Market Courier: 'dovish' Fed to maintain accommodative policy, RBNZ to maintain stimulus
2021-02-24 -- The Federal Reserve Bank of New Zealand (RBNZ) left its benchmark interest rate unchanged at 0.25%, as expected, in the early morning of Tuesday morning, following a rate decision and monetary policy statement. Economic uncertainty will continue to increase as international travel restrictions continue, and the Committee agreed to maintain the current stimulus policy, saying that longer-term monetary stimulus remains necessary.
Overnight in North America, asset swings were exacerbated by the Fed Chairman's "dovish" remarks on Capitol Hill. U.S. stocks pulled out of the deep "V" trend and the dollar fell off session highs after Powell's remarks. U.S. Treasurys also fell after Powell's testimony.
'The economic recovery remains uneven and far from complete, and the path that follows is highly uncertain,' Mr. Powell said. 'It will continue at the current pace of Treasury and mortgage-backed debt purchases.' He also promised that the Fed would communicate clearly with markets "well in advance" before changing the pace of its bond purchases.
[Overnight Market Review]
Global currencies: The U.S. dollar index.DXY was at 90.141 late Tuesday, up 0.11%, but off session highs in losses following Powell's comments. Separately, the dollar fell to a three-year low against sterling on Wednesday morning, trimming losses against commodity currencies as investors increased bets that a global economic recovery would boost riskier assets.
Global gold markets: Gold prices were slightly lower in a volatile session on Tuesday as the U.S. dollar erased losses made after Fed Chairman Colin Powell's comments. Gold futures fell $2.50, or 0.1%, to settle at $1,805.90 an ounce.
International oil markets: WTI crude futures fell nearly 0.1% to settle at $61.67 a barrel. Brent crude futures in London rose 0.2 per cent to settle at $65.37 a barrel, the highest close since January 2020.
U.S. bond market: The yield on the 10-year Treasury note fell 1.4 basis points to 1.3551% in afternoon trading. The yield rose as high as 1.389 percent in early trading on Tuesday, before Powell's "dovish" testimony to the Senate Banking Committee.
Asian stocks: Shanghai Composite Index closed at 3636.36 points, down 0.17%; The Shenzhen component index closed at 15,243.25 points, down 0.61%. Hong Kong's Hang Seng index rose 1.03% to 30,632.64. Japanese markets were closed for a holiday.
U.S. stocks: U.S. stocks ended mixed Tuesday. The Dow Jones Industrial Average gained 0.05% to 31,537.35; The Nasdaq Composite Index fell 0.50% to 13,465.20; In the U.S., the Standard & Poor's 500 Index rose 0.13 percent to 3,881.37.
EUROPE: Germany's DAX30 index.DAX was down 0.62% at 13,863.10. Britain's FTSE 100 index gained 0.21% to 6,626.16; France's CAC-40 gained 0.22 percent to 5,779.84. The EuroStoxx 50 index fell 0.29 per cent to 3,688.95.
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[Big pound -- market news]
US and Canadian leaders meet for the first time, Canadian media predict: US and Canadian relations will have a new start
US President Joe Biden held a video meeting with Canadian Prime Minister Justin Trudeau on Tuesday, the first bilateral meeting Biden has held with a foreign leader since taking office, the Global Times reported. The meeting will lay out a roadmap for "rebuilding the U.S. -Canada relationship" and discuss shared priorities, including combating the Covid-19 epidemic, restarting the North American economy, strengthening homeland security, and combating climate change, according to statements from the two governments. Some Canadian media believe that during the Trump administration, US-Canada relations were turbulent and sometimes frictions. After Biden takes power, it is expected that US-Canada relations will have a new start.
A cold snap in the south-central US could cost shale oil companies tens of thousands of barrels of production
Occidental Petroleum, Diamondback Energy and a number of small U.S. shale producers focused on developing resources in the Permian Basin said earlier this week that the recent winter storm would affect their first-quarter production. While natural gas producers have benefited from the cold weather, shale oil companies have suffered as pipeline freezes and power outages are expected to slow output recovery. Shale oil producers in the southern United States could take at least two weeks to restart the more than 3 million barrels a day of crude output they have shut down, and some production may never return, analysts said.
One after another, digital dollars have become a "high priority"
U.S. Treasury Secretary Janet Yellen said in an interview Tuesday that it makes sense for the Fed to study digital dollars. She believes digital dollars issued by the Federal Reserve could lead to "faster, safer and cheaper payment methods", but adds that there are "many things to consider" before launching digital dollars. She questioned how regulators would "manage money laundering and illicit financing" and the impact of digital dollars on banks and the Federal Reserve. Meanwhile, Federal Reserve Chairman Colin Powell said in congressional testimony on Tuesday that the Fed would carefully examine the proposal to create digital dollars because the new payment system would have a significant impact on the transmission of monetary policy. It is a "high priority" project, although the US dollar's advantage as the world's reserve currency prevents the US from needing to be the first to launch a digital currency.
[Voice -- Investment Banking Institution Perspective]
While the number of new cases and hospitalizations has declined in recent weeks and vaccine distribution has raised expectations of a return to more normal conditions later this year, the current economic recovery remains uneven and far from complete, and the path ahead remains highly uncertain. Across the economy as a whole, the pace of progress in the labor market remains slow. Will continue purchases of Treasury and mortgage-backed securities at the current pace until subsequent progress is materially consistent with the Fed's policy objectives. The Fed will communicate clearly to markets "well in advance" before changing the pace of its bond purchases.
TIFF Macklem, Bank of Canada Governor: The rise in long-dated bond yields reflects greater optimism about vaccines and the U.S. fiscal stimulus. "In the US in particular, there is more optimism due to the increasing likelihood of more fiscal stimulus and the growing momentum of vaccination. That's reflected in yields, which is a good thing."
Schroders: The pressure on global central banks to keep interest rates low remains enormous; As the global economy recovers, the need not only to boost inflation, but also to raise budget deficits and debt levels means central banks will continue to ease policy. The search for yield will be exacerbated by expectations that low interest rates are likely to persist for an extended period of time; As investors chase returns in a "zero interest rate" environment, the market is also prone to volatility and bubbles.
Credit Suisse strategist Jonathan Golub: Raise S&P 500 2021 target to 4300 from 4200 on the hottest GDP growth in 35 years. After the outbreak, America's economy reopened and government stimulus was plentiful, and the Fed's policy was "super-accommodative".