[Market Review].
The British pound rose more than 100 points this morning. The British pound surged more than 100 points against the U.S. dollar this morning, with a strong move above the 1.42 handle. Recently, the pound has been rising faster than any other major currency. This is mainly attributed to the following good news. First, the pace of vaccination in the UK has exceeded expectations. British health department data show that more than 17 million people have received at least the first dose of vaccine, accounting for about one-third of the country’s population.
In addition, the U.K. health secretary said that the first dose of vaccine is expected to be given to all adults by the end of July, earlier than previously expected by September. Second, hopes for recovery have been revived as the UK gradually lifts the embargo due to optimistic progress in fighting the Epidemic. It was reported that holiday travel bookings jumped six-fold just hours after the UK announced plans to lift the embargo. Thirdly, the economic data is good news, and the economic fundamentals are gradually repaired. On the employment front, the UK unemployment rate recorded 7.2% in January, a record low since April last year. Fourth, the negative interest rate bets reduced.
Mitsubishi UFJ Financial Group foreign exchange analysts said that if the pound breaks through the highs since April 2018, it will bring encouragement to the bulls. However, if the pound fails to break through these highs, market participants may begin to question the recent overheated trend in the pound, which increases the risk of a lower retracement.
Bitcoin retraced over 10% intraday. Likewise, Bitcoin has been a big hit of late. Bitcoin fell more than 10% intraday, dropping from near $55,000 to below the $50,000 mark.
Powell was dovish as expected. Next to focus on the news from the US. Fed Chairman Powell reiterated the policy stance of keeping interest rates near zero until full employment and Inflation rises to 2%. The bond-buying program will remain unchanged even if the outlook is seen to improve. In addition, he downplayed concerns about the introduction of a new round of stimulus measures, or an increase in vaccinations, leading to the release of pent-up demand, which in turn would cause an outbreak of inflation. He also expects the economy to improve and possibly return to pre-epidemic levels in the first half of the year. Powell was dovish as expected, and the 10-year U.S. bond yield once touched 1.34% downward, while the dollar index also turned lower, approaching the 90 mark.
Gold held steady at the $1,800 mark. Powell’s dovish congressional testimony, as expected, confirmed the outlook for economic recovery and eased concerns about rising inflation. Gold prices weakened, but are still holding steady above the $1,800 mark.
Silver fell by 1.6% during the day. Compared to gold, silver seems to be weaker. Silver prices slid all the way from $28.3 to near $27.7 during the day, down 1.6%.
The euro was not very volatile. In the euro, the euro was not very volatile during the day. The euro mainly fluctuated in a narrow range between 1.2130-1.2180 during the day.
U.S. oil oscillated to the downside during the day. In the oil market, U.S. oil oscillated downward during the day, but still remained above $60. U.S. API Crude Oil inventories recorded an increase of 1.026 million barrels, compared to expectations for a decrease of 5.372 million barrels. Gasoline stocks also unexpectedly increased by 66,000 barrels, compared to expectations for a decrease of 3.427 million barrels. This weighed on oil prices.
[Risk Warning].
Dollar: If the stock market falls, the U.S. index fears a 3%-5% rise
Wells Fargo believes that the absolute change in U.S. real and nominal yields is critical to the direction of the dollar; while risk sentiment is the key volatility factor. If stocks stand firm in the face of higher yields, the U.S. Dollar Index could rise 1-2%, returning to the February highs. However, if yields overwhelm equities, the dollar index could climb 3-5%.
EUR: European risk sentiment turns sour, EUR/USD eyes 1.2146
Recently ECB President Lagarde said they are closely monitoring the government bond market, suggesting the central bank may act to prevent a spike in yields. The EURUSD is testing the low of 1.2146 as risk sentiment in Europe turns sour and demand for the dollar recovers. UOB technical analysis indicates that EURUSD will trade in the 1.2050-1.2200 range in the coming weeks.
Crude oil: U.S. banks optimistic about oil market, oil prices to reach $70
OPEC extended its production cuts into the first quarter, reducing market supply by 180 million barrels. Cold weather disruptions in the U.S. state of Texas will reduce global oil inventories by an additional 50 million barrels. Oil prices could top out at $70 this year, Bank of America analysts wrote in a report. Oil prices will average between $50-$70 a barrel until 2026. However, in the meantime, oil prices could soar to $100 a barrel due to global monetary and fiscal stimulus and improved oil fundamentals.
[Key Forecast].
22:30 Bailey may downplay negative interest rate expectations
First of all, let’s focus on the upcoming speech by Bank of England Governor Bailey. Earlier this month, the Bank of England maintained interest rates unchanged at 0.1% and kept the total size of asset purchases unchanged at 895 billion pounds, and the Monetary Policy Committee unanimously agreed to keep the total size of asset purchases unchanged at 895 billion pounds. After the Bank of England issued a statement, the money market pushed the Bank of England’s negative interest rate expectations to February 2022, after August 2021.
For his part, Bailey said the economic outlook remains exceptionally uncertain. If the inflation outlook weakened, the Monetary Policy Committee would take any necessary action. He added that expectations for a rapid economic recovery in the second half of the year reflect the positive impact on vaccinations.
Based on this, we believe that Bailey may downplay expectations of negative interest rates, emphasizing any action if necessary. With widespread vaccination in the UK, market expectations for the recovery of the UK economy have risen, which would change Bailey’s view on the economic outlook.
23:00 Powell expected to maintain dovish stance
Next, take a look at Fed Chairman Jerome Powell’s upcoming testimony before the House Financial Services Committee. Last night, he already testified in the Senate with a dovish stance and the dollar index came under pressure. He reiterated the Fed’s policy stance of keeping interest rates near zero until full employment and inflation rises to 2%; the bond-buying program will remain unchanged even if the outlook is seen to improve. He believes that the recovery is far from being realized, uneven and still highly uncertain. He expects the economy to improve and possibly return to pre-epidemic levels in the first half of the year.
Based on this, we believe that Powell may emphasize that the economy will improve, but will still keep interest rates low and maintain the asset purchase program. Overall, the content of the two testimonies will not change much, so the dollar index may be slightly under pressure.
23:30 EIA crude oil inventories may increase
Finally, coming to the EIA crude oil inventories, the data released last week decreased by 7.258 million barrels, a much larger drop than expected. While rare cold weather has caused U.S. oil production to plunge nearly 40%, refinery demand for oil is expected to remain weak. As a result, the U.S. could face a double decline in refining capacity and oil production.
This morning, API crude oil inventories have been released, increasing by 1.026 million barrels. Based on past experience, API inventory data and EIA inventory data have a relatively strong positive correlation, so EIA crude oil inventories may also increase.
Even so still need to pay attention to the current market expectations, the United States to February 19 week EIA crude oil inventories or a decrease of 5.372 million barrels, if the published data more than expected, oil prices may short term dip; if the inventory data is less than expected, oil prices are expected to strengthen.
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