[Market Review
New developments in the UK-EU negotiations now. The discovery of a highly infectious new coronavirus in the UK has triggered market panic and forced the UK to go into full lockdown, with the upcoming Christmas-related events basically coming to an end. Now the market also has to worry about whether this will hinder Brexit negotiations. The latest news is that the UK has made concessions on fisheries in a last ditch effort to secure a deal. The pound rallied above 1.34 against the dollar after the news broke.
The euro regained lost ground. Similarly, the euro fell 100 pips against the dollar to around 1.21 on news of a new toxic strain, but then recovered its losses and is now trading above 1.22.
The U.S. index rose and then fell. Next, let’s focus on the U.S. dollar index. The U.S. index rose and then fell. The discovery of a new virulent strain in the UK saved the weak U.S. index. As many countries tightened restrictions against the epidemic, investors bought the dollar for safe-haven. The U.S. index once touched the 91 mark upward, but then returned to near 90, and investors are now more concerned about the U.S. economic stimulus bill.
Gold prices rushed higher and retreated. Gold also surged higher and retreated. Earlier, driven by the U.S. agreement on the $900 billion package, gold prices once touched $1906.67 per ounce upward during the day, but then fell back to above $1870. Some analysts point to hedge funds taking profits from gold to make up for losses in the stock market and going long on the British pound as reasons for gold being shorted.
Silver gave back previous gains. The trend in silver is roughly similar to gold. Earlier, silver prices once touched $27.38 per ounce upward, then gave back gains and returned to near the $26 mark.
U.S. oil is shaking to the downside. Finally, a look at the oil market. The emergence of a new strain of coronavirus in the U.K. could lead to the imposition of more anti-epidemic embargoes in Europe, threatening global travel. Even so, officials said Russia still plans to support continued production increases at next month’s OPEC+ meeting. Of course, this decision would require the agreement of other countries. In a comprehensive one-day market, U.S. oil shocked to the downside, testing the 46 handle at one point, before recovering slightly to above the 47 handle.
▼Bond Market
Overnight, the yield on China’s 10-year Treasury note fell 0.04 percent, while the yield on the U.S. 10-year Treasury note fell 0.66 percent and the yield on the U.S. 3-month Treasury note rose 3.56 percent.
▼On the stock market
U.S. stocks closed mixed, with the S&P 500 down 0.4%, the Nasdaq down 0.10% and the Dow up 0.12%; by this morning, Chinese stocks opened all lower, with the Shanghai Composite Index down 0.28%, the Growth Enterprise Market Index down 0.53% and Hong Kong’s Hang Seng Index down 0.17%.
[Risk Warning
U.S. dollar: Goldman Sachs downgraded the dollar expectations expected to fall 9% in the next 12 months or
Goldman Sachs downgraded the dollar exchange rate expectations, that the dollar will fall another 9% in the next 12 months. The bank noted that the Federal Reserve turned hawkish earlier than expected. But the recent Fed meeting was the first since the vaccine was confirmed to be effective, leading the agency to believe that the Fed is a long way from tightening policy due to weakening structural inflationary trends.
Euro: Nordea is bullish on the euro, expecting a rise to 1.25
Nordic Union Bank sees the euro rising towards 1.25-1.27 against the U.S. The relative financial conditions between the eurozone and the U.S. suggest that it is highly likely that the U.S. will outperform the eurozone in 2021, but as long as the global growth rebound is seen as synchronized and broad-based, it is appropriate to buy the euro. Models of interest rates and positions also suggest that the euro will move higher against the dollar.
GBP: If no deal is reached between the UK and Europe by the end of the year, the pound fears a fall towards 1.25
Bank of Tokyo-Mitsubishi UFJ said, considering that the market has been early counted, the United Kingdom and the EU to reach a Brexit agreement before the end of the year deadline, so if the agreement is reached in the next two weeks as expected, the pound against the dollar upside is not much room, perhaps only to return to the 1.35 mark. Once the agreement is not reached on time, the exchange rate will see an asymmetrical decline, when the pound may fall toward 1.25, and in extreme conditions, may directly lose 1.20.
[Key Forecast].
21:30 U.S. third-quarter GDP rebounded sharply
First, let’s focus on the third quarter GDP data to be released by the United States. From the first quarter of last year, the U.S. GDP data shock downward, the second quarter of this year recorded -31.4%, but the third quarter GDP rebounded sharply, the revised value recorded 33.1%.
The market expects that the final value of the U.S. third quarter real GDP annualized quarterly rate of 33.1%, if the published value is better than expected, or favorable to the dollar; conversely, it is negative to the dollar.
As seen through expectations, the U.S. economy rebounded sharply in the third quarter, but this was already expected by the market. In addition, the U.S. personal consumption expenditure and the final annualized quarterly core PCE price index will be released at the same time. If this set of data is overall beautiful, the dollar index is expected to gain support.
Wednesday 05:30 API crude oil inventories are expected to decrease
Next, we will focus on the API crude oil inventories to be released in the US. Last week, API reported that U.S. crude oil inventories increased by 1.973 million barrels, recording an increase for five consecutive weeks. The subsequent release of EIA crude oil inventories, however, decreased by 3.135 million barrels.
By the end of the week, the market expects that U.S. API crude oil inventories will decrease by 3.25 million barrels for the week ending Dec. 18. If the published value is larger than expected, oil prices may come under pressure; conversely, oil prices may rise.
Recently, the UK has seen a record high number of new cases in a single day because of the emergence of a mutated new coronavirus in the UK. London upgraded its lockdown level. The new strain of the virus has been identified in other countries, including Australia, the Netherlands and Italy. Oil prices have come under pressure as market fears of another worsening outbreak have increased and the outlook for crude oil demand has again become weak.
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