coupled with poor US economic data, have provided short-term support for gold.
Silver leveled off after a wave. Silver has moved in much the same direction as gold. Silver had been more volatile earlier in the week, climbing to a high of $24.84 before giving up all its gains and now trading around $23.8.
The euro was in choppy trading. The euro, meanwhile, has been in choppy trading against the dollar over the past week, with a fresh round of monetary and fiscal stimulus in full swing, largely as expected. On monetary policy, the ECB has not only increased the size of its emergency bond purchases, but also extended them significantly. On the fiscal front, the European Union approved a $2.2 trillion stimulus package. The agreement not only paves the way for the EU’s seven-year budget to come into force, but also clears the way for a 750 billion euro recovery fund. The economic outlook for the eurozone has been further darkened by a surge in daily new infections and new lockdown measures in some countries. It is reported that The German Chancellor Angela Merkel announced that from December 16, Germany will be implemented throughout the “hard blockade.”
Amex closed up slightly last week. Finally, the oil market. Last week, U.S. oil closed up slightly. This is because the market is optimistic about the future crude oil market consumption prospects after the introduction of COVID-19 vaccine. Meanwhile, easing measures by central banks around the world have also boosted commodities, including crude oil. In the short term, however, the severity of the outbreak in the US continues to weigh on the outlook for oil demand. Also weighing on near-term prices was an unexpected surge in U.S. crude inventories data last week.
▼ Bond market
On Friday, Chinese 10-year yields fell 1.31 per cent, US 10-year yields fell 1.56 per cent and US three-month yields fell 6.99 per cent.
▼ Stock market
U.S. stocks ended mixed, with the S&P 500 down 0.13%, the Nasdaq down 0.23% and the Dow up 0.16%. By this morning, The Chinese stock market had opened up in full swing, with the Shanghai Composite index up 0.07%, the Chinext index up 0.28% and Hong Kong’s Hang Seng index up 0.06%.
【 Key Foresight 】
Euro: The euro is likely to strengthen in the medium term or face consolidation in the near term
Credit Agricole said it was bullish on the euro in the medium term but could face consolidation in the near term. The bank expects a recovery in global growth and trade by 2021; Moreover, the global impact of trade protectionism has dissipated. That would support the euro. But in the short term, some positive factors have been priced into the euro, making short-term fundamentals such as euro/dollar spreads and stock market performance look overvalued. That will cap the price of the euro.
Usd: risk sentiment is expected to rise usd medium term or fall to 86.8
Westpac notes that investors piled into dollar cash positions earlier this year, driven by safe-haven demand. Since then, as the vaccine is rolled out and the global economy improves, investors will continue to sell the dollar further, meaning the dollar index may have 2-5% further to fall. What’s more, given that the Federal Reserve will maintain its zero interest rate policy for the next two years, the dollar will be weighed down by a preference for riskier assets as the global economic climate warms. As a result, the bank expects the DOLLAR index to trade down to 86.80 by mid-2022.
Nz dollar: continue bullish looking up to 0.72
Credit Suisse pointed out that the New Zealand dollar continued to move higher, the degree close to the key resistance level of 0.7111, maintaining the tendency of further consolidation, but the main bottom is still intact, on the medium-term and timely clear breakout to the upside is still vigilant, the initial resistance level at 0.7121, then 0.7151, and may consolidate at this position, the next resistance level of 0.72; On the downside, initial support is 0.7070 and 0.7013.
【 Key Foresight 】
Opec production is expected to increase in November on Monday
First up, Opec releases its monthly oil market report. Last month, the organization of Petroleum Exporting Countries reported a 320,000 b/d increase in oil production in October. Opec has slightly cut its forecast for global oil demand growth this year.
This month, an agency survey showed Opec oil production rose 750,000 barrels a day in November from the previous month to 25.31 million barrels a day, driven by increased supplies from Libya and the United Arab Emirates.
Crude oil will be supported by a better outlook for crude oil demand due to positive COVID-19 news. The market is also focused on OPEC’s prospects for a production increase. On December 3, Opec + agreed to voluntarily reduce its production from 7.7 million barrels per day to 7.2 million barrels per day, or an increase of 500,000 barrels per day, starting in January 2021. At the same time, monthly ministerial meetings will be held from January 2021 to assess market conditions and determine the size of the next month’s production adjustment. In addition, the period for compensating production cuts will be extended until the end of March 2021 to ensure that all participating countries fully compensate for excess production. It is worth noting that the contradiction between the Libyan production increase and the quota of production reduction within OPEC still exerts downward pressure on oil prices, which may cause short-term market fluctuations in the future.
