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"Global Asset Pricing Anchor" Continues to Rise, Oil Prices Rise for Three Days in a Row

2023-03-03
1138

U.S. bond yields are deeply inverted

Thursday (March 2) "the anchor of global asset pricing" - the yield of the US 10-year Treasury bond rose further to an intraday high of 4.089% after returning to 4%, and finally closed up 1.64% , hitting a new high in nearly four months since November 10, 2022. The US 2-year and 10-year Treasury yields, which have attracted much attention from the market, are deeply inverted, and the inversion is the largest since 1981.

The reason is that the Fed’s favorite inflation indicator released last Friday (February 24) showed that the U.S. PCE and core PCE price indexes rebounded more than expected year-on-year in January. Stubborn service sector inflation in the U.S. has the market betting on higher Fed terminal interest rates and keeping rates high for longer.

According to interest rate futures data, the market bets that the probability of the Fed raising interest rates by 50 basis points in March has risen to more than 25%; the probability that the Fed will raise the policy rate to 5.4% in June is expected to exceed 50%, which means that Within the 3 meetings, the interest rate may be raised by 75 basis points.

There is no doubt that the deep inversion of U.S. bond yields and the hawkish voices of Fed officials indicate that the U.S. economy is about to usher in a recession. Considering that the Fed takes controlling inflation as its primary goal, the author believes that global asset pricing is bound to usher in a new round of re-pricing, and U.S. stocks may fall due to the impact of profit expectations.

Oil prices need to break through 

Overnight, the number of initial applicants in the United States fell again last week, indicating that the labor market continued to strengthen, which may prompt the Federal Reserve to continue to raise interest rates. After the data was released, it further stimulated the rebound of the US dollar index. The top continued to rise, and spot gold fluctuated in a range and eventually closed down slightly. With the current bullish outlook for the US dollar and U.S. bond yields, the price of gold has shown a certain degree of resilience. Whether the price of gold can continue its bottom trend in the future remains to be tested by the market

At the same time, what is surprising is that when the Fed further raised interest rates and shrunk its balance sheet, oil prices strengthened, hitting a new high in nearly three weeks and recording three consecutive days of gains. The factor driving the rise in oil prices is undoubtedly the market's expectation of China's economic recovery. According to data released by the National Bureau of Statistics of China on Wednesday (March 1), China's manufacturing purchasing managers index (PMI) rebounded to 52.6% more than expected, setting a new high since April 2012.

It is worth noting that the two sessions of China will open in Beijing on March 5 and March 4, 2023. The decisions that the world's second largest economy will make at the two sessions are very important and have far-reaching consequences.

Goldman Sachs Global Commodities Director Jeff Currie (Jeff Currie) said that as the Chinese economy recovers, the oil market will lose excess capacity, and confidence in oil prices rising within the next 12-18 months is high. Crude oil prices will hit $100 a barrel in the fourth quarter.

On the other hand, Russia officially announced a production cut of 500,000 barrels per day in March. The decision was aimed at balancing prices, and Russia will continue to watch the market before making further cuts.

Considering that it is the global economic outlook rather than the Federal Reserve's monetary policy that affects oil prices, it is expected that the market may further bet on rising oil prices before the Fed continues to raise interest rates and shrink its balance sheets, causing a large-scale risk impact on the financial system.

Investors next need to focus on a series of heavy data in March. These include the non-agricultural employment report released (March 10), US CPI (March 14), US PPI and retail sales data (March 15), the Federal Reserve interest rate decision (March 22), US personal consumption Expenditure Price Index (PCE) (March 31).

Technical Analysis

The daily chart shows that U.S. crude oil is currently entering a triangle arrangement. The lower low point moves up while the upper high point moves down, forming a symmetrical triangle convergence, which indicates that the market has entered a direction choice. At the same time, as the price reaches the end, the direction will soon be clear , if it breaks above $79 and sees $82, if it breaks below $76, the market outlook will see around $73


The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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