Financial Breakfast on November 4: The Fed cuts down as scheduled, the U.S. dollar fell, gold narrowed its decline, and oil prices plummeted by 5%

On Wednesday (November 3), the U.S. dollar was lower after the Federal Reserve announced that it would reduce the scale of asset purchases from November, but Powell hinted that it is not in a hurry to raise interest rates. Spot gold maintained its downward trend and closed near the 1770 mark in late trading. U.S. crude oil fell more than 5% at one time and fell below the US$80 mark, and oil distribution fell more than 4% to a new low of US$81.10 per barrel in the past four weeks; EIA data showed that domestic crude oil inventories increased for the second consecutive week, putting oil prices under pressure.

Commodity closing, COMEX December gold futures closed down 1.4%, at 1,763.90 US dollars per ounce. WTI December crude oil futures closed down 3.05 US dollars, or 3.63%, to 80.86 US dollars per barrel; Brent January crude oil futures closed down 2.73 US dollars, or 3.22%, to 81.99 US dollars per barrel.

U.S. stocks closed: the S&P 500 index rose 0.7% to 4660.57 points; the Dow Jones Industrial Average rose 0.3% to 36157.58 points; the Nasdaq Composite Index rose 1% to 15811.58 points; the Nasdaq 100 index rose 1.1 %, reported 1,6144.5 points; Russell 2000 index rose 1.8%, reported 2404.276 points.

Thursday preview

16:15 European Central Bank Management Committee Holtzman delivered a speech
20:00 The Bank of England announces interest rate resolution and announces meeting minutes
20:45 European Central Bank President Lagarde and Executive Committee Member Schnabel delivered speeches. The 22nd OPEC and non-OPEC Ministerial Conference was held

List of major global markets

The US stock market hit a record high again on Wednesday. Although the Federal Reserve announced that it would reduce bond acquisitions from this month, it still hinted that monetary policy will remain loose. The S&P 500 Index, Dow Jones Index, Nasdaq 100 Index and Russell 2000 Index reached the highest close in history for the second day in a row. This hot scene has only been seen since January 2018.

The U.S. Treasury yield curve has steepened. Previously, Fed Chairman Powell emphasized that the purchase of underweight bonds does not mean an imminent interest rate hike. He said that Fed officials will remain patient with tightening policies, but if the level of inflation gives the Fed a reason to act, the Fed will not hesitate.

Principal Global Investors chief strategist Seema Shah wrote that Powell is very careful today and has always insisted that the Fed’s focus is to reduce the size rather than raise interest rates. This is regrettable because the market only wants to talk about raising interest rates.

Traders' expectations on the timing of the Fed's rate hike remain basically unchanged. Money market derivatives show that the Fed will raise interest rates by about 55 basis points by the end of 2022. Overnight index swaps show that the first rate hike is around July, and the probability of a one month rate hike in advance is about 70%.

Precious metals and crude oil

The price of gold remained near the lowest level since mid-October on Wednesday. Spot gold closed down 1% in late trading to $1,769.82 per ounce. It fell below the 1,760 mark earlier, the lowest level since October 13, after the Fed was as widely expected. Announced reductions in debt purchases and reduced economic stimulus measures during the pandemic.

At the end of the two-day meeting, the Fed issued a statement saying that it will reduce the monthly bond purchases from November and plans to end the reduction in 2022.

Phillip Streible, chief market strategist at Blue Line Futures, said that the price of gold was preparing for the worst-case scenario before the start of the meeting, which is why the price of gold has fallen to about $1,758 since then.

The Fed also pointed out in its statement that economic activity and employment are recovering, but still believes that high inflation will be "temporary" and may not need to raise interest rates quickly.

Oil prices fell sharply. U.S. oil once fell by more than 5%, setting a new low in the past three weeks to 79.69 US dollars per barrel; cloth oil fell by more than 4%, hitting a four-week low to 81.10 US dollars per barrel; previous reports showed that US crude oil inventories increased. And Iran said it will resume nuclear negotiations this month.

Iran announced that negotiations will resume on November 29, and reaching a nuclear agreement is seen as the first step towards the possible lifting of sanctions on Iranian oil by the United States. At the same time, the U.S. government inventory report shows that U.S. oil supply has risen to its highest level since August.

OPEC+ met on Thursday to evaluate production plans. The United States has called on the organization to speed up production to stabilize high domestic crude oil prices. But considering the increase in inventories and the cooling of crude oil prices this week, it remains a question of whether the organization will listen.

Bart Melek, head of commodity strategy at TD Securities, said that it is difficult to determine whether OPEC will increase production just because the United States is politically uneasy about gasoline prices.

Foreign exchange

The U.S. dollar fell on Wednesday after the Fed stated that it will reduce the monthly bond purchases from November and plans to end the reduction in 2022, but still insists that high inflation will prove to be "temporary" and it is likely that no rapid increase will be required. interest.

However, despite the announcement that it will reduce the monthly purchases of US$120 billion in government bonds and mortgage-backed securities (MBS) by US$15 billion, the Fed remains silent on when the next phase of policy “normalization” may begin through raising interest rates. .

The U.S. dollar index fell after the Fed’s announcement and hit a day low. The U.S. dollar index fell 0.27% to 93.86 in late trading; the U.S. Treasury yield curve became steeper, and the 30-year Treasury yield rose by about 3 basis points. The U.S. dollar fell against most G-10 currencies.

Powell said that by the second or third quarter of next year, the inflation rate is expected to fall, and the timing of interest rate hikes will "depend on the path of the economy."

