As US Treasury Secretary, Janet Yellen is likely to influence the Federal Reserve through her past work and previous mistakes – Equity and Oil Market Analysis – Yellen and Powell: a dovish combination.
Under Chair Powell, the Fed has adjusted its view of the labour market to a much wider social context of full employment.
Yellen as Treasury secretary and Powell as Fed chair is an exceptionally dovish combination. It is not because of pressure to add to the policy, but rather because both have the same views on jobs. They have witnessed policy mistakes like Taper Tantrum and gnarly market impacts of early rate hikes.
There will be a mutual agreement for lower for a very, very long time. And that cohesion will be good for the market in general.
Forex markets: risk-on sentiment drifts higher
Following a somewhat whippy session overnight, FX risk drifted higher on Asia open as risk sentiment firmed a touch following news that US President-elect Biden can formally start his transition to the White House.
Price action is likely to remain somewhat skittish and transactional driven as the month-end approaches, with potentially impaired liquidity due to holidays in the US.
GBP consolidating: Selling England by the Pound?
GBPUSD has been consolidating during trading in Asia today, after the whipsaw price action overnight. My view is that it is getting close to selling England by the Pound as the poor economic backdrop along with the UK’s weak external position means GBP should probably be going lower, not higher right now, and the market is perhaps focused on the wrong story.
Oil is on a ripper, but will there be a policy twist?
Oil is on an absolute ripper with WTI slicing through long-standing stop-loss orders like a hot knife through butter as we take out some pretty big pre-second wave Covid-19 oil price levels.
But should we now start to price an unexpected policy twist at month-end with the Brent curve flipping into backwardation?
I think OPEC+ is in a pretty good place right now and only have to show a unified front on a month to month basis, which should be enough to hold the market in check.
But with the curve shifting fast and furious, there are bound to be cries from the producer’s club to start pumping more. So, the challenge that might be confronting the OPEC+ producers is one that is all too familiar with central banks around the world: how to avoid the quota taper tantrum without spooking the market.
Still, I think the Astra Zeneca vaccine is the oil market’s great Covid-19 equalizer and even offers OPEC+ much policy wiggle room. But beware of a market that can be overly sensitive to any bad news in a knee jerk reaction fashion.
Gold markets
Gold will continue to be undermined by the commanding macro theme related to a vaccine recovery and the reduced risks associated with central bank debt monetization or the pursuit of quasi-modern monetary theory.
Suggesting the vaccine narrative has poked more than a few holes in the currency debasement story. And while the US dollar should likely weaken as the global economy comes back to life and will offer gold a modicum of support, nevertheless with the base structures that supported gold on the way up from $1500 and is now becoming less of a factor, so gold lustre could erode with every successful deployment of the vaccine.
Equity and Oil Market Analysis – Yellen and Powell: a dovish combination
