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The Bank of England wants your bonds! - DAILY MARKET UPDATE

Chart of the Day: NZD/USD (weekly candlesticks)

•    BANK OF ENGLAND MEETING PREVIEW
•    US and European equity recovery gains traction
•    Dollar gains as Powell testimony ends
•    OPEC report / Record US inventories
 

MARKETS


Global stocks markets continue to recover from the post-Fed meeting rout but have not yet overtaken last week’s highs. Shares in Asia, Europe and the US all nudged higher on Wednesday. Investors are making the bet that the global reopening will not be shaken off-course by rising coronavirus cases and a mini conflict at the China-India border.  

The US dollar rose as Fed Chair Powell concluded his second day of testimony to US lawmakers, leading to losses in other G10 FX including the pound euro and Canadian dollar. The British pound has been soft in the run up to what is expected to be a dovish Bank of England meeting.

Crude prices slid after OPEC issued a downbeat global demand forecast for oil and US inventories reached a record high according to EIA data. Brent and WTI dipped around -1% on Wednesday. Gold was little changed after a $15 per oz decline was quickly erased.
 

GURU WISDOM


“Do not be embarrassed by your failures, learn from them and start again.” - Richard Branson
 

Powell testimony conclusions


On his second day of testimony, Federal Reserve Chair Jerome Powell said the Fed will move away from ETFs to exclusively buying bonds. This was music to the ears of investors who had been a little perturbed about early talk of ‘tapering’ in yesterday’s testimony to the Senate. Buying individual bonds is a more targeted and aggressive approach by the Fed than simply buying a basket of bonds within a fund. 
 

BOE PREVIEW


The pound has been finding it difficult to make headway in the past week. What the BOE decide today could be more about when they would ideally end the bond-buying. At the current pace - the total £645 billion in quantitative easing (QE) would run out next month. To keep the program going to September / October, another £100-150 billion of extra QE seems likely today. An explicit mention of negative rates would be the big white flag for the pound from the BOE – without that there is room for more recovery.
 

Record oil inventories


The lowest US crude oil production in two years and plummeting demand amid lockdown conditions (albeit easing) have seen US inventories rise to record level in the past week. Oil prices have held steady thanks to production cuts by OPEC and economist forecasts that we have already passed the bottom in economic activity. OPEC made no adjustments to its 2020 oil demand forecast on Wednesday. WTI and Brent crude prices dipped on Wednesday but remain just off the 3-month highs made last week. 
 

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