Spot gold tried unsuccessfully to break through $1,900 per ounce last week, rising $41.50 or 2.26% on a weekly basis, recording a third consecutive week of gains; COMEX February gold futures closed down 0.1% at $1,888.90 per ounce on Friday, accumulating a gain of about 2.5% for the week. Gold was mainly driven by a falling dollar, lower U.S. bond yields, the Federal Reserve’s FOMC resolution and progress on the U.S. fiscal stimulus bill.
International oil prices benefited from optimism from vaccines, rising for the seventh week in a row, hitting a more than nine-month high on Friday and rising for five consecutive days. wti January crude oil futures closed up $0.74, or 1.53%, at $49.10/barrel, up 5.43% for the week. Brent February crude oil futures closed up $0.76, or 1.47%, at $52.26/barrel, a cumulative gain of 4.58% for the week.
The dollar index rebounded from a more than two-and-a-half-year low on Friday to return above the 90 mark, closing up 0.22% at 90.01, ending a four-day losing streak and rising for the first time in five days. The euro stood steady above 1.22 against the dollar, while the pound fell below the 1.35 handle on Friday, having risen above 1.36 during the week to a new high since April 2018 on progress in Brexit negotiations.
Bitcoin had surged 20% last week after surpassing $23,000 for the first time in its history. But after the U.S. stock market on Friday, bitcoin briefly sank about $200 to $22,880 as the U.S. proposed regulatory rules for trading in virtual currencies and other transactions.
[This week’s events at a glance
Christmas will be celebrated in Europe and the US this week, with light data and no major central banks on the schedule. Investors can focus on the vaccination situation in Europe and the US, the inclusion of tesla in the S&P 500, and the end of the US fiscal stimulus bill negotiations and the UK’s exit from the EU.
①The new round of U.S. stimulus is less than $1 trillion and the market is not satisfied?
Senate Republican Leader Mitch McConnell said there was bipartisan agreement on a new $900 billion stimulus deal, with the new stimulus bundled with a full-year government spending bill to avoid a government shutdown on Monday.
It would be the second-largest stimulus deal in U.S. history, behind only the $2.2 trillion in March of this year.
Next, lawmakers have a short period of time to consider and pass this bill. Senate Majority Leader Mitch McConnell, House Speaker Nancy Pelosi, and Senate Democratic Leader Chuck Schumer announced the agreement on Sunday.
The text of the bill is still being written, but the House is expected to vote on it on Monday, followed by a Senate vote.
According to members of Congress and aides, the plan would provide most Americans with $600 in direct payments and $300 a week in supplemental unemployment benefits through the end of March.
The new stimulus package should set the stage for the U.S. economy to stabilize in the first quarter of next year. The potential risk is that a stimulus size of less than $1 trillion may not be enough to reverse the current trend of slowing consumption growth and worsening employment situation.
In fact, the impact of this round of fiscal stimulus bill has been almost digested by the market. The Federal Reserve’s monetary policy and credit tools remain another key weapon in maintaining a stable economy.
②Britain’s Brexit row escalates again with a new crown pneumonia virus mutation!
The deadline for Britain to leave the European Union is December 31, which means that the latest time for the two sides to reach an agreement will be around Christmas (25), after which the two sides agreed to an agreement needs to go through the British parliamentary legal process to make a final vote.
But the possibility of Britain leaving the EU without a trade deal rose again on Friday.
As of now, the British and European negotiators are still tit-for-tat over the details of the Brexit deal, especially on the fisheries issue, which remains deadlocked. It is reported that the British side has rejected the latest concessions made by the EU on the fisheries issue. Previously, after consultations with governments, EU chief Brexit negotiator Barnier proposed a 25 percent cut in the value of fish caught by EU vessels in British waters, which would involve 160 million euros. However, the British side seems to have rejected this EU proposal, and the UK prefers to ask the EU to increase the fish value cut to close to 60%!
Scottish Chief Minister Sturgeon has called on British Prime Minister Johnson to seek an extension of the Brexit transition period.
The UK’s woes go beyond Brexit with a mutation in the UK’s new coronavirus. A new variant of the New Coronavirus found in the UK is 70% more contagious than the normal New Coronavirus, leading to an emergency city closure in London on Sunday, with Germany and France refusing entry to people from the UK.
The British-French Crossing (EuroTunnel) announced that the UK-French border is closed at 23:00 GMT this evening. The British government said it will hold a crisis meeting on Monday to discuss (several) travel bans related to the Newcastle pneumonia outbreak.
③ Market sentiment turning point coming as Europe and the US open widespread vaccinations?
On Friday local time, the U.S. Food and Drug Administration (FDA) approved the Emergency Use Authorization (EUA) for Moderna New Crown vaccine, the second New Crown vaccine approved in the U.S. after the Pfizer/BioNTech vaccine.
The U.S. federal government will distribute approximately 5.9 million doses of Moderna’s vaccine to 64 states, territories and major cities across the country this week, with approximately 20 million doses to be delivered in the U.S. by the end of December.
This means that the total U.S. vaccine supply for December will be an additional 20 million doses of vaccine on top of Pfizer’s 25 million dose supply.
This helps meet the U.S. government’s goal of making the vaccine available to anyone who wants it by the spring or summer of 2021.
In addition, the European Union plans to begin vaccination in 27 member states on Dec. 27, 28 and 29, and German states are expected to begin vaccination on Dec. 27.
Goldman Sachs said in a research note last week that targeted vaccination of at-risk populations has the potential to have a rapid and significant impact on key hospitalization indicators due to the epidemic, which in turn could boost market sentiment.
The bank expects that U.S. hospitalizations for the disease could fall to around zero by the end of January, potentially a key turning point in investor sentiment toward a reopened economy.
