Hurricane Laura Approaches As Markets Await Powell

Okay, very good morning to you. Hope you're doing well. It is Wednesday, 26th of August, and before I begin, uh, one thing I just want to mention, and I will put the link into the description of this video, is a new blog from Alex Clark on the Amplify Trading team. He's one of our traders and senior mentors, and he's written an excellent piece to get you prepared for the Jackson Hole Symposium. And Powell's really important speech that he's going to deliver tomorrow afternoon. So do check that out, it's been tweeted from himself, I've shared it, it's been shared from the Amplified Trading account as well. Definitely worth a 5-minute read just to get you prepared with just generally the breaking down, making a little bit more digestible how Federal Reserve monetary policy works, but more importantly giving you an idea about how asset prices across assets might react to Powell's speech tomorrow. So a really great piece, do check that out. And then also, if I could kindly ask, if you're new to the channel, don't forget to like and subscribe. New content coming every day of the week. And actually, I've got a special guest who's going to join me to talk a little bit about options trading. Get a lot of questions about that, so I thought I'd get an expert on who's a former head of a desk at a big US bank, and he's going to join me and for a, for an interview with a video I'm going to release on Saturday. So hopefully you'll enjoy that as well. But let's get straight into things and what's been going on. So overall, I would say there is a reflection of relative calm. It feels to me almost like the market is waiting for Jerome Powell's speech, if I'm quite honest. Yes, there has been some movement, but overall in the currencies, pretty quiet. Oil's a little higher, or just holding on to some of the gains that we've seen yesterday as Hurricane Laura is set to caused quite a large degree of disruption as it anticipated to make landfall and intensify going forward. In equity markets, we did have a bit of a mixed performance on Wall Street, fairly quiet overnight in Asia. The NASDAQ outperformed again, which probably comes as little surprise these days. Facebook shares were the standout, they're up about 3.5%. Anything really that was notable for them yesterday was a broker upgrade coming out of UBS on their price target, but I do think that actually that's quite a common theme we've been seeing with these mega-cap tech stocks. Everyone's kind of asking the question, you know, have they risen too fast, too quickly? We're too overstretched. But all these banks keep coming out, like what we saw for Apple just the other day, Morgan Stanley's bullish base case looking for near 40% further gains on top of where we closed at the end of last week. And they're not the first. There's been Goldman's, there's been Bank of America. All coming out with some, uh, real clear cases for quite extreme further upside for a number of these stocks. And as we know, given the composition now, how large that they are, they can drag the whole market up again to, to further more elevated levels. Interestingly, from a stocks perspective, you know, remember yesterday we were looking at the NASDAQ, the sell-off at the open, the recovery in the afternoon, exactly the same as the S&P yesterday. Sell-off at the open, recovery in the afternoon. You know, this market at the moment just doesn't want to go down. It doesn't matter if we get the odd piece of negative data, say US consumer confidence comes out. In the end, people are just looking to re-establish long positions lower down if the market gives that opportunity. From a technical point of view, I was talking about this with Sam, with some of our new traders who've started our advanced training program this week. And the discussion was not about short here, feeling that that move yesterday was a little bit overdone through the Asian session, but it was for, okay, when it comes back down, where are we going to look to get long again? And ultimately, yeah, nice level around that 3424 paid off. That was that previous high-low support, a little bit choppy around that area, and then a nice response started to come through as after Europe left the market and we finished pretty much scratch on the session. Eradicating that entire loss. So yeah, there's familiar patterns here being seen in US equities, and I really do think a lot of this week hinges on what Powell says. And interestingly, from an asset, multi-asset point of view, one thing is currencies, as I said, I think are relatively quiet at this point. So I'd be a little bit more conservative perhaps on how you should tackle those today unless there is anything unexpected that develops. So I think looking at relative ranges, so if I was looking at euro here on the upside, 1.1840, on the downside then 1.18 kind of handle, 1.1808 would probably be what I'd watch. And then elsewhere in the gold market, and this falls then in, in themes with the US yields at the moment, we're just seeing a little bit of downside pressure. We've kind of, we've we had formed a kind of relative range, but we seem to be just gravitating towards the, the bottom side of that range. And around $1,999 puts us back down to where we were testing yesterday afternoon. That's also on the daily pivots, the S1, and also close proximity to the low on the 21st and on the 12th. As you can see, any breakdown of these levels then does get quite interesting. You've got the $1,900 handle, then you've got that initial gold route low that we printed through early part of August, which was around 1875. But interestingly, with gold edging a little lower there, T-notes have also been doing so. So yields have just been edging up ever so slightly. And if you look at this on a daily, um, it puts into context— that was that kind of yield, real yield increase momentarily that caused a bit of a shock. And there was that gold repricing in the market in early August, and we then had quite a severe bounce. But we have started to trend a little lower again in the last couple of sessions in the US 10-year. And as you can see, we had a pretty sharp bounce that was seen in, in yesterday's session, rejection almost of that, which does coincide with that 139 handle. That 139 handle has been pretty solid before, exiting out the break that we had back on the 12th and the 13th. There was also a good level of support back on the 13th of July, and of course it's that 100 DMA, that red line there as well. So worth keeping an eye there. Um, it does feel like it's lining up though, that, and as per what Alex says in his, his written article, that if Powell— if we get a basically a repeat of the recent FOMC minutes and basically Powell fails to deliver on a fairly hungry market for more dovish signals in the form of more concrete confirmation of average inflation targeting and then enhanced