Market Weekly Review: The signal to shrink the balance sheet is unusually clear! Gold and silver are favored for safe havens, the US dollar's weekly decline is under heavy selling pressure, and WTI crude oil has risen for 9 consecutive weeks, creating the longest period in history.

FX168 Financial News (Hong Kong) reported that Powell delivered a significant speech before the weekend, indicating it was time to start reducing the bond-buying schedule, but emphasized that the time for interest rate hikes had not yet arrived. The signal to reduce the balance sheet was unusually clear. Gold and Silver were favored in the safe-haven market this week, recording gains, although subsequent trends showed weakness. US dollar weekly sell-off pressure was heavy, reaching 93.588, while US Treasuries rose to 1.638. Crude oil futures prices closed higher on Friday, with WTI crude oil futures prices rising for the ninth consecutive week, driven by easing travel restrictions, slow recovery of US oil production, and expectations of increased holiday energy demand.

Key economic data:

Last week in the United States Federal Reserve meeting minutes and multiple inflation data showed surprisingly higher-than-expected results. According to the latest data from the US Department of Commerce, US retail sales rose 0.7% in September, far exceeding the expected decline of 0.2%. Core sales, excluding auto sales, rose 0.8% last month, exceeding expectations of 0.5%. The report's control group, excluding autos, gasoline, building materials, and food services, also rose 0.8%, exceeding expectations of 0.4%.

Institutional comments pointed out that the unexpected increase in data reflects a comprehensive improvement, suggesting that commodity demand remained strong during the month. The increase in new COVID-19 cases in August and September suppressed demand for services such as tourism and entertainment, leading Americans to shift spending towards goods. The increase in goods spending could put further pressure on global supply chains, which have been struggling to meet growing demand.

The Federal Reserve reported that manufacturing output fell 0.7%, dragged down by a 7.2% decline in autos and parts due to semiconductor shortages. In addition, US industrial production fell 1.3% in September, which was expected, as the lingering effects of Hurricane Ida continued to cause contraction. The Federal Reserve reported that most of the 0.6% decline in total industrial output was attributed to the hurricane.

Strikes have become increasingly common in the United States in recent months, with more than 100,000 people across various industries across the country currently planning strikes, including the film and television industry, John Deere factories, and nurses. This highlights the labor shortages caused by the COVID-19 pandemic, strengthening the bargaining power of both labor and capital.

The National Bureau of Statistics of China announced that China's third-quarter GDP grew by 4.9% year-on-year, lower than the market's expected growth of 5%. The growth rate for the first three quarters of this year was 9.8%, with an average annual growth of 5.2% over two years. In the first three quarters, the added value of industries above designated size increased by 11.8% year-on-year, lower than the market's expected growth of 12.2%. Fixed asset investment nationwide investment was 39.78 trillion yuan, with a year-on-year increase of 7.3%, lower than the market's expected increase of 7.8%. Total retail sales of consumer goods reached 31.81 trillion yuan, with a year-on-year increase of 16.4%.

Higher US Treasury yields have resulted in higher mortgage interest rates . A forecast released by the Mortgage Bankers Association predicts that the average interest rate for a 30-year fixed-rate mortgage will rise to 4% by the end of 2022 from around 3% currently. This will stimulate a 62% decline in refinancing, to just $860 billion. It deepens the projected 14% decline in 2021 to $2.26 trillion.

The Federal Reserve's latest Beige Book shows that US economic growth slowed to "moderate to mild" from September to early October, due to supply chain disruptions, rising prices, and labor shortages. Overall, the short-term economic outlook remains optimistic, but some regions have pointed to increased uncertainty and a more cautious optimism than in previous months.

The number of initial jobless claims in the US has once again hit a post-pandemic low, once again sparking speculation among investors about the timing of the Fed's interest rate hikes, pushing US Treasury yields higher, with the 10-year yield at 1.68%. Atlanta Fed President Raphael Bostic said on Thursday that he expects interest rate hikes as early as the third quarter of 2022.