But beware, the good news may have already been priced into the market. Instead, beware that vaccinations are not progressing as expected.
U.S. officials admitted Saturday that the U.S. may not be able to complete vaccination of 20 million people by the end of this year due to slow distribution progress. The Pfizer New Crown vaccine currently used in the U.S. requires two shots per person, and vaccinating 20 million people means 40 million doses of the vaccine need to be prepared.
Morgan Stanley warned that the market’s current optimism due to vaccines could be revised if vaccination progress is not as expected.
In its recent research report, the bank simulated that if vaccination is given in January, then the peak of the epidemic in 2021 can be suppressed to below 300,000 people/day; plus if there is no strict isolation measures, then the peak of the epidemic could be as high as 450,000 people/day.
[Hot Species Outlook].
①Will the stimulus bill become a new starting point for the U.S. stock bull market?
With vaccine distribution starting, the fiscal stimulus bill landing, and the Federal Reserve maintaining its accommodative policy stance, it seems that the factors that can boost risk sentiment are all gathered.
Statistical data from Guotai Junan shows that funds continued to accelerate back into the stock market last week, with U.S. stocks attracting $38.94 billion in the past two weeks. The December fund manager survey released by Bank of America Merrill Lynch showed that investor optimism about the stock market reached its highest level since January 2018, with 42% of managers surveyed saying that vaccine optimism will spur an economic recovery in the second quarter of 2021.
Long tech stocks were the “most crowded” trade for the eighth consecutive month, followed closely by shorting the dollar and going long on bitcoin.
But the danger often occurs when market expectations are highly consistent. Bank of America warned for the second time in a month that the surveyed institutions had lowered their cash levels to 4% for the first time since May 2013, which has triggered a sell-off signal.
Beware that the market has been pretty much consumed by the positive fiscal stimulus and subsequent progress will only provide less impetus to move higher. Uncertainties in the aftermath include the progress of epidemic prevention and control, economic data, and the handover of a new government, all of which could create new pitfalls for the market.
②Gold takes important averages, expected to rise to $1925 before Christmas
The logic of the current gold price trend is entirely related to the U.S. fiscal stimulus agreement.
According to the latest news on Monday, the agreement is a foregone conclusion and long sentiment will undoubtedly be further pushed up, but there was similar news on Friday, so beware that the positive has been digested in advance and there is a possibility of a “sell the fact” scenario.
In addition, Golden 10 Data previously reported that gold could still reach its late November low of $1775. However, after more than 4 months of correction and consolidation, there is a high probability that most of the selling is over. A real start to a new rally could be seen once gold overcomes upside resistance at the 50-day moving average ($1,877).
Peter Hug, global head of trading at Kitco Metals, also predicts that gold’s target of hitting $1,925 by Christmas is still on track to be achieved.
③ Crude oil is lacking momentum and WTI is having trouble reaching the $50 mark in the short term!
Both U.S. oil and BSE have been up for seven consecutive weeks, with analysis saying that optimism about the new crown vaccine boosting the global economy and oil demand, as well as a smaller-than-planned production increase by OPEC+ from next year, have trumped concerns about a second relapse of the new crown epidemic in Europe and the U.S. bringing a blockade.
CFTC data showed that speculative net long positions in WTI crude oil futures increased by 2,046 lots to 321,332 lots in the week ended Dec. 15. However, WTI crude oil is still hovering below the $50 mark. Is it a lack of upside or a momentum builder?
A combination of analysts’ views suggests that crude oil bulls now have four more things to worry about.
First, the Federal Reserve last week there is some concern about the faster than expected pickup in inflation, and once this perception is generally shared by the market, it is expected to weigh on oil prices in the short term.
Second, oil-producing countries generally expressed disillusionment. Last Sunday (Dec. 20) Russian Deputy Prime Minister Novak said OPEC+ needs to meet every month because the market is constantly fluctuating. And earlier the Saudi Ministry of Finance’s 2021 budget statement noted that “given the uncertainty surrounding the pace of global economic recovery and the potential for the crisis to persist, forecasting oil market conditions is becoming increasingly challenging.”
Third, U.S. shale oil is on the move. The total number of U.S. oil drilling wells rose to 263 in the week to December 18, up 5 from the previous value of 258, recording an increase for the fourth consecutive week, and has risen to the highest level since early May.
Fourth, the number of infected people in the global epidemic continues to climb, and the variation of the epidemic in the UK is likely to trigger a new round of panic, especially as measures such as restricting flights could significantly hit crude oil demand.
The combination of these factors may make it difficult for oil prices to continue their short-term uptrend, and once OPEC+’s move to delay production increases is not as ideal as the market expects, oil prices may then come under pressure to fall.
DailyFX analysts said, from a technical point of view, following the construction of a bullish “golden cross” in November WTI crude oil rose further, now seems to face an important inflection point in early February 49.42 obstruction, if the rise above the said is expected to further explore the top of February 54.45.
④Will the pound suffer more “black swans”?
The discovery of a new variant of the virus in the UK took the pound bulls by surprise and triggered a sell-off in the market on Monday (Dec. 21).
The pound’s market on Friday was also a reminder that the UK and Europe are still at odds over how to structure their future relationship.
More serious is the question of whether a new variant of the British virus will hamper the Brexit negotiations, which are currently at a critical stage. The double whammy may further intensify the market sell-off in the pound.
Analysts believe that the pound’s new highs last week are of little significance, and the pair still has the potential for a major level top once GBP/USD produces a sharp retracement after being blocked at 1.3600. Once the loss of 1.3200, be wary of further downside testing of the 1.3000 integer mark or even 1.2800 level.
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