After Easter in Europe and the United States and the Qingming holiday in China, global markets will once again see a series of heavyweight events this week. The strong non-farm payrolls released last Friday are expected to have a subsequent impact on markets other than U.S. debt. The Federal Reserve and European Central Bank will release minutes of their monetary policy meetings, the U.S. will release PPI and PMI data, and Powell will attend an International Monetary Fund seminar.
Non-farm payrolls “detonated” the U.S. debt, will gold make up for the decline?
Last Friday after the release of March non-farm payrolls data, the main term U.S. bond yields rose, the 10-year U.S. bond yield regained 1.7%, once rose above 1.72%, more than 5 basis points during the day, last week a cumulative increase of 4.56 basis points; 5-year U.S. bond yields rose above 0.97%, a new high since February last year, nearly 8 basis points during the day, last week a cumulative increase of 11.18 basis points; 2-year U.S. bond yield once rose to 0.19%, a new high since June last year, last week’s cumulative increase of 4.75 basis points.
Strong non-farm payrolls stimulate U.S. bond rates and the dollar index upward, high valuation assets will continue to be under pressure. It should be noted that most of the U.S. financial markets were closed last Friday due to the Good Friday holiday, except for U.S. bonds, which also traded for only half a day. Therefore, beware of gold and other varieties that were closed last Friday for a follow-up reaction this week.
Minsheng Securities believes that the March non-farm payrolls data, which significantly exceeded market expectations, reflects the rapid repair of the U.S. economy and the acceleration of vaccinations, and interest rate hikes are expected to be strongly boosted, while U.S. bond yields are also expected to continue to move higher. With the official landing of the 1.9 trillion fiscal stimulus, the acceleration of vaccination plus the superb March non-farm payrolls data will together boost the market’s expectations for Fed rate hikes, while the process of US economic repair will also continue to accelerate. Minsheng Securities expects the 10-year U.S. bond yield to break 1.8% in the next 1-2 months.
CFTC data showed that the COMEX gold futures speculative net long position was cut by 5,548 lots to 50,463 lots in the week ended March 30; COMEX silver futures speculative net long position was reduced by 1,659 lots to 21,236 lots.
The latest Kitco weekly gold survey shows a considerable gap between Wall Street analysts and ordinary investors. Although gold prices have rebounded from last month’s lows and moved back up above $1,700, some analysts say the real test is yet to come.
FXStreet writes that gold still needs a daily close above the strong resistance level of $1,745 to attract more buyers and complete a bullish shift in the near-term outlook. If it can break above that level, the next resistance level will be at $1770 (50-day moving average). On the other hand, if resistance at $1,745 cannot be broken, sellers may look to regain control of the price. Initial support is above $1725 (20-day moving average), and a loss would lead to further dips to $1720 and $1700.
Also look for U.S. PPI and PMI data this week. If the data continues to outperform expectations, it is feared that it will further push up U.S. bond yields and the dollar index.
IMF and World Bank to hold spring meeting
The spring meetings of the International Monetary Fund (IMF) and the World Bank in 2021 will be held online from Monday, April 5 to 11.
On Tuesday, at 20:30, the two organizations will release the World Economic Outlook and the Global Financial Stability Report, which will have an outlook on the economy and may have an impact on the expectations of the recovery.
At 00:00 on Friday, Fed Chairman Powell will participate in a virtual IMF seminar.
Caixin Research believes that the global economy is expected to accelerate recovery in the second quarter due to the acceleration of vaccination, continuation of fiscal and monetary stimulus, and economic activity becoming more resilient to the impact of the epidemic, but the output gap may form a permanent loss. Second, the continuation of divergence will continue to dominate the global economic recovery pattern: on the one hand, due to the uneven impact of vaccine resources and fiscal strength, it is expected that developed economies will continue to recover better than emerging markets and developing economies, and the gap with low-income countries may further widen; on the other hand, due to the specificity of the epidemic, the degree of recovery of different industries and groups within countries will also continue to diverge.
Australia Fed interest rate resolution coming up
On Tuesday, the Australian Federal Reserve will announce its interest rate resolution.
Economists expect Australian Fed President Lowe to reiterate that he does not expect to raise the record-low cash rate until 2024, as the Reserve looks to reduce unemployment, boost wage growth and normalize inflationary pressures.
Westpac expects that at Tuesday’s policy meeting, the Australian Federal Reserve will say that the evidence suggests the economic recovery is intact, but will emphasize that the size of labor market idleness remains high.
AMP Capital chief economist Shane Oliver said the meeting will likely focus on the Australian Fed’s assessment of the housing market recovery, which is also the focus of attention in its financial stability assessment report to be released on Friday.
Fed Minutes: Focus on Inflation Comments
Inflation is back in the market spotlight following the release of strong March non-farm payrolls data.
At 02:00 am on Thursday, the Fed will release the minutes of its March monetary policy meeting, and investors will pay close attention to any new comments on inflation therein. At 19:30 on the same day, the European Central Bank will also release the minutes of its March 10-11 policy meeting.
Federal Reserve Chairman Jerome Powell said after the March meeting that the Fed sees inflationary pressures as temporary, but markets remain concerned that this could become a bigger problem. Goldman Sachs latest also believes that the probability of U.S. inflation “out of control” is small, the probability of CPI exceeding 3% in the next five years is only 31%.
In addition, pay attention to the minutes of the meeting to imply that the reduction in the conditions of the clues. Analysts expect the Fed to develop a clearer framework for code cuts around mid-year, but will not really start cutting until 2022. Foreign exchange strategists at the Netherlands International Group said.
“We suspect that the Fed is not ready to change its moderate rhetoric and, as our bond team concluded based on the March FOMC meeting, the Fed has left the long-term bond market unprotected. Until European markets turn around, the dollar index should continue to move modestly higher.”
The overall trend of the dollar gaining bearishness remains solid, according to data from Reuters calculations and the CFTC released on Friday, with the size of net short positions in the dollar held by speculators plunging in the latest week to the lowest since June last year, while increasing bearish bets on the yen. For the week ended March 30, the net short position in the dollar fell to $8.22 billion, compared with a net short position size of $10.78 billion in the previous week.
Continued focus on the epidemic situation in Europe and the U.S.
France has entered a new national lockdown and imposed a curfew that will last 4 weeks. Germany has again surpassed 4,000 people with severe cases of Newcastle pneumonia. Osterholm, a member of the U.S. President’s New Crown Advisory Council, said a fourth round of the outbreak is building momentum in the U.S., concentrating on the unvaccinated young adult population.
The short-term outlook for the eurozone economy will remain under pressure as the European outbreak makes a comeback with its New Crown vaccination significantly behind schedule. The U.S. and German Treasury yield differential is widening, which keeps the euro exchange rate depressed, with EUR/USD having touched a five-month low and a 13-month low against the pound. Minh Trang, a senior foreign exchange trader at Silicon Valley Bank, told the Wall Street Journal that the overall sentiment is now that the momentum for the euro to fall to 1.25 against the dollar has abated and people are looking at the 1.17 level.
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