Home / Metal News / Precious Metals / All of a sudden! The Fed made a big move late at night! Is the bull market of high-level shock in precious metals over? The reason for the limit drop of urea has been found.
All of a sudden! The Fed made a big move late at night! Is the bull market of high-level shock in precious metals over? The reason for the limit drop of urea has been found.
Jul 29,2020 09:04CST
translation
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM News: the Federal Reserve has a "big move" in the middle of the night! On the evening of July 28 in Beijing, the Federal Reserve announced that it would extend the seven emergency loan facilities launched since March this year for three months to December 31, 2020 to ensure that these tools can continue to help the economic recovery. It is worth noting that the Fed will hold a monetary policy meeting from July 28 to 29 to send a signal as to whether the next step will change its strategy for economic support. The market generally expects the high probability of this interest rate resolution to keep the interest rate range unchanged.

In Asian trading on Tuesday, the main contract of COMEX gold futures rose to 1974.7 US dollars per ounce, while the main contract of COMEX silver futures rose 7 per cent to as high as 26.275 US dollars per ounce. But the good times did not last long, and then gold and silver rose higher and fell back, and the increase was soon fully recouped. Some analysts believe that gold and silver have risen too fast recently, and the momentum is very strong, and the profit-taking of bulls seems to be an important reason for the high diving of gold and silver.

Recently, a number of banks, including Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of China, Minsheng Bank and Bank of Communications, have issued notices to suspend open trading of all products of platinum, palladium and precious metals indices.

On Tuesday, the main urea 2009 contract fell to the limit, mainly due to renewed waves in the printing mark. On the evening of July 27th, India's MMTC added new additional terms to the urea tender on the 30th, restricting the qualifications of bidders and making it more difficult for China to export urea products.

As precious metals rise and fall, does the bull market come to an end?

International gold prices broke through the all-time high set in 2011 on Monday. In Asian trading on Tuesday, the main contract of COMEX gold futures rose to 1974.7 US dollars / ounce, pointing to the 2000 US dollars / ounce mark, while the main contract of COMEX silver futures rose 7% at one time, reaching as high as 26.275 US dollars per ounce. But the good times did not last long, and then gold and silver rose and fell back, and the increase was quickly thrown back. Some analysts believe that gold and silver have risen too fast recently, and the momentum is very strong, and the profit-taking of bulls seems to be an important reason for the high diving of gold and silver.

The Shanghai Gold Exchange issued a notice on the 28th. The notice said that due to the influence of international factors, the price of gold and silver has fluctuated greatly in the near future, the level of positions is high, and the market risk has increased significantly. All member units are requested to do a good job in risk emergency plans, reminding investors to do a good job in risk prevention, improve risk awareness, reasonable control of positions, and rational investment. If the risk situation of gold and silver is further intensified, the exchange will take appropriate risk control measures according to the market situation to prevent market risks, maintain market stability, and protect the interests of investors.

Recently, a number of banks, including Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of China, Minsheng Bank and Bank of Communications, have issued notices to suspend open trading of all products of platinum, palladium and precious metals indices.

Can the future "Taurus" continue to hold its head high? Several industry analysts interviewed by Futures Daily believe that the closing of many profitable positions in the short term may bring a short-term correction in prices, but the rising trend of medium-and long-term gold prices has not changed.

Du Fei, a precious metals researcher at Jinrui Futures, told reporters that the rebound in inflation expectations led to a decline in real US bond yields, a sharp fall in the dollar index and the ferment of risk aversion, all of which supported the continued rise in precious metal prices. In his view, the above positive still has some inertia, and will continue to push up the price of gold in the short and medium term.

Looking at the historical "Taurus" market, Xu Ying, a precious metals analyst at the East Securities Derivatives Research Institute, said that the fundamental reason for the gold bull market after the 1970s and 2000 was that the US economy had relatively entered a downward stage. the expansion of the trade deficit and fiscal deficit eroded the credit of the US dollar, and the price of gold was revalued and rose sharply.

For now, she said, the US economy has fallen into recession and will take a long time to recover as fiscal deficits soar, negative real interest rates deepen and the dollar continues to weaken. At the same time, in the process of economic recovery, it is difficult for loose fiscal and monetary policy to exit quickly, it will be difficult for the Fed to raise interest rates until at least the end of 2022, and it will further expand its balance sheet through asset purchases, so the continuation of the gold bull market is relatively certain.

As for the duration of the "Taurus" market, du Fei believes that it is mainly necessary to pay attention to the epidemic situation in the United States and the degree of economic repair. "with the second outbreak in the United States, we believe that if the epidemic is to be controlled, it depends on the availability of an effective vaccine, so we can pay attention to this time point at a later stage." Du Fei said.

