Spark Global Limited reports:
Last week was a volatile one, with the U.S. House of Representatives passing a nearly $2 trillion stimulus bill, Austria announcing the resumption of restrictions, and the U.S. trying to persuade more countries to release oil reserves. The U.S. dollar index.DXY rose to a 16-month high on expectations of a Fed policy shift and safe-haven demand, while a rally in international gold prices took a hit, while U.S. stocks diverged and crude oil fell to its lowest since October.
The New York Stock Exchange was closed on Thursday for the Thanksgiving holiday in the United States. Trading in ICE’s Brent crude oil contract and CME’s precious metals, U.S. crude oil and foreign exchange contracts closed earlier at 02:30 Beijing time on Thursday.
On Friday, the New York Stock Exchange closed early at 02:00 Beijing time, ICE’s Brent crude oil contract closed early at 04:00 Beijing time, and CME’s precious metals and U.S. crude oil contract closed early at 02:45 Beijing time. Trading of CME’s foreign exchange contracts ended early at 02:15 Beijing time on Monday.
Holiday approaching market liquidity may gradually decrease, volatility may gradually become larger, please traders do a good job of risk control.
① Biden Nomination for Fed chair, Brainard more bullish on gold?
U.S. President Joe Biden said last Thursday he would announce his choice to lead the Federal Reserve in about four days. The White House said Thursday that it will have more information on the selection of federal Reserve chairman early this week. Currently, the market is predicting that Biden will choose between current chairman Powell and board member Brainard. The choice will have a profound impact on the economy over the next four years.
On Friday, two Democratic senators, Jeff Merkley of Oregon and Sheldon Whitehouse of Rhode Island, urged Mr Biden not to nominate Mr Powell for a second term. But given the strong Republican support for Powell, there aren’t enough progressive Democrats to sway Biden if he chooses him.
If Ms Brainard is elected, the Fed’s monetary policy is seen as more dovish than it is now. Huatai Futures analysis said that if Brainard was eventually elected means that the Federal Reserve this round of tightening pace will be slower than expected, in 2022 or only a rate hike, short-term is expected to drive us bond rates lower, precious metals significantly benefited.
Some analysts say that no matter who Biden nominates as the next Fed chairman, the Fed’s monetary policy is expected to shift next year, and the first rate hike is expected to come later than the current market expectation, as early as December next year.
The Kitco survey suggests gold may move into a consolidation this week.
Edward Moya, senior market analyst at OANDA, said there is a big risk that short-term Treasury yields could change dramatically if Brainard unexpectedly becomes the next Fed chair. If Mr Biden nominates Ms Brainard, gold will climb as expectations of a Fed rate hike are pushed back further. But a Powell renomination would not necessarily mean a sharp fall in gold prices. For now, the risks remain skewed to the upside.
Moya said gold prices could remain in the $1840-1890 / oz range this week and would not be surprised to see gold hit $1890 and then fall back. If gold is softer, there is also considerable support in the $1840-1850 range. In addition, bitcoin fell below $60,000 and is at risk of falling further, which could be good news for gold.
Strategists at TD Securities said gold could face further selling risks if it falls below $1,840 an ounce this week. While gold remains an ideal hedge against the risk of rising stagflation, the tug of war between high inflation and market pricing in Fed rate hikes is not finally over.
② Japanese government considers releasing strategic petroleum reserve
Japan and the United States may issue a joint statement on the release of oil reserves as early as this week in a bid to stem rising oil prices, the Yomiuri Shimbun reported. Prime Minister Fumio Kishida told reporters the previous day that his government was reviewing possible measures to work with other countries to resolve the issue. While Japan’s oil reserve law does not allow the release of reserves because of high prices, both the government and the private sector currently hold more than the legal minimum.
Mr. Biden’s attempts to lower oil prices haven’t resulted in any action that directly affects supplies, but expectations have been enough to move the market. Oil prices have pulled back more than 8% from their recent highs.
