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Market News Financial Breakfast on October 7: The debt ceiling deadlock eased, the dollar rose, gold rebounded, oil prices fell by more than 2%, natural gas fell by 10%

Financial Breakfast on October 7: The debt ceiling deadlock eased, the dollar rose, gold rebounded, oil prices fell by more than 2%, natural gas fell by 10%

The U.S. dollar moved higher on October 6, although some investors turned their attention to the prospect that US lawmakers might reach an agreement to raise the debt ceiling and avoid the immediate risk of default. Spot gold rebounded by nearly $17 in late trading compared with the daily low, and closed at $1,762.84 per ounce, due to the fall in U.S. bond yields, but the strengthening of the U.S. dollar limited the rise of gold. After increasing US inventories and Russia’s hint that it is ready to alleviate the global energy crisis, oil prices hit the biggest drop in two weeks. US oil fell more than 2%, setting a two-day low to $76.83 per barrel, and NYMEX natural gas futures fell more than 10%.

TOPONE Markets Analyst
2021-10-07
8668

On Wednesday (October 6), the U.S. dollar index rose for the second consecutive day. Affected by asset market volatility and inflation concerns, the implied volatility of the U.S. dollar index rose to its highest level since June. Gold futures prices closed slightly higher. Although the U.S. ADP employment data was better than expected to boost the dollar’s strength, the fall in U.S. Treasury yields still provided moderate support for the precious metals. U.S. oil and cloth oil both fell more than 2% in late trading, NYMEX natural gas futures tumbled 10%, and Russian President Vladimir Putin said Russia would increase fuel supply to Europe.

Commodity closing, COMEX December spot gold futures closed up 0.05%, at 1761.8 US dollars per ounce. WTI November crude oil futures closed down 1.50 US dollars, or 1.90%, to 77.43 US dollars per barrel; Brent December crude oil futures closed down 1.48 US dollars, or 1.79%, to 81.08 US dollars per barrel; NYMEX November natural gas futures closed down 10.10 %, reported 5.6750 US dollars / million British thermal units.

US stocks closed: the S&P 500 index rose 0.4% to 4363.55 points; the Dow Jones Industrial Average rose 0.3% to 34416.99 points; the Nasdaq Composite Index rose 0.5% to 14501.91 points; the Nasdaq 100 index rose 0.6 %, reported 14766.75 points; Russell 2000 index fell 0.6%, reported 2214.998 points.

Thursday preview


timeareaindexThe former valuePredictive value
13:45SwitzerlandUnemployment rate without seasonal adjustment in September (%)2.72.7
13:45SwitzerlandSeptember seasonally adjusted unemployment rate (%)2.92.8
14:00GermanyMonthly rate of industrial output after seasonal adjustment in August (%)1-0.5
14:00GermanyAnnual rate of industrial output after adjustment on working days in August (%)5.75
14:45FranceAugust trade account (100 million euros)-69.57
16:00ChinaSeptember foreign exchange reserves (100 million U.S. dollars)32321.232160
19:30AmericaNumber of layoffs by challenger companies in September (10,000)1.57
20:30AmericaAs of October 2nd, the number of people claiming unemployment benefits at the beginning of the week (10,000)36.234.9
20:30AmericaAs of the week of September 25, the number of people claiming unemployment benefits (10,000)280.2276.5
22:00CanadaPMI after quarterly adjustment of IVEY in September66


19:30 ECB announces minutes of monetary policy meeting

List of major global markets



The U.S. stock market fluctuated heavily on Wednesday, and Republicans proposed to the Democrats a plan to end the debt ceiling deadlock. The S&P 500 and Nasdaq 100 both moved higher, wiping out more than 1% losses. US Senate Republican leader McConnell said that he plans to raise the debt ceiling in the short term until December. Affected by a series of factors such as the debt ceiling, inflation, and rising energy prices, the S&P 500 index has a volatility of 1% for the fourth consecutive trading day.

Wells Fargo Securities strategist Anna Han said that the latest news shows that the Republicans are willing to negotiate an extension of the debt ceiling, and stock and bond yields have rebounded. Although it cannot be said that it has been completely resolved, the market breathed a sigh of relief for the time being.

