Weekly Recap 15-19 November

It is becoming more and more obvious that the current historic inflation levels have ignited growing calls to speed taper. The US Federal Reserve is setting the scene for a new debate between hawkish and dovish approaches regarding the stimulus withdrawal, tapering and interest rate hike.

Major peers, such as the Bank of England, also signaled faster than expected tapering. Although UK Retail Sales posted positive figures for the first time in 4 months, Andrew Bailey, BoE’s Governor declared, Monday 15 November, before members of the Parliament that he felt ‘very uneasy’ about the UK’s inflation situation, in comments that suggest he “could vote” for an interest rate rise soon.

Bailey warned that the labour market looks tight, and pointed to anecdotal evidence that the end of the UK’s leave scheme had generated so far little additional unemployment.

On the other hand, European Central Bank President Christine Lagarde reiterated on Friday that the “conditions to raise rates are very unlikely to be satisfied next year”.

Lagarde was speaking to the Frankfurt European Banking Congress, where she warned that the ECB “must not rush into a premature tightening” of monetary policy.

The Euro fell following Lagarde’s comments, dropping to $1.1301 against the dollar. Banking stocks also dipped by around 2%. The resurgence in COVID-19 cases in Europe also impacted investor sentiment on Friday morning, with Austria announcing it would impose a fourth national lockdown starting Monday.

Lagarde had already sought to cool expectations of an interest rate hike next year, following the ECB’s October policy meeting.

Crude Oil’s Tense Week

It has been a highly tense week for crude oil as US Administration eventually resorted to pressure for pushing for a globally coordinated release of oil stockpiles in a warning to OPEC and allies.

Governments from the world’s biggest economies said, on Thursday 19 November, they consider the release of oil from their strategic reserves. The announcements followed a rare request by the United States for a coordinated move to ease global energy prices, so Joe Biden’s oil price approach is reaping desired reaction. US crude futures have fallen about 7% from October peak with gasoline pump prices still at 7-year highs, but stabilized.

Biden, battling the political consequences of the strongest inflationary surge in decades, has spent a good month trying to talk down the price of oil. And for now, it is working.

Only one day earlier, Wednesday 18 November, Biden’s administration asked some of the world’s major oil consuming countries to consider releasing a portion of their crude reserves in a coordinated effort to lower prices and stimulate the economic recovery.

Global oil prices sharply fell during the week’s latest trading session, impacted by news of Austrian lockdown and looming lockdown elsewhere in Europe to combat the widespread COVID-19 infections.

US oil futures dropped to $75.72 per barrel, compared to the last daily close, which recorded $78.84 per barrel. US crude contracts rose to their highest level over the last day of trading week ending 19 November, at $79.31 points, compared to the lowest levels, which recorded $75.12.

Baker Hughes reported, Friday, that the number of active U.S. rigs drilling for oil rose by seven to 461 this week. The total active U.S. rig count, which includes those drilling for natural gas, also surged by seven to stand at 563, according to Baker Hughes.

Gold

Gold prices moved lower, declining by 0.5% and closed the week’s last trading session down 0.8%. The week can be summarized by sideways price action as the US dollar moved higher on Friday and closed up nearly 1% for the week.

Yields moved lower as the market attempted to absorb who would seize the best chance to be Fed Chair. Jerome Powell or Lael Brainard, as the latter was meeting with Senators to take the temperature of her nomination.

Gold futures fell on the last trading session of the week, affected by a significant change of Fed’s language in favor of speeding up the asset purchases tapering. Gold futures retreated to $1845 per ounce, compared to the &1858 per ounce on Thursday.

Debate on Taper at Faster Pace Back to FED

Christopher Waller, member of Federal Reserve Board of Governors, said Friday that the central bank should end the asset purchase program by next April instead of next June so that the Fed could decide on interest rate hike as soon as possible. which he based his call on the current levels of inflation and the performance of the market American work in the recent period.

Federal Reserve policymakers are publicly debating whether to withdraw stimulus for the U.S. economy at a faster pace to combat surging inflation, with one of the central bank’s most influential officials signaling on Friday that the idea will be on the table at the Fed’s next meeting.

Treasury Yields

Treasury yields inched lower after jobless claims data is about as expected, fell to further lows on Friday, with investors keeping an eye on who will be named as Fed Chair. Sources from Biden’s Administration said that announcing Biden’s pick for the position was imminent and the nominee’s name would be announced within a few days. Yields sank even lower over the potential European lockdown because of renewed concerns about COVID-19.

Lockdown news impacted a range of market sectors Friday, and particularly quacked stocks and oil to downtrends, however this latest news boosts the US dollar.

Stocks have been shaken in morning trading on Wall Street Friday and major indexes were on track for a mixed finish to an uneven week.

The S&P 500 edged up less than 0.1% as of 11:12 a.m. Eastern. The Dow Jones Industrial Average fell 192 points, or 0.5%, to 35,678 and the Nasdaq rose 0.6%. Smaller-company stocks fell more than the broader market. The Russell 2000 fell 0.5%.

Cryptocurrencies

Central bank digital currencies (CBDC) like Russia’s digital ruble do not pose any threat to United States sanctions, according to U.S. Deputy Treasury Secretary Wally Adeyemo.

In a CNBC interview on Wednesday, Adeyemo argued that the U.S. dollar “will remain the dominant currency in the world” despite the increasing popularity of cryptocurrencies.

Bitcoin was looking good as an inflation hedge, as it jumped when October’s huge CPI data was released, but then the famous cryptocurrency plunged almost 20%, and several big players say bitcoin is still too risky to be considered as a hedge or a way to diversify trading.

Turkish Interest Rate, Lira Performance

The Turkish lira sank to fresh lows as investors warn of vicious cycle, Turkey’s central bank cut the one-week bond auction rate by 100 basis points to 15% during its November meeting, after cutting 200 basis points in October and 100 basis points in September.

The move was expected after Turkish President Erdogan vowed to fight for lower rates as the country struggles with inflation close to 20% well above the average target point of 5% and the lira plunged nearly 11% in November.

Trading markets will eye the following important data this week (22-26 November)

Monday

China’s interest rate decision      

European Commission’s Consumer Confidence

Tuesday

Manufacturing and service PMI data will be released in Germany, France, the Eurozone, the United Kingdom and the United States.

Wednesday

New Zealand’s interest rate decision

German IFO- Business Climate Index

Preliminary reading of US GDP – quarterly

US Durable Goods Sales Orders

US unemployment benefits claims

US Consumer Price Expenditure Index

US crude oil stockpiles

Federal Open Market Committee meeting results

Thursday

Christine Lagarde’s speech

BoE’s Andrew Bailey’s speech

Friday

Christine Lagarde’s speech