[Market Review].
The US Dollar Index stopped its decline and rebounded. The dollar index stopped bouncing during the day and returned above the 91 handle. However, analysts say exchange rates and U.S. Treasury yields will come under pressure as more and more evidence suggests that the Fed will tighten monetary policy, more slowly than the market expects.
According to Reuters, in March, a Republican senator sent a letter to Federal Reserve Chairman Jerome Powell expressing concern about rising inflation. Powell gave a letter back in April. He said that inflation is too low, which will cause damage to U.S. households and businesses, and also limits the Fed’s ability to take accommodative policies to combat economic shocks. Powell stressed that the Fed’s goal is now to raise inflation moderately above 2%, but will not allow inflation to “excessively exceed”. Powell also said that the speed of the Fed’s bond purchases, and the size of the fiscal deficit is not relevant. Bond purchases, designed to maintain loose financial conditions and market operations.
Gold prices rose slightly. Next to focus on gold. Gold rose to $1,780 at one point, up almost $17 from its intraday low. Gold prices were supported by a retreat in U.S. bond yields, in addition to growing safe-haven demand for gold as U.S. stocks fell twice in a row and new crown cases surged in some countries. However, the dollar index stopped rebounding, limiting gold’s gains. Gold prices fell back to near $1,778 in late trading.
Silver oscillated in a narrow range. Compared to gold, silver was less volatile during the day. Silver prices mainly oscillated in a narrow range around $25.6-26.
The euro was basically flat. In non-U.S. currencies, the euro rose and then fell against the U.S. dollar and was basically flat during the day around 1.2040.
It should be noted that Germany will hold Bundestag elections on September 26 this year to produce a new term of Bundestag members, who will then elect the next chancellor. Since Angela Merkel, who has served four consecutive terms as chancellor, will not seek re-election, the current German election is considered to be full of suspense. Analysts said, for the euro, political uncertainty is never a good thing.
Encouraging news for the euro, however, was the announcement that the EU has exercised its option to buy another 100 million doses of Pfizer’s New Crown vaccine. The vaccine news suggests that Europe will begin to catch up with the U.S. recovery from the outbreak.
The British pound lost the 1.40 mark. Let’s look at the British pound again. The British pound broke strongly through the 1.40 mark yesterday, but then did not stabilize the mark and has now fallen back to around 1.3950.
U.S. oil suddenly took a short dive. Finally, take a look at the oil market. U.S. oil moved higher during the day to a one-month high near $64.3. However, U.S. oil turned lower intraday as worsening outbreaks in several places increased market concerns. Oil prices even plunged 2% in the short term after news broke late in the evening that OPEC may face antitrust litigation over production cuts. In addition, rumors of progress in the U.S.-Iran negotiations and an increase in API crude inventories also limited the upside of oil prices.
[Risk Warning].
Euro: Vaccination work accelerated Euro is expected to continue to rise
Citigroup believes that the euro has now broken through the 1.20 handle against the dollar, and there is still upside momentum in the coming weeks. This is because U.S. interest rate volatility has peaked, and European vaccination efforts are beginning to accelerate. The next resistance for the pair is above the 100-day moving average at 1.2058. The ECB is expected to stay put this week and we can also keep an eye on the PM I data released on Friday to further determine the direction.
Sterling: The positive is gradually digested, the pound fears to lose upward momentum
Recently, the British pound has been performing relatively strongly. The successful rollout of the new vaccine crown and the generous fiscal budget have supported the UK economy, thus boosting the pound. On the monetary policy front, the Bank of England appears to be accommodating to rising UK government bond yields. This echoes the Fed’s assertion that this simply reflects a reasonable optimism about the economy. However, HSBC economists believe that most of the good news has now been digested by the pound. Over time, the UK’s lead in vaccination may gradually diminish. This will inhibit the rise of the pound.
Japanese yen: three positive factors support the yen still has room to rise
Goldman Sachs Group is not bullish on the dollar against the yen. First, although the yen is uniquely sensitive to long-term interest rates, the yen will benefit along with other G10 currencies if U.S. front-end rates match the Fed’s dovish expectations. Second, while speculators are turning net short on the yen, they have yet to see a significant lift in outflows from Japan. Third, according to the bank’s long-term estimate of implied “fair value,” the yen is undervalued by 14%. The trade-weighted exchange rate is also at a low level relative to historical levels.
Key Outlooks
14:00 UK February CPI may be strong
First, let’s focus on the UK CPI data to be released. UK CPI recorded a monthly rate of -0.2% in February and rose to an annual rate of 0.7%. Although the epidemic has reduced the demand for goods and services, and UK inflation has fallen sharply from the 2% target set by the Bank of England since the outbreak of the new crown epidemic in March last year, UK inflation has picked up in the last two months, and the market generally expects the annual CPI rate to rise further in February.
Currently, the market is expected to February CPI monthly rate of 0.5%, if the published value is greater than expected, or good pound; conversely, will be negative pound.
At the same time, investors also need to pay attention to the same time the annual CPI rate and the monthly retail price index, if this set of data is better than expected, the pound may strengthen. In addition to employment, inflation, retail sales, PMI and many other data in the near future, you also need to pay attention to the epidemic in the UK. The UK has a vaccination rate of nearly 50% and has opened non-essential retail and outdoor hospitality facilities on April 12. Meanwhile, large UK companies are planning to increase hiring and investment as their confidence in profitability is at an all-time high for the year ahead. Market sentiment is now expected to continue to improve, which will support the pound.
22:00 CBC expected to scale back bond purchases
Next, come to focus on Canada’s upcoming interest rate resolution. In the last month, Bank of Canada Deputy Governor Gravel said that the Bank of Canada will gradually discontinue its remaining liquidity support program in the coming weeks as market conditions improve and there is already sufficient liquidity available for financial institutions to use. The Bank of Canada will not assess commercial paper, provincial government and corporate bond purchases, and the central bank’s balance sheet is expected to fall to C$475 billion by the end of April. The central bank’s QE cuts will be gradual and measurable, but did not mention the specific time to start cutting QE. He also said that the reduction of quantitative easing and policy rate decision is not relevant, adjusting the pace of quantitative easing purchases, does not mean that the CBC changed its previous expectations for the timing of interest rate hikes. The Bank of Canada previously expected to maintain the benchmark interest rate of 0.25% until 2023, and will subsequently review this target at the April rate meeting.
By the end of the month, the Bank of Canada said the first quarter business outlook survey showed continued improvement in business confidence; the outlook indicator touched its highest level since mid-2018.
Some strategists expect that the Bank of Canada could reduce its bond purchases by C$1 billion as early as April, cutting purchases from C$4 billion to C$3 billion, and expect the Canadian government to issue fewer bonds in fiscal year 2021/22 than in 2020/21. In addition, the CBC may adjust the rhetoric related to interest rate hikes.
22:30 EIA crude oil inventories expected to increase
Finally, coming to EIA crude oil inventories, last week’s release saw a decrease of 5.89 million barrels, the largest inventory drop since the week of February 12.
This morning, API crude oil inventories have been released, increasing by 436,000 barrels, more than expected. 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, it is still necessary to pay attention to the current market expectation that the US EIA crude oil inventory for the week to April 16 may decrease by 2.86 million barrels. If the published data exceeds the expectation, oil prices may dip in the short term; if the inventory data is less than expected, oil prices are expected to strengthen.
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