Today's market sentiment is being appetite for risk. Europe is rising on Tuesday as investors appear to have ignored fears about the Archegos hedge fund and despite rising bond yields.
The dollar continued under strong demand in Asia, driven by rising bond yields and expectations that the US economic recovery may lead the Federal Reserve to restrict monetary policy earlier than anticipated.
Treasury yields added to Monday's gains in the Asian session, with investors focused on the end-of-week employment report, which may underscore the robustness of the US economy as vaccination accelerates.
The U.S. Dollar is unlikely to have a big cause for a noticeable strengthening across the whole of the spectrum of the world's major currencies, since unordinary spikes in 10-year Treasury bond yields up to the annual level of 1.75% have calmed down for a while to reach 1.6% during the Asian trading hours today. This happened despite the Federal Reserve's inaction and against growing inflation expectations. Nevertheless, some of the Greenback's competing currencies have found their own reasons to decline.
The large increase in fiscal and monetary stimulus that has been observed in this crisis has raised concerns about the risk of inflation. In essence, the argument focuses on the fact that if the money supply increases faster than its actual production then (ceteris paribus), inflation will occur. That is, if a central bank prints currency, at the outset households will also have more money available, which will perhaps make them spend more on consumption. Despite an increase in the money in circulation - the amount of goods does not change - therefore leading to an increase in prices.
market sentiment is aversion to risk. News that Germany has extended
containment measures for another month is hurting Europe on Tuesday.
remained stable in Asia after increased risk-taking prompted a fall in Treasury
yields, countering fears about the rise in Covid-19 cases and new lockdowns in
the higher-maturity Treasurys continued to fall in Asia after recording the
biggest decline in weeks on Monday. However, many investors predict that bond
yields will continue to rise as the U.S. economy recovers.
As the U.S. inflation data indicated as much as 2.8% of growth in the producer price index (PPI) last Friday, which is the highest value since November 2018, some part of the market seem to be mystified by the possible backlash by the Federal Reserve (Fed) at its latest regular meeting. The results of Fed's own monetary policy's audit will be represented to the market at 18.00 GMT, and the press conference with the U.S. regulator's Chairman Jerome Powell will follow half an hour later.
This possible increase in inflation could be due to the intense work of the U.S.
Brent oil prices spiked above $71/bbl in early Asian hours on Monday, March 8. The factor that played a role in this outcome is most probably fears around supply disruption from Saudi Arabia, after another combined drone and missile attack on some of its facilities by Yemen-based forces over the weekend. After these fears quickly faded, quotes were seen to go back to normal within the next two working days and now more adequate levels below $68/bbl can be seen. The morning low in European time on Wednesday was near $66.7/bbl, where the oil market found at least an intraday support.
Crude prices are highly dependent on risk appetite and business activity expectations. Such expectations may be an explanation of the rally in crude prices, stock indices and other risky assets in the recent weeks. However, crude prices rally is rather more emotional and was not supported by strong fundamentals.
In February, OPEC estimated daily crude demand up by 5.6 million barrels per day in 2021 after it tumbled by roughly 10 million bpd in 2020. Meanwhile crude prices are already at those levels of early 2020 demand with Brent crude at $63-65 per barrel.
The U.S. stock market is closed this Monday because of Presidents' Day, while the whole of China celebrates its Lunar New Year vacations. By the way, the Year of the Metal Ox or Bull begun on February 12. The Chinese hieroglyphic symbol 牛 is attributed to the very same Bull, and it is pronounced similar to "niu" in English transliteration, which in turn sounds similar to "new". Even the intonation of the sound is phonetically similar to the ascending tone of the word "new" in the "new year" combination.
The oil market seems to be awakening to a cloudy beginning of February and, as a result, it cannot see its shadow. Just like a groundhog, who knows that such a circumstance signals an early spring, the oil market may also assume a turnaround is on its way. Such an analogy may seem fitting as Brent crude benchmark prices topped $57.7 per barrel on February 2, which was exactly the same level that was recorded on the same day last year. A true celebration of another Groundhog Day with hopes of an early economic recovery.
It seems that the demand for Gold assets is gradually starting to grow again. It was topped in the first days of January when the price almost reached $1960 per troy ounce (toz), but then quickly dropped after January 6 on the prospect of orderly and smooth official transition of power in Washington. When the very peak of political tension in the United States had been passed, the spot price of Gold even declined temporarily to the $1800/toz area. However, it rather seemed to be a short set piece of the whole Gold performance or just an episode.