Simon Harvey of Monex said that a slightly dovish tone should weigh on the dollar, especially when other G-10 central banks are more sensitive to inflation.

Scott Petruska, chief currency strategist at Silicon Valley Bank, said that the initial decline in the dollar after the Fed’s statement may have been due to profit settlement. Before the results of the meeting were announced, the U.S. dollar was extremely long, and it is still the case today. He also said that for the rest of the next quarter, the U.S. dollar will still be supported by relatively high U.S. Treasury yields. The Fed has shown an eagerness to curb inflation, and to some extent recognizes that the duration of inflation may not last. As short-lived as they initially thought, the dollar is still a safe-haven asset.

The euro to US dollar rose 0.28% to 1.1612; earlier, European Central Bank President Lagarde said that the possibility of the European Central Bank raising interest rates next year is very small because inflation is still too low. This led to lower yields on government bonds, but little change in the euro.

The dollar rose slightly against the yen to 114.125; the dollar fell 0.31% to 0.9118 against the Swiss franc.

The British pound rebounded from its two-week low against the US dollar, rising 0.55% to 1.3687; it suspended its three-day losing streak; before the Bank of England meeting on Thursday, the market is currently digesting expectations for a 15 basis point increase in interest rates.

Giles Coghlan, chief currency analyst at HYCM, said that the key question is how effective an increase in interest rates will be in controlling inflation. Inflation is mainly driven by supply chain issues as we emerge from the pandemic. He said that the Bank of England is also concerned about labor data and may decide to postpone rate hikes on Thursday because they will not want to raise interest rates too soon, which may threaten corporate recovery."

The Australian dollar rose 0.04% to 0.7451 against the US dollar; the Reserve Bank of Australia abandoned its short-term bond yield target on Tuesday and abandoned expectations of maintaining interest rates at record lows until 2024. However, the Australian dollar fell because the central bank also refuted the aggressive pricing of interest rate hikes in 2022.

The New Zealand dollar rose the most among the G-10 currencies. The New Zealand dollar found support against the US dollar due to strong labor data, rising 0.69% to 0.7160 in late trading.

International news

[The Federal Reserve maintains the benchmark interest rate unchanged and launches the debt reduction plan later this month] The Federal Reserve announced on Wednesday that it will maintain the benchmark interest rate unchanged and will soon begin to reduce the pace of monthly bond purchases. The Federal Reserve stated that it will launch a debt reduction plan later in November to reduce the size of monthly asset purchases by US$15 billion; adjust the monthly purchases of Treasury bonds and mortgage-backed securities (MBS) to US$70 billion and US$35 billion, respectively. , Previously it was 80 billion and 40 billion U.S. dollars. The FOMC stated that the move is "in view of the further substantial progress the economy has made towards the committee's goals since December last year." The statement emphasized that the Fed has not preset a route and will adjust the process if necessary.

[Powell said he would remain patient with interest rate hikes but will take action if necessary] Fed Chairman Powell said that after announcing the reduction in debt purchases, officials may remain patient in raising interest rates, but if the inflation situation develops to the point where action is required, the Fed Will not flinch. We think we can be patient, and if we need to respond, we don’t hesitate. Powell said that the reduction "does not mean any direct signal about our interest rate policy." He pointed out that at this rate, it is expected to end in the middle of 2022, but it may also speed up or slow down depending on the economic outlook.

[EIA report: U.S. commercial crude oil inventories excluding strategic reserves increased by 3.29 million barrels to 434.1 million barrels] As of October 29, EIA gasoline inventories decreased by 1.488 million barrels, refined oil inventories increased by 2.16 million barrels, last week in the United States Crude oil production increased by 200,000 barrels to 11.5 million barrels per day. In addition to the strategic reserves, the import of commercial crude oil last week was 6.172 million barrels per day, a decrease of 82,000 barrels per day from the previous week; crude oil exports increased by 138,000 barrels per day to 2.925 million barrels per day.

[Iranian Deputy Foreign Minister: The Vienna talks on the Iranian nuclear agreement will be restarted on November 29] On November 3, local time, Iranian Deputy Foreign Minister Bagheri said in a communication with the Deputy Secretary-General of the European External Action Agency that the Iranian Nuclear Agreement Vienna The negotiations will restart on November 29. (CCTV)

Domestic news

[The trend of global monetary policy tightening is clear, and we must be fully prepared for interest rate hikes] The support for loose monetary policy has gradually faded over time. After the Fed's November interest rate meeting, the global monetary policy tightening trend has become more clarified, combined with the domestic September Since the A-share steel, mining and other procyclical sectors have recovered, the signal of the end of the era of abundant global liquidity has become stronger. We must be wary of insufficient market preparations for interest rate hike expectations in the medium and long term. Because the over-issued currency has permanently increased the reserve prices of core assets and some resource products, the downward range in the future will definitely be constrained. When the objective function of the entire global supply system points to "carbon neutrality", it will be overcome in the future. The difficulty of inflation generated in the course of the economic downturn is likely to increase. (Securities Times)

[National Development and Reform Commission: National coal production exceeded 11.6 million tons per day on November 2] Entering November, national coal production continued to show a trend of high growth. According to the schedule, on November 2, the national daily coal output reached 11.67 million tons, which was close to the highest peak of this year's output and the second peak of output this year, an increase of about 1 million tons from the beginning of October. As various measures to increase production and supply continue to take effect, the country's daily coal output is expected to exceed 12 million tons.