forward guidance in that respect, but should be more erring on more dovish developments or tweaks to policy. A failure for that to materialize, well, then yields are going to, going to pop higher. That T-note level could come under threat again, and gold you'd expect to come under some pressure and obviously technically sitting around these key levels of support. If they get breached, we could see some really strong moves on the back of that speech. So I definitely do think it's, uh, it's wait and see mode as far as today is concerned. And I do think that that should be factored into your approach and your how ambitious any targets for any subsequent trades that get taken today, because people might tend to sit on their hands the latter we get into the day barring anything, as I said, unexpected developing. One chart you can see here though is crude oil. Crude oil has— it was pretty choppy yesterday, but overall did move higher. And if again we look on the daily chart, just to encapsulate a couple of these longer-term levels we've been looking at for a while, this then looks at the, the period that we were trading in early March before we had that kind of fateful failure of that OPEC meeting and then the price war outbreak between Saudi and Russia. So we're right back up there again. We briefly got up there and were rejected back in early August, around the 5th of August. We're right back there at 4332 here now in the futures and looking on the daily chart. And so with that little breakout to the upside yesterday, we've got above a kind of near-term range that's held through much of the period of August, puts us back at those July highs. And we're right back up to the higher of where we were trading on the 2nd, on that support point on the 2nd of March. So Quite interesting here from a technical perspective for oil, threatening potential then further moves to the upside. Now, to get you up to speed with Laura, what is going on— so it's not a case of Marco now, it's, it's all over to Laura, and it threatens the US with, with basically a major disaster. What the National Hurricane Center have said is that it could well see a storm surge causing significant inland damage of up to a degree of 30 miles, as you can see by the National Hurricane Center's projected wind speed probabilities. So if I look at this here, a couple of points to be aware of then. So geographically, the surge will— with large and dangerous waves producing potentially catastrophic damage from San Luis Pass, Texas, to the mouth of Mississippi River including areas inside the Port of Arthur hurricane flood protection system. It could go 30 miles inland. Hurricane-force winds are expected Wednesday night. Um, and so yeah, potentially very disruptive here. And what that has already led to, of course, is that as of yesterday, upstream operators have shut in about 1.558 million barrels per day of oil. That equates to around 84.3% of production from a gas a natural gas perspective, it's about 60.94% of offshore production that's been closed. Some of the US largest refineries are winding down, obviously, in advance of this. Laura, actually, if I put my cursor here, is right down here at the bottom. So this is where it's anticipated to be in the US time by Wednesday evening and then Thursday morning, hitting right in the epicenter of what are the biggest, most major oil refining, I guess, infrastructure of this particular area in the Gulf of Mexico. So as you can see here, refineries facing closure or reduced runs: Port Arthur Mativa, Port Arthur Total, Port Arthur Valero, Lake Charles, Citgo Phillips 66. To give you an idea, Mativa's capacity is about 630,000 barrels per day, ExxonMobil's Beaumont is 366,000 Total Port Arthur 225,500, Phillips 66 Lake Charles 250,000. So, you know, these are significant, and hence the reason why you've had a bit of a movement in oil yesterday. And it definitely remains one to watch. And again, normally weather patterns get priced in pretty early with a kind of a 6 to 10 day lead up, given that we can monitor and track these developing weather systems in the Atlantic. However, I guess in the case of what's happened here with Laura is that it's continued to intensify and therefore all the more disruptive it could potentially be. The other thing is the Republican convention continues. It was kind of like the Trump family show yesterday. Melania coming out and talking a little bit more of an alternate tone to the kind of more assertive husband. And she was talking about some of the other issues. At large, namely social issues ongoing in the US. But one of the things that's come out of this, and no doubt again timing politically looks a little bit like it's been held back for this specific moment, so the Trump administration, according to Politico, is said to be, according to sources, weighing accusing China of genocide over ethnic Muslim minorities, that issue again of human rights. In the western side of China that's been an issue brought to light over the last 12-18 months. Now again, I think this type of information comes out— how I interpret this— it comes out at a politically sensitive moment where the Republican Party, i.e., Trump, can leverage this as part of the kind of unofficial communication. So I guess tactfully he looks being very aggressive to China But underlying this, of course, is still the same fact that China is living up to its side of the bargain already. Uh, Kudlow, Lighthizer, they were all speaking yesterday, um, obviously trying to talk up the market in the case of Kudlow as much as possible, looking over and beyond that with the COVID impact, but also commenting about the fact that, that China are accelerating their importing of US goods in line with the Phase 1 trade deal. And this has come out this morning from Bloomberg, again citing people familiar with the matter, so sources, that China is reportedly expecting a record amount of US soybean purchases this year. So again, I think what you're going to hear from Trump is an over-exaggerated kind of heat putting on the way of China in order to politically just make the point to galvanize his base. But ultimately, I don't see any real tangible reaction from China on the back of that because China are fully aware that he's just saying it because of what's going on specifically with that convention happening. All right, quick look at the calendar. What have we got for the day ahead? It's very quiet actually in terms of the UK European morning. On that note, probably one of the, the main things I'm quite interested to hear is we've got Bank of England Governor Bailey speaking on Friday, but coming up as a bit of a prelude to that event, we do have Bank of England's Chief Economist Andy Haldane. Now, he's not speaking till 5 PM actually this evening, London time, and he's speaking at an international culture summit, so it is off topic. However, a lot of people are awaiting his