ADP data shows that the new jobs in the United States in September were better than analysts expected, which further strengthened the market’s confidence in the Fed’s debt reduction next month. The strong employment report has eased worries about recruitment difficulties, but market volatility remains sharp, because people worry that inflation may last longer than the Fed expected, especially in the face of tight energy supplies this winter.

Precious metals and crude oil


Spot gold prices rose slightly on Wednesday and fell into a narrow range. Spot gold closed at US$1,762.84 per ounce. As US bond yields fell, but the strength of the US dollar limited the rise of gold, investors waited for the US job market data to be released later this week.

Bob Haberkorn, senior market strategist at RJO Futures, said that gold's hedging appeal is not as good as other safe assets, and its performance largely depends on US non-agricultural employment data. Prior to this, the price of gold may show a sideways trend.

Affected by the potential for inflation and interest rate hikes due to soaring energy prices, the rise in the U.S. dollar makes gold more expensive for holders of other currencies, which limits the rise in gold prices.

After data showed strong private employment growth in the United States in September, investors’ focus turned to the key non-agricultural employment data to be released on Friday, which will determine the Fed’s plan to reduce debt purchases. Fu Xiao, director of the Commodity Strategy Department of BOC International, said that even though the non-agricultural employment data is “not beautiful, but just in line with expectations,” some Fed members have believed that the conditions for reducing debt purchases have been met, which has put pressure on gold.

After increasing US inventories and Russia's hint that it is ready to alleviate the global energy crisis, oil prices hit their biggest decline in two weeks, with US crude oil falling more than 2%, setting a new low of $76.83 per barrel in the past two days.

The British "Financial Times" reported that after the United States increased the possibility of releasing emergency oil reserves, oil prices continued to fall after the market. EIA data shows that crude oil inventories have increased, and Russian President Putin hinted that the country will increase natural gas exports to stabilize the energy market, all leading to a drop in oil prices.

Ed Moya, senior market analyst at Oanda Corp., said that the US considering using reserve oil may mean that oil prices will not get out of control.

U.S. oil prices closed on Tuesday at their highest level since 2014, because soaring natural gas prices stimulated demand for crude oil and refined oil before the winter, while OPEC+ continued to slowly increase oil supply. In the days leading up to the OPEC+ meeting on Monday, the Biden administration had urged the coalition of oil-producing countries to increase oil supply.

The Financial Times quoted US Secretary of Energy Jennifer Granholm's speech at an energy summit on Wednesday as reporting that she increased the possibility of releasing crude oil from the Strategic Petroleum Reserve and said that "all available tools are being discussed"; Granholm does not rule out Possibility of imposing a ban on crude oil exports.

Foreign exchange


The U.S. dollar is holding on to gains against most G-10 currencies, although some investors are turning their attention to the prospect that US lawmakers may reach an agreement to raise the debt ceiling and avoid the immediate risk of default. The yen shrank and its gains were nearly flat, although the ongoing energy crisis has exacerbated concerns about inflation.

The U.S. dollar index rose 0.27% to 94.23, rising for the second day in a row. Affected by asset market volatility and inflation concerns, the implied volatility of the U.S. dollar index rose to its highest level since June.

The yield on the 10-year U.S. Treasury bond rose slightly after McConnell said he would provide the Democratic Party with an agreement to raise the U.S. debt ceiling until the end of November.

The U.S. dollar climbed across the board on Wednesday, as the soaring energy prices triggered concerns about inflation and interest rate hikes, suppressing investor interest in higher-risk assets and pushing funds to safe-haven assets.

As oil prices hit their highest level in seven years, global stock markets fell early on Wednesday and U.S. Treasury yields rose, and some of the trend was reversed later.

Minh Trang, senior foreign exchange trader at Silicon Valley Bank, said that what you see this week is that more inflation concerns are permeating the entire market. Rising inflationary pressures may adversely affect economic growth and affect how quickly the Fed can raise interest rates. The question is whether this will force the Fed to act faster than expected.

Francesco Pesole, a foreign exchange strategist at ING Bank's London branch, pointed out that the recent weak sentiment is affected by rising energy prices and possible shocks to inflation and the central bank. In view of the upward pressure on inflation, the market has become increasingly skeptical about whether some central banks, especially the Fed, can continue to postpone the normalization of policies. The dangerous combination of tightening monetary policy and slowing economic growth clearly makes investors nervous.

