Intraday Market Thoughts Archives
Displaying results for week of Feb 28, 2021Recording of Ashraf's Today Session
The OPEC+ meeting on Thursday will no-doubt feature some back-slapping from oil ministers. Their efforts have gone a long ways towards boosting brent to $65 from unheard of depths. A particularly successful move was the decision to rollover output in January combined with a 1 mbpd voluntary cut from Saudi Arabia.
There's the rub. Those barrels will have to come back into the market at some point and if they tip the balance too far, it could undo some of the progress.
It's a classic battle between greed and fear. Many nations no doubt want to take advantage of higher prices to sell more oil while all of them want to keep prices high. So far, they will be please to continue to see global oil companies keeping budgets tight. A red flag would be if US shale or others begin to drill with the aim of boosting production.
Market talk centered around a 500kbpd hike in April and a return of the 1 mbpd from Saudi Arabia but that was turned on its head Friday on a report from Reuters saying OPEC+ is considering rolling over current production. That helped to boost oil prices by 2% Wednesday even as broader markets wilted.
It's not clear whether Saudi Arabia would continue its voluntary cuts but even if they return, the rollover of OPEC+ overall production would be well-received.
The decision takes place at the same time as the market continues to struggle with higher yields. The Fed's Evans brushed of higher rates Wednesday, saying it was a reflection of better economic sentiment. There was a rumor though that Powell in his 1705 GMT speech Thursday could hint at an operation twist. Given the comments from other top officials, we doubt he will. We fear though that if he doesn't the bond market will kick and scream.Central Bank Schism Appears
The ECB's Villeroy had the clearest response yet to the turmoil in the bond market. He said much of the recent rise in yields is unwarranted and that the ECB must react against it.
Those comments helped to lower eurozone sovereign yields after they earlier ticked higher on soft PEPP buying. An ECB spokesman was forced to explain that drop in QE to 12B from 17B as a technical move rather a policy signal.
The Villeroy comments also helped to spur risk assets but some of that move unwound when the Fed's Barkin took a different approach. He said that much of the recent rise in yields “seems to be” vaccine and economic optimism and called it “a natural reaction.”
Rates hit session highs after that and helped to lift USD/JPY. However the moves were largely contained to bonds and the equity market ignored yields and soared higher.
Ultimately, the tension will need a resolution and we need a response from a core FOMC member or Powell himself before the market can really run. Brainard speaks on the economic outlook at 1800 GMT and as one of the biggest FOMC doves, she is most-likely to lean against higher yields. If so, it will validate the rebounds in equities and the bounce in commodity currencies. If not – particularly if she sends a similar message to Barkin – the we could see more of the kind of turmoil we saw last week.
That kind of commentary would also put the Fed at odds with the ECB, RBA and others, who are fighting higher rates. It should help to lift the dollar against that duo and more.CNH vs DXY & RBA Cuts Down Yields
To start the week, the RBA announced it was buying A$4 billion in the 4 to 8-year range. The current target rate of purchases is $5B/week and the aim is to keep 3-year yields at 0.10%.
Last week though, 10-year yields spiked to 1.92%, including a 20bps move higher on Friday.
The actions from the RBA are an early sign that central banks aren't pleased with the jump in yields and the market responded as yields fell 30 bps to 1.64% in early-week trading.
Global central banks are undoubtedly displeased with the US bond market. The talk from the Fed that they're ok with higher yields along with the quick US vaccine rollout and huge fiscal stimulus is spilling over globally.
The Fed can either change its tune, or double down. If they offer some verbal intervention, it would undo some of the recent market moves. If they double down, the relief valve may be US dollar strength as the Fed stays the course and other countries ramp up easing.
With that, all eyes will be on a series of Fed speeches this week, culminating with Powell on Thursday. To start the week, Williams and Brainard are on tap. Their comments will be watched closely.Enough for JPY? كفاية للين أم لا؟
