Mon, Mar 01, 2021 @ 17:13 GMT
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Central Banks Ready and Willing

Stock markets are broadly flat on Thursday as numerous central banks held their first policy meetings of the year and earnings season continued.

So much focus has been on the transition in Washington and Joe Biden’s inauguration but today we’ve had multiple major monetary policy meetings, albeit no action from the ECB, BoJ or CBRT. All stand ready to act if needed though, albeit in very different ways.
ECB committed to hitting inflation target

The ECB reaffirmed its commitment to supporting the economy through the Covid crisis, acknowledging the downside risks posed by new strains and lockdowns. There was nothing surprising to come from the release of President Lagarde’s comments shortly after. Everything very much fell in line with what you’d expect from the central bank after last months meeting.

The euro gained in the run up to, and after, the release against the dollar but has since given up these to trade around where it was earlier this morning. So many central banks announced further measures at the end of last year that any further action is unlikely from most unless the situation deteriorates drastically.

CBRT committed to lowering inflation

The CBRT has a very different challenge to contend with. Having regained the confidence of the markets, it’s now tasked with retaining it and avoiding another sharp depreciation in the currency. The central bank was keen to stress its commitment to this after the meeting but opted against raising rates at this time. That will come if needed though and it will maintain tight conditions until there’s a permanent fall in inflation. A very different message to what we were getting last year.

BoJ announces no changes ahead of March review

There was no change from the Bank of Japan either ahead of its policy review in March. There has been talk about what it will do, with Governor Haruhiko Kuroda stressing it’s not just about focusing on negative side-effects but also making it more effective and agile. It’s not yet clear what this means but a lot of attention is falling on its management of yield curve control. It would be a strange time to loosen its grip on this unless it plans to replace it with something more effective, it’s just not clear what that would be. The 10-year yield was down for a third session.

Oil may see a minor correction

Oil prices pulling back a little today after failing to break through previous highs on Wednesday. WTI is seeing serious resistance around $54 which may drain momentum out of the rally that was looking in good shape. Perhaps we’re finally seeing some profit taking after a solid run in crude prices.

The key area for WTI now is $52, with a move back to here completing a double top in the near-term. A break of this level could see it move back towards $50, a still very healthy but psychologically significant price level.

Oil prices are still in a very strong position and even a minor correction won’t raise any alarms. It’s been a great run and OPEC+ stands ready to support the market as and when it’s needed. Near term risks remain and could start to play more of a role in the mindset of traders but it’s still too early to make such assumptions.

USD still a risk for gold

Gold is slightly lower today after breaking back above $1,850 on Wednesday as Treasury yields remained off their highs and real yields continued to fall. This may reflect an acceptance, for now at least, that the Fed are in this for the long haul, regardless of higher inflation expectations. Time will tell if they’ll hold their nerve.

It’s looking much more comfortable for gold suddenly, after $1,800 was so strongly defended. Gold bulls may now be eyeing $1,900. Whether that can be achieved depends heavily on what the dollar does next. It’s eased off somewhat this week after a promising start to the year, but is it’s resurgence really over so soon? I’m not convinced. A move back above 91 in the dollar index could spell bad news for gold and see those key support levels coming back under pressure.

Bitcoin showing vulnerability

Bitcoin is showing some vulnerability at the end of such a strong month. It was seeing some pressure on $34,000 and $33,000 yesterday and both have buckled, making a run at $30,000 highly likely. This level looks very vulnerable and a break below it is bad news in the near-term for bitcoin and cryptos in general.

If this level falls, I wouldn’t be surprised to see a test of $20,000 before too long. We may not see a break of $30,000 straight away – although with bitcoin you never know – it may consolidate a little more first and build support around here. But we may have to wait a little longer for that run at $50,000.

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