According to the Conference Board report, its Leading Economic Index rose 0.2% in September, indicating a slowdown in growth. The US LEI rose again in September, but at a slower pace, indicating that the economy is still on a more moderate growth trajectory compared to the first half of the year.

The US October Purchasing Managers' Survey shows stronger business activity. Markit reported on Friday that the US composite output index rose to 57.3 from 55.0 in September, while expectations were 54.7. The US services business activity index rose to 58.2 from 54.9 in September. The expected reading was 55.1. The preliminary US manufacturing PMI was 59.2, while it was 60.7 in September. The preliminary US manufacturing output index was 52.3, a 15-month low.

US political and economic situation:

Federal Reserve Chairman Powell said on Friday that the upward trend in US inflation data could continue into next year, and the Fed is also wary of the risks posed by consumers beginning to expect higher inflation. He said: "It's time to cut the Fed's monthly bond purchases of $120 billion." The next policy meeting will be held on November 2-3.

He also mentioned that inflation will persist longer than previously expected, so monetary tools will be used if inflation rises for longer than expected. He believes that the US labor market may continue to improve to achieve "maximum employment" next year, and if it does, nothing may prevent interest rate hikes.

Federal Reserve Governor Christopher Waller said that the Fed's tapering should begin in November, and that interest rate hikes are still some time away. If high inflation persists until the end of the year, it may force the Fed to take a more aggressive policy response to control it. Federal Reserve Governor Michelle Bowman said that the pandemic has limited women's participation in the labor market due to childcare, coupled with an increase in the number of retirees, which may hinder the recovery of the job market and drag down the US economy.

US Treasury Secretary Janet Yellen extended "extraordinary measures" to December 3 (the deadline for the debt ceiling) to keep the federal government adequately funded, urging Congress to act, as the short-term debt ceiling agreement passed last week was only a "temporary reprieve".

Federal Reserve Vice Chairman Randal Quarles supports the Fed's reduction of bond purchases in November. He agrees that current high inflation is temporary, the Fed's monetary policy is not behind the curve, and is closely monitoring the risk of rising prices. He mentioned that most of his colleagues on the Federal Open Market Committee expect inflation to begin falling to 2% next year.

Thirty-eight US lawmakers from both parties urged congressional leaders to swiftly pass the $52 billion bill to strengthen semiconductor competitiveness, warning that further delays would harm not only the auto industry but the entire US. The bill has passed the Senate but is stalled in the House. Federal Reserve Chairman Powell introduced new regulations, including a ban on buying individual stocks or bonds, in response to the controversy surrounding high-ranking officials' stock trading. Some Fed watchers believe that Powell's decisive action will improve his chances of reappointment. Trading regulations

The US budget deficit for fiscal year 2021 (ending September 30) totaled $2.772 trillion, down $360 billion from last year's record high, marking the first decrease in six years. US Treasury Secretary Yellen said this confirms the US economy is in the recovery phase. Spending increased by 4.1% to $6.818 trillion this year, while revenue jumped 18.3% to $4.046 trillion.

Intel CEO Pat Gelsinger urged the US Congress on Friday to quickly pass legislation to strengthen semiconductor competitiveness, otherwise Intel would reconsider its US factory plans. Additionally, sources revealed that Italy is actively inviting Intel to build a factory there, with investment ranging from €4 billion to €8 billion. Euros 。

Precious Metals Market:

According to Dow Jones Market Data, gold rose 1.6% this week, the largest weekly gain for the most active contract since the week ending August 27, marking its fourth weekly gain in five weeks.

Gold and silver experienced a V-shaped reversal on Friday. Early Asian trading on Saturday showed a range-bound market, with gold prices slightly rising to $1792.47, while silver settled at $24.33. Hawkish comments from Fed Chair Powell increased the likelihood of a soon-to-be-launched reduction in bond purchases, offsetting early support for precious metals as markets worried that post-pandemic inflation could erode purchasing power. High US debt also reversed the trend in precious metals, with profit-taking selling emerging.