Xu Ying believes that weak US economic fundamentals, large-scale fiscal stimulus and unlimited monetary easing have increased the possibility of short-term stagflation in the US economy, adding lingering geopolitical risks. These factors constitute the upward momentum of gold. However, she also said that while the medium-and long-term upward trend has not changed, the potential correction risk may come from the profit-taking of short-term funds.

The Fed made a "big move" in the middle of the night, and the market waited for the outcome of the interest rate meeting.

On the evening of July 28 in Beijing, the Federal Reserve announced that it would extend the seven emergency loan facilities launched since March this year for three months to December 31, 2020 to ensure that these tools can continue to help the economic recovery.

The three-month extension will facilitate planning by potential loan plan participants, the announcement said. the extension applies to primary dealer credit facilities, money market mutual fund liquidity facilities, primary market corporate credit facilities, secondary market corporate credit facilities, fixed-term asset-backed securities loan facilities, wage protection plan liquidity facilities, as well as the main Street Commercial loan Program for small and medium-sized enterprises.

The Fed believes that these lending instruments have provided important support, "stabilizing and significantly improving the function of the market" and increasing the flow of credit to US households, businesses and state and local governments. In addition, the municipal liquidity facility is scheduled to expire on December 31 this year, while the commercial paper financing facility is scheduled to expire on March 17, 2021.

It is worth noting that the Fed will hold a monetary policy meeting from July 28 to 29 to send a signal as to whether the next step will change its strategy for economic support. The market generally expects the high probability of this interest rate resolution to keep the interest rate range unchanged. Analysts say the Fed is more likely to keep its existing policy unchanged until it knows more about the impact of the epidemic on the U. S. economy. The renewed economic slowdown in recent weeks means policy makers have more time to elaborate strategies because no one thinks interest rates will rise soon. In addition, given the reasons for a new round of fiscal bail-outs, the Fed will not make big moves at this meeting.

"in view of the worsening epidemic in the United States after the interest rate meeting in June, the momentum of economic recovery has been suspended, the job market has weakened again, and consumer activity is under pressure, the Fed is expected to maintain the dovish tone and continue the direction of monetary policy easing." Xu Ying said.

In du Fei's view, the main purpose of the Fed's regulation of benchmark interest rates is to maintain low unemployment and control inflation. As the unemployment rate is still high, inflation is still moderate, and the economic distress caused by the epidemic has not gone away, the possibility of the Fed raising interest rates is slim.

Xu Ying said that the focus of this interest rate meeting is whether the Fed will further strengthen its forward guidance and promise to keep interest rates low for quite a long time. At the same time, we should also pay attention to the Fed's potential willingness and time node for the yield curve control tool, because of the pressure of debt issuance in the second half of the year and the strong expectation of the market to control the yield curve.

The epidemic situation in Europe and the United States is divided, and the dollar continues to weaken under pressure.

At the same time, due to the divergence of the epidemic situation in Europe and the United States, the dollar index has been under pressure recently. Xu Ying said that the eurozone has a strong control of the epidemic, the economic recovery is better than that of the United States, and the unprecedented unity of the European Union has reached a recovery fund, which has also been interpreted by the market as positive, leading to the recent strengthening of the euro and the weakening of the dollar.

Du Fei said that the United States is facing the threat of a second outbreak of the epidemic, and the cumulative number of confirmed cases has exceeded 4 million, making it one of the worst regions in the world, while the epidemic in major euro zone countries is relatively well controlled, and the number of new cases continues to decline. As the economies of major euro zone countries gradually recover and the euro continues to strengthen, the dollar index is under pressure.

At present, the recovery of European and American enterprises is also divided. Shi Jialiang, a medium-term futures analyst at founder, said that on the one hand, effective control of the epidemic in Europe will directly contribute to rapid economic recovery, while the EU through the recovery fund program will not only stimulate economic repair, but also boost market investors and consumer confidence. In this context, European corporate activities will continue to be improved and repaired.

On the other hand, the epidemic in the United States has been out of control since July, causing some states to delay or suspend plans to resume work and production. at the same time, the escalation of geopolitical frictions has dealt a blow to market confidence and the speed of demand recovery, which has not only led to a slow recovery in US business activities. it will also be a drag on the economic However, driven by the government's economic stimulus bill, the overall recovery trend will not change, and the economy of the United States will improve significantly in the third quarter, but not as much as in Europe.

Shi Jialiang said that the current ultra-loose economic policy and the strong performance of the euro have put pressure on the dollar, and with the continued progress of the global economic recovery, if the epidemic in the United States is out of control and does not significantly improve, the dollar will fall further, and the possibility of falling below the 90 mark cannot be ruled out, while the euro and sterling still have room to rise.

In Xu Ying's view, the pattern of long-term weakness of the dollar has been determined. Earlier, the dollar began to weaken and weaken after the Federal Reserve introduced ultra-loose monetary policy to solve the shortage of dollar liquidity in global markets. Due to a high degree of uncertainty about the prospects for the recovery of the US economy, a new round of fiscal stimulus is imminent, which is bound to aggravate the fiscal deficit, while the Federal Reserve may maintain low interest rates and asset purchases in the next 2-3 years. With debt expansion and liquidity release, it is decided that the dollar will continue to be weak in the medium to long term.