However, Goldman Sachs recently pointed out that the U.S. government’s release of emergency crude oil reserves has been fully priced into the market, if the U.S. confirmed the release of reserves, instead of the upside risk to the 2022 oil price forecast.
③ RBNZ announced the interest rate resolution, the possibility of a 50 basis point hike
On Wednesday, the Reserve Bank of New Zealand released its interest rate decision. A Reuters poll showed 19 out of 20 economists think the RBNZ will raise rates by 25 basis points to 0.75 percent at Wednesday’s decision. Another sees a rise to 1%.
New Zealand bank ASB said the RBNZ rate hike of 36 basis points on November 24 had already been priced into the interest rate market, meaning a 50 basis point increase to 1.0% was highly likely, rather than the 25 basis point increase expected by market economists.
Nomura also believes New Zealand’s continued strong economic data suggest the economy is overheating and there is more than a 25 basis point chance of the RBNZ cash rate hike of 50 basis points on November 24.
In addition, following the RBNZ rATE-setting meeting, the MONETARY Policy Committee does not reconvene until February 23. With a three-month gap between meetings, Nomura sees merit in putting the brakes on, which would take the cash rate to 1% by the end of the year. NZD/AUD has been supported by recent commodity price volatility and rBA signaling rate hikes are some way off. Hence, Nomura is bearish on AUDNZD.
(4) The Federal Reserve released FOMC meeting minutes, pay attention to the details of the subtraction
In the early hours of Thursday morning, the Fed will release the minutes of its FOMC monetary policy meeting. Later the same day, the European Central Bank released the minutes of its October monetary policy meeting.
Inflation will continue to be the focus of the Fed minutes. Investors can watch for details of members’ discussions on downsizing, as well as their latest views on the economic outlook, labor market and inflation. Fed Vice Chairman James Clary, Governor Robert Waller and St. Louis Fed President James Bullard signaled last week that accelerated tapering would need to be discussed at the December meeting.
Trading is expected to be lower this week ahead of the Thanksgiving holiday, but the upward trend in the DOLLAR index is expected to continue. Rising expectations of an early rate hike by the Federal Reserve and modest tightening expectations from other central banks have led to a widening divergence in policy between the U.S. and major central banks, which could support a rally in the INDEX.
(5) Will the dollar soar when the Fed’s preferred inflation measure hits and Europe takes a turn for the worse?
On Tuesday, Markit will release purchasing managers’ indices for manufacturing in a number of European and U.S. countries, giving investors a glimpse of how high inflation and supply chain bottlenecks are affecting the recovery in those economies.
On Wednesday night, there will also be a flurry of key us data, including durable goods orders, the Final University of Michigan consumer sentiment index for November, the revised real GDP reading for the third quarter and the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index. The index is expected to increase 0.4% month-on-month versus 0.2% last, and 4.1% yoY versus 3.6% last.
Earlier, the U.S. consumer price index (CPI) recorded the highest year-on-year growth in 31 years. If the PCE data also confirms that U.S. inflation pressures are too high, it could lead Fed officials to discuss accelerating the pace of their bond tapering at their next meeting.
Dollar volatility has risen to a three-month high, with traders positioning for an average daily volatility of about 0.42 per cent for the dollar index over the next three months.
At the same time, lagarde stressed last week that the European Central Bank will not tighten monetary policy for the time being, the euro may face more adverse conditions.
A euro/DOLLAR close below support at 1.1290/00 could add further downside momentum, Forexlive analyst Justin Said. The pressure is intensifying as the dollar and yen rise, with Austria announcing a nationwide lockdown and Germany likely to follow with more restrictions, raising concerns in the currency world. Eurusd traded at 1.1278 as of press time.
It is worth noting that November 24 is the largest option expiration date before the end of the year, with about 4.2 billion euros of eurusd options with strike price of 1.15 and about 1.6 billion euro exotic options expiring, so we need to be alert to the increased volatility of the euro.