U.S. retail sales could turn negative at 21:30 ON Wednesday
On Wednesday, the United States will report monthly retail sales figures for November. The monthly retail sales rate has remained volatile in recent months, registering a 0.3 percent gain in October. U.S. retail sales fell short of expectations in October and may slow further, agency comments said. A surge in COVID-19 cases and the loss of government financial support for millions of unemployed Americans have reduced household incomes. The restrictions could lower spending, triggering another wave of unemployment and squeezing incomes further.
Currently, the market is expecting a negative 0.2 per cent monthly retail sales rate for November, and the dollar index could find support if the data meets or exceeds expectations. Conversely, the dollar index could take a hit if it falls short of expectations.
Overall, market expectations for the data are not optimistic, and the dollar index could come under pressure if the data falls far short of expectations.
The Fed is expected to hold fire at 03:00 on Thursday
In the early hours of Thursday, the Federal Reserve will announce its decision on interest rates. The Fed left interest rates unchanged last month. The policy statement indicated that interest rates would be kept on hold until inflation rose to 2 percent and employment was maximized, possibly changing the duration, size and composition of asset purchases if necessary.
By this month, Rabobank expects the Fed to keep interest rates low and possibly give clearer forward guidance on asset purchases.
The Fed could tie it to its recently adopted flexible average inflation targeting strategy and align it with forward guidance on interest rates.
In the absence of a fiscal stimulus or rescue package, the Fed may consider providing additional monetary stimulus through asset purchases. The Fed has several options. One is to set a longer period for asset purchases through forward guidance. Second, accelerate the pace of asset purchases or extend the term of asset purchases.
The Bank of England is expected to hold fire at 20:00 on Thursday
Also on Thursday, the Bank of England will announce its decision on interest rates. Last month, the central bank left interest rates unchanged and expanded its bond purchases by 150 billion pounds.
This week, as Britain and the European Union continue trade talks, the Bank of England will keep interest rates on hold and asset purchases on hold.
The MPC is likely to stress the impact of a no-deal Brexit on the UK economy. For the moment, the bank of England will not be talking much about negative rates, but may push the lower bound down into negative territory.
The Bank of Japan may expand its corporate aid program at 11:00 am Friday
The bank of Japan will announce an interest rate decision on Friday and sources said last week that the central bank may expand its corporate financing assistance program. The measures are now set to expire in March and could be extended for at least six months, with a decision expected this week.
On this basis, we believe that the bank of Japan may expand its corporate financing assistance program, but expect no change in interest rates or government bond yields. With the bank of Japan still battling the outbreak, it is expected to keep policy loose.
In addition, the Bank of Japan may downgrade its economic outlook.
Other data to watch this week:
Euro zone industrial output for October: forecast: -0.4%, forecast: 2%.
The RBA released the minutes of its December monetary policy meeting at 08:30 on Tuesday.
October three-month ILO Unemployment rate: 4.8%, forecast 5.2%.
The IEA releases its monthly oil market report at 17:00 on Tuesday.
Bank of Canada Governor Malcolm McLum spoke at 03:30 on Wednesday.
Wednesday 05:30 U.S. weekly CRUDE Oil inventories: formerly 1.41 million BPD.
Wednesday 15:00 UK CPI for November: 0%.
Wednesday 21:30 Canada CPI For November: previous reading: 0.4%.
U.S. CRUDE oil inventories: previous reading: 15.189 million barrels for the week ended Dec.
Federal Reserve Chairman Colin Powell held a press conference at 03:30 on Thursday.
The Swiss National Bank announced its interest rate decision at 16:30 on Thursday.
Thursday 18:00 Euro zone Monthly CPI for November: previous -0.3%, forecast -0.3%.
Initial jobless claims for the week ended Dec. 12: up from 853,000 at 21:30 ON Thursday.
Bank of Japan Governor Haruhiko Kuroda held a press conference at 14:30 on Friday.
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