Chintan Karnani, head of research at Insignia Consultants, said gold gave back most of Friday's early gains after Powell's comments on reducing bond purchases. Karnani said traders are anticipating a signal of interest rate hikes following the reduction in bond purchases. After Powell's remarks, gold retreated from its intraday high due to weekend profit-taking and technical selling.

However, Karnani added, "Despite this, concerns about inflation continue to support gold prices. The Russian central bank has raised interest rates to combat inflation, and key central banks including the Bank of England, 、 the European Central Bank, 、 the Bank of Japan, and the Federal Reserve will all hold policy meetings in the next two weeks. Given Powell's comments on Friday, it's all pretty clear that the Fed shouldn't be issuing any surprises."

Jim Wyckoff, senior analyst at Kitco.com, said, "Worrisome inflationary pressures, coupled with a weaker US dollar index this week, are supporting gold and silver prices." Gold is often seen as a hedge against inflation. Wyckoff said the gold and silver markets are finally recognizing that global inflation is rising and that it may not be a short-term trend. Gold prices have been rising since late September, while silver prices hit a six-week high this week.

He continued, "History shows that when consumer and producer prices rise, the inflation-hedging nature of hard assets like precious metals is more favored." However, gold's value has fluctuated within a range since July due to concerns about global economic growth and inflation, and rising US Treasury yields have weakened the appeal of non-interest-bearing precious metals.

David Becker, analyst at FXEmpire, said silver prices oscillated, attempted to rise but failed, and closed lower. The dollar rebounded from its intraday low, reversing the trend in precious metals. Since most precious metals are priced in dollars, a stronger dollar usually leads to lower silver prices. Yields were mixed, with the 2-year Treasury yield continuing to rise while the 10-year Treasury yield fell. Stronger-than-expected Markit PMI data helped boost the 2-year yield, putting pressure on silver prices.

Becker also analyzed that silver prices attempted to rise but failed and closed virtually unchanged, with support near the 10-day moving average of $23.46 and resistance near the September high of $24.82. The 10-day moving average crossed above the 50-day moving average, indicating that the short-term uptrend is in place. Short-term momentum turned negative as the fast stochastic indicator generated a sell signal. Medium-term momentum turned positive as the MACD indicator generated a buy signal. The MACD histogram is printing in positive territory, with the trajectory flattening, pointing to consolidation.

Crude Oil Futures Market:

The price of the nearest-month WTI crude oil futures contract rose 2.6% this week, marking its ninth consecutive week of gains. According to Dow Jones Market Data, this is the longest such winning streak for the nearest-month WTI crude oil futures contract since records began in April 1983. December Brent crude futures rose 92 cents, or 1.1%, to settle at $85.53 a barrel, up 0.9% for the week. WTI crude oil futures earlier in the week hit a seven-year high, while Brent crude hit a three-year high.

Jay Hatfield, CEO of Infrastructure Capital Advisors, said, "With the peak of the COVID-19 pandemic and the US opening its borders to vaccinated vaccine travelers, crude oil has rallied for three months, nearly 30%. We expect this rally to continue as we head into November, with colder weather driving up demand for heating oil and the holidays boosting gasoline demand."

Infrastructure Capital Advisors expects oil to trade in the $80-$100 range in 2022, citing "increased demand related to international travel, increased demand from fuel switching, and the equivalent of $180 per barrel of oil after the conversion of global natural gas trading prices."

Crude oil prices retreated during Thursday's trading session, and natural gas prices also fell after an EIA report showed larger-than-expected domestic natural gas inventories last week. During Wednesday's trading session, news that China would take measures to lower record coal prices weighed on early oil trading, before EIA data showing an unexpected drop in US crude oil inventories boosted prices for the day.

Marshall Steeves, an energy market analyst at IHS Markit, said that global oil inventories remain tight because demand growth remains robust, but production growth is lagging. OPEC+ is sticking to its plan of increasing production by 400,000 barrels per day, while US production actually fell last week, with post-pandemic production recovery being slow.

Data from Baker Hughes on Friday suggested that oil production may be falling, as the number of active US oil rigs fell by two this week to 443, the first decline in seven weeks.

