Abstract: The stock market rallied on the quantitative easing program. Oil surprisingly rose after the OPEC+ agreed to increase oil production gradually over the next three months. Treasury yields soared, pushing the dollar above the 93 mark. The Australian dollar is at the whim of pressure from as growing bearish sentiment. Sterling gained support on strong economic data
Last week, U.S. stocks rallied to new highs. The S&P 500 briefly stood at 4,020 for the first time ever. In the run-up to Biden's announcement of the infrastructure plan last week, U.S. stocks traded in a range-bound market as investors took a cautious stance due to soaring Treasury yields. U.S. Treasury yields then soared on a pullback triggered by Biden's $2.3 trillion infrastructure plan and weaker-than-expected jobless claims data. As of last week's close, the S&P 500, Nasdaq and Dow rose by 1.62%, 1.92% and 1.11% to 3,972.89, 13,246.87 and 32,981.55, respectively. See S&P500 Live Chart below:
Source from: Mitrade
On the economic front, U.S. manufacturing activity soared to its highest level in more than 37 years in March, presented in a PMI reading of 64.7 and suggesting the strong recovery driven by robust growth in new manufacturing orders. In another piece of good news, non-farm payrolls rose by 916,000 last week, well above market expectations, and the unemployment rate fell to 6%. While the stock market is being supported by these improving economic fundamentals, concerns about stronger inflation ensue with the rapid recovery. Also, it will pose pressure on businesses to increase the corporate tax rate from 21% to 28% as part of the landmark infrastructure plan, a main reason for Republican opposition to the proposal. And Fed members' views on the current economic recovery and inflation will be focused on when the minutes of the Fed meeting are released this week.
Crude oil prices resumed their downward trend early last week, helped by the "freedom" of the container ship that had been stuck in the Suez Canal for almost a week and a stronger dollar. Meanwhile, OPEC+ cut global oil demand growth by 300,000 BPD to 5.6 million BPD, so the concerns about an oil demand recovery intensified. And despite an unexpected 876,000 b/d drop in EIA inventories last week, the positive outlook for oil demand was further dampened by a 3.91 million barrel rise in U.S. API crude inventories and a worsening pandemic in Europe that prompted French President Emmanuel Macron on Wednesday to announce a new nationwide lockdown to stem the spread of the virus.
In a dramatic twist, however, crude prices rose sharply after the OPEC oil cartel decided to add gradually add back some 2 million barrels per barrel per day of oil production from May to July at last week's OPEC+ meeting, and Saudi Arabia fully withdrew its voluntary production cuts. The market believes this is due to the fact that OPEC+ 's supply increases have been orderly and phased, although not fast enough to meet rising demand. As a result, crude oil saw the biggest one-day gain since last week on the day. As of last week’s close, U.S. crude and Brent crude settled at $61.25/BBL and $64.64/BBL, fluctuating by 0.74% and 0.42%.
Going forward, the global crude oil demand remains mixed. Despite steady economic recovery in some countries, the oil market is volatile in the near term as a rise in new infections in the United States and much of Europe casts a shadow on oil recovery expectations.
Last week saw an obvious downward trend of gold, which fell to the 1680 support level. On the one hand, the dollar, which is negatively correlated with the metal, rose sharply, and on the other hand, risk aversion diminished as economic fundamentals continued to improve. But gold hit bottom and rebounded due to the resurgence of the pandemic in Europe and the United States. At last week's close, gold was trading at $1,734.82 an ounce, up 0.23% for the week. Going forward, gold's upside is still fraught with risks, but may be slightly supported by the uncertainty of pandemic control in some countries and continued quantitative easing in many countries.
Separately, the greenback extended its strong run last week. The U.S. Dollar Index briefly broke through 93, its highest intra-day level since November, as the yield on the 10-year Treasury note surged to 1.77%. But as Biden unveiled a $2.3 trillion infrastructure plan, the dollar retreated. Last week the U.S. Dollar Index ended at 93.012, up 0.31% for the week. In the short term, the dollar may continue to be supported by inflation and higher Treasury yields, but continued QE from the U.S. government will keep a lid on its rise in the long term.
The Australian dollar fell last week on the back of a stronger U.S. dollar and falling commodity prices, briefly below 0.753, its lowest level since the start of the year. The recent reimposition of economic blockades in some regions, which dampened risk sentiment, has added to the Aussie's woes. And Australia’s nominal retail sales in February declined 0.8% over the previous month, below market expectations of 1.1%. As a result, AUD/USD dropped 0.48% to 0.7606 for the week.
In addition, unemployment may become one of the obstacles to the economic recovery by the end of the Australian government's work subsidy program, although the market believes that the economic recovery continues to improve. The RBA is expected to continue an increase in the scale of quantitative easing to deal with the risk of higher bond yields, with its monetary policy statement and interest rate decision to be released this week. Therefore, the Australian dollar was on significant downward pressure.
The pound climbed last week after better than expected UK economic data. It did not get a significant boost from last week's UK GDP data, which showed a 1.3% rise in the fourth quarter over the previous quarter, much higher than market expectations, but the March PMI data that followed excited the market. The figure was 58.9, the highest in nearly a decade. By the end of the week, sterling was at 1.3829 against the dollar, up 0.31% for the week. Additionally, plans to open discretionary shops and hotels this month have boosted confidence in Britain's economic recovery. In Europe, the Eurozone CPI jumped to 1.3% in March, but the core CPI fell to 0.9% from 1.1%. Last week, EUR/USD ended at 1.1761, down 0.27%. And ECB head Christine Lagarde said last week that the central bank will not be guided by short-term economic trends but reassess the pace of PEPP purchases at a quarterly pace in due course, and she reiterated that the economy faces downside risks in the short term. Thus, the future trend of the euro may not be optimistic.
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