The mark printing starts again, and urea futures fall by the limit.

On Tuesday, the main urea 2009 contract fell to the limit, mainly due to renewed waves in the printing mark. On the evening of July 27th, India's MMTC added new additional terms to the urea tender on July 30th, restricting the qualifications of bidders and making it more difficult for China to export urea products.

The new clause shows that any bidder (supplier) of a country bordering the land border with India is eligible to participate in the bid only after it has been registered with the competent authority in accordance with the relevant regulations. The bidder (supplier) shall not subcontract the purchase to any subcontractor in the supply chain bordering India unless the subcontractor has been registered with the competent Indian authority in accordance with the order. The above registration certificate must be submitted together with the tender documents on July 30, otherwise the bid will be deemed invalid.

Zhang Qi, an analyst at Yide Futures Energy, said that this clause makes the supply of goods from China basically out of luck with the printing mark. Because the international supply of goods is not enough to meet the needs of India, the international urea market has risen sharply after the news. On the 28th, the urea FOB in the Middle East rose more than 10 US dollars / ton, but the domestic urea futures fell by the limit because they could not participate in the bidding.

However, just about two hours after the limit of the main urea 2009 contract closed, there was reversal news in the market. The latest news was that India MMTC had issued a revised additional clause, which could be understood to mean that India would no longer restrict international traders from buying urea from China to provide printing marks. Zhang Qi believes that the news may bring the effect of a U-turn. It is expected that the futures market will still fluctuate violently on Wednesday. Investors are advised to wait and see. After the Indian tender is officially landed, the market will return to the real fundamentals.

It is understood that in the spot market, as the summer fertilizer market has entered a clean-up stage in the mainstream areas, the market atmosphere has obviously weakened, most manufacturers do not receive many orders in advance, and some spot prices are slightly loosened by 10mur20 yuan / ton. With the recovery of plant start-up rate, factory inventory began to accumulate, and the expected increase of supply marginal pressure was gradually realized.

Data show that in the week ended July 22, the domestic urea operating rate was 70.18%, up 0.11% from 70.07% in the previous week; at the same time, the average daily output of urea in China was 147200 tons, an increase of 200 tons over 147000 tons in the previous week, and a decrease of 13700 tons over 161000 tons in the same period last year. In terms of inventory, as of the week of July 23, domestic urea enterprises had inventories of 315900 tons, an increase of 56300 tons over the previous week and an increase of 20100 tons over the same period last year; urea stocks in major domestic ports were 118800 tons, 17000 tons less than the previous week.

Palm oil fell sharply

In intraday trading on Tuesday, there was also a large correction in the oil and oil market. Douji 2009 contract closed down 4.37%, palm oil main 2009 contract closed down 2.82%, soybean oil main 2009 contract closed down 2.38%, rape oil main 2009 contract slightly increased 0.23%.

Citic Futures Research News believes that in the lack of spot support, it is necessary to guard against the risk of large fluctuations in oil prices. On the supply side, although the inventory of rapeseed oil is low and the production of Indonesian palm oil may be reduced, from the current inventory of imported soybeans and the expectation of arriving in Hong Kong in the future, the contradiction between supply and demand of oil fundamentals is not prominent, and the increment of soybean oil in the later stage will effectively hedge the shortage of rapeseed oil. In addition, the market currently expects a month-on-month reduction in palm oil production in July, but there is a big deviation in the data of various institutions, which is expected to be confirmed after all. after all, there is a greater probability of a seasonal increase in palm oil production in the third quarter. On the demand side, with the relief of the epidemic, there are expectations of improvement downstream, but up to now, the cumulative turnover of soybean oil has dropped by about 30% compared with the same period last year, and most of the transactions are based on distant-month basis contracts. in the later period, when the overseas epidemic continued and domestic catering consumption was still plagued by the epidemic, the increase was limited compared with the previous year. On the whole, although the demand is expected to improve continuously, the supply will rise like a shadow, both supply and demand will increase, and the increase in supply is expected to be greater than the demand, and the upward pressure on supply will continue to be reflected. In the medium to long term, oil prices will still be dominated by fundamentals.

Cao Yanhui, head of Guoxin Futures Research and Consulting Department, said that there has been a sharp rebound in domestic oil stocks, especially a significant increase in soybean oil stocks, which has increased the adjustment of the market. Relatively speaking, domestic palm oil stocks continue to decline. She said that the current oil trend is more in the trading expectations, in the previous bullish expectations gradually digested, the market fell into the trend of expectations and reality. Before the emergence of the new bullish, the market high volatility intensified, it is recommended that the low multi-single cautious hold.

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