Phil Flynn, senior market analyst at Price Futures Group, pointed out that the spread between the December contract of WTI crude oil (currently the nearest-month contract) and the December contract of next year is large, indicating a supply shortage. He said: "The spread between the two has widened to a level unseen in years, with the price of crude oil for delivery in December this year rising, but the latter lagging behind. This shows that the WTI crude oil futures reserves at the Cushing, Oklahoma oil storage center are 'essentially empty', as people are buying as much crude oil as possible at the front end."

The recent rise in crude oil prices to multi-year highs is related to the surge in natural gas prices, as high prices have forced utilities to replace natural gas and coal with oil to operate power generation, thus increasing demand for crude oil, particularly noticeable in China and other Asian countries. Sevens Report Research noted, "Energy commodities can't go up every day, and we can expect volatility in this sector. But ultimately, supply remains limited, demand is strong, and if winter arrives early and starts to get cold, be prepared for higher energy commodity prices."

Foreign Exchange Market:

The US dollar index fell a total of 0.35% this week; the euro fell 0.26%; British Pound fell 0.42% this week; Australian Dollar fell 0.97% this week; New Zealand Dollar fell 1.97% this week, the largest decline among major currencies; Chinese Yuan fell 0.6% this week; Japanese Yen fell 0.18% this week. However, it is worth noting that emerging market currencies mostly rose, with the Indonesian Rupiah rising 0.35% this week; the Philippine Peso rising 0.14%; the Thai Baht rising 0.12%; and the Malaysian Ringgit falling 0.14%.

Mazen Issa, senior foreign exchange strategist at TD Securities, said that the US dollar has strengthened significantly since the Fed's announcement of tapering in September, and now some long positions in the market are being closed, which is also consistent with the seasonal trend of general weakness in the US dollar at the end of the month. The recent rebound in the dollar is also fading as expectations of interest rate hikes in other countries increase. However, Issa expects that the US dollar will regain momentum as the US remains relatively more hawkish and continues to taper its bond purchases, despite global central banks raising interest rates to combat inflation.

Issa added: "Once other central banks announce interest rate hikes and the Fed fulfills its commitment to tapering, the overall decline in the US dollar should not be large."

Ronald Simpson, global currency analysis manager at Action Economics, said that the US dollar initially fell in early trading on Thursday, but then rose mainly due to improved initial jobless claims and existing home sales data. The US 10-year Treasury yield rose to 1.683% on Thursday, its highest level since May 13, also providing support for the US dollar.

Karen Jones, head of fixed income technical analysis at Commerzbank, said that the Australian dollar may see profit-taking selling pressure as it approaches its 55-week average of US$0.7516.

The People's Bank of China authorized the China Foreign Exchange Trade System to announce that the central parity rate of the RMB against the US dollar in the interbank foreign exchange market on October 22, 2021 was: 1 USD to 6.4032 RMB, 1 EUR to 7.4431 RMB, 100 JPY to 5.6192 RMB, 1 HKD to 0.82358 RMB, 1 GBP to 8.8320 RMB, 1 AUD to 4.7787 RMB, 1 NZD to 4.5820 RMB, 1 SGD to 4.7529 RMB, 1 CHF to 6.9733 RMB, 1 CAD to 5.1773 RMB, 1 RMB to 0.64939 MYR, 1 RMB to 11.1035 RUB, 1 RMB to 2.2922 ZAR, 1 RMB to 184.08 KRW, 1 RMB to 0.57364 AED, 1 RMB to 0.58581 SAR, 1 RMB to 48.9132 HUF, 1 RMB to 0.61870 PLN, 1 RMB to 0.9995 DKK, 1 RMB to 1.3433 SEK, 1 RMB to 1.3061 NOK, 1 RMB to 1.48866 TRY, 1 RMB to 3.1712 MXN, 1 RMB to 5.2154 THB.