The euro to dollar fell 0.36% to 1.1556, hitting its lowest level since July 2020; real-money institutions and companies are selling euros; and the 1-year implied volatility of the euro rose to its highest level in a month.

The USD/JPY reduced its decline to nearly flat at 111.41, as traders digested the progress of the US debt ceiling issue;

The pound fell 0.34% to 1.3582 against the U.S. dollar. The implied volatility of the currency pair rose to a seven-month high of around 7.9% on Wednesday. The pound fell 0.3% against the U.S. dollar due to soaring energy prices and soaring bond yields. Implied volatility It is an indicator to measure the expected volatility of currency options.

The Reserve Bank of New Zealand raised interest rates for the first time in seven years, suggesting that further interest rate hikes may be needed to curb inflation; however, the strengthening of the U.S. dollar, coupled with the market’s aversion to riskier currencies, caused the New Zealand dollar to fall 1.2% to 0.6877 against the U.S. dollar; ANZ analysis Teacher David Croy said that it was cautious enough to make it sound like a gentle dove.

The Australian dollar fell 0.27% to 0.7272 against the US dollar; the US dollar rose 0.06% to 1.2590 against the Canadian dollar.

International news


[EIA report: U.S. commercial crude oil inventories excluding strategic reserves increased by 2.345 million barrels to 420.9 million barrels last week] As of the week of October 1, EIA gasoline inventories increased by 3.25 million barrels, and refined oil inventories decreased by 396,000 barrels; the United States last week Domestic crude oil production increased by 200,000 barrels to 11.3 million barrels/day; commercial crude oil imported from strategic reserves last week was 7.035 million barrels/day, an increase of 483,000 barrels/day from the previous week; US crude oil exports decreased by 906,000 barrels/day last week To 2.114 million barrels per day.

[McConnell proposes to the Democrats to temporarily raise the debt ceiling to avoid the imminent risk of default] US Senate Republican leader McConnell proposes to the Democrats to temporarily raise the debt ceiling until December, which will alleviate the imminent risk of default. This issue may be involved in the political war between the two parties at the end of the year; Senate Majority Leader Schumer has not yet made a public response, but he has called a meeting with Senate Democrats and is expected to exchange views with McConnell. At the same time, the Senate postponed a procedural vote to suspend the debt ceiling. McConnell proposed to raise the federal debt ceiling by a fixed dollar amount, enough for the Treasury Department to meet until December, when Congress needs to vote again to avoid defaulting on federal debt. And that's almost the time when the Democrats are trying to push for the implementation of large-scale tax expenditure bills, and Congress once again takes action on government funding sources to avoid a shutdown.

[Russian President Vladimir Putin stated that in response to energy tensions, Russia is increasing its supply of natural gas to Europe, including supplying natural gas to Europe through Ukraine, and is preparing to stabilize the market in the event of soaring prices]

[The United States is considering releasing emergency oil reserves to curb soaring oil prices] With the average gasoline price at US gas stations hovering at $3.19 per gallon (the highest in seven years), the White House is worried that the increase in fuel costs may hurt before next year’s midterm elections Its political outlook. When talking about the release of crude oil supply from the US National Strategic Petroleum Reserve, US Secretary of Energy Granholm said: "This is a tool under consideration." Analysts believe that the release of crude oil supply may stabilize the oil market and lower oil prices. Granholm also does not rule out a ban on crude oil exports. She said at the “Financial Times” Energy Transition Strategy Summit: “This is a tool we have not used, but it is also a tool.”

[British inflation expectations rose to 13-year highs to strengthen market bets on central bank interest rate hikes] The 10-year breakeven inflation rate in the UK once climbed 10 basis points to 4.08% on Wednesday, the highest level since 2008. This indicator is used A measure of the UK's inflation rate expectations over the next 10 years. The reason for this situation is that the price of natural gas in the UK has soared to record highs, which may intensify the upward momentum of consumer prices. Correspondingly, the currency market has almost completely digested the Bank of England’s earliest interest rate hike expectations in December, which will be the first rate hike in three years. The money market currently expects the Bank of England to raise interest rates by 15 basis points to 0.25% in February next year and 25 basis points to 0.5% in May next year. They expect the probability of the Bank of England to raise interest rates by 15 basis points in December this year is close to 100%.

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