People's Bank of China Financial Zhou Chengjun, director of the Financial Research Institute, said that by September 2021, China had added nearly 400 billion yuan in green bonds, an increase of over 200 billion yuan year-on-year. In addition to traditional green bonds, carbon-neutral bonds and sustainable development-linked bonds were also launched this year, showing a richer product development. He pointed out that China's green bonds are currently mainly issued by the industrial sector, accounting for more than 50% of the total; the public utility sector, including infrastructure and public utilities, accounts for about 25%, reflecting that about 75% of the bond issuers are involved in industries, and the remaining 25% are financial institutions issuing financial bonds. The funds raised from green bonds are mainly invested in green services, energy conservation and environmental protection, and infrastructure.

On October 21, at a sub-forum of the 2021 Financial Street Forum, Paul Chan, Financial Secretary of the Hong Kong Special Administrative Region, delivered a speech saying that he would further promote the development of Hong Kong's offshore RMB market from multiple aspects to help the internationalization of the RMB. He also mentioned that the government will issue green bonds regularly in the next five years, with an estimated issuance amount equivalent to HK$175.5 billion, in response to market needs.

Barclays pointed out that China's exports are exceptionally strong, and shorting the RMB is extremely costly. At the current shorting cost, the RMB would need to depreciate by 2.9% in one year to break even. At the end of May this year, the RMB against the US dollar once reached 1 USD to 6.35 RMB, the highest level in nearly three years. However, the PBOC then took strong measures, announcing that it would raise the foreign exchange reserve requirement ratio from 5% to 7%, after which the RMB's appreciation reversed, and later it depreciated below the 6.5 level.

People's Bank of China The deputy governor and head of the State Administration of Foreign Exchange, Pan Gongsheng, discussed the current hot topics surrounding the exit of the loose monetary policies of major developed economies in response to the epidemic, and their potential impact on international financial markets, cross-border capital flows in emerging economies, and the Chinese foreign exchange market. Pan Gongsheng made this judgment based on three factors: firstly, the Chinese economy is currently in a better cyclical position; secondly, the RMB exchange rate has become more flexible and can better play an independent regulatory role; and thirdly, the structure of capital inflows into China has been optimized, and the stability of foreign investment has increased.

Stock Market:

With the release of US corporate earnings reports, Intel and Snap's negative earnings reports weighed down technology stocks. Coupled with Powell's concerns about inflation and his statement that it was time to start reducing bond purchases, the S&P 500 index fell from its historical high on Friday, ending its seven-day winning streak. The Nasdaq and Philadelphia Semiconductor Index fell by about 1%, while only the Dow Jones index closed at a new historical high, and Tesla closed above $900 for the first time.

So far in the earnings season, US companies have performed well overall, with the Dow Jones, S&P 500, and Nasdaq all closing higher for the third consecutive week this week. Many individual stocks have recently hit record highs, such as Tesla, Netflix, and Microsoft. The market is focusing on the upcoming Super Tech earnings week next week, including Apple, Microsoft, Google, Facebook, and the performance of AMD and TXN in the semiconductor industry, which will be key to whether the market's upward trend can continue.

Jeffery Gundlach, known as the "new bond king," said that high inflation in the United States is not temporary, and consumer price inflation will remain above 4% at least through 2022.

As of the close of trading in New York on Friday, the Dow Jones Industrial Average rose 73.94 points or 0.20% to close at 35677.02; the S&P 500 fell 4.88 points or 0.11% to close at 4544.90; the Nasdaq fell 125.50 points or 0.82% to close at 15090.20; and the Philadelphia Semiconductor Index fell 41.77 points or 1.22% to close at 3370.28.

Cliff Hodge, chief investment officer at Cornerstone Wealth, said that disappointing earnings reports from companies like Intel and IBM, coupled with Powell's mention of high inflation and tighter policies on Friday, have deepened market concerns, at least in the short term. He said: "The S&P has risen for seven consecutive days, so a slight market correction is reasonable."

Refinitiv statistics show that of the 117 companies in the S&P 500 that have reported earnings so far, 84% have exceeded analyst expectations, and S&P 500 component companies' earnings are expected to grow by 34.8% this quarter. With the US tech sector's Super Earnings Week coming up next week, Lori Calvasina, head of US equity strategy at RBC, said: "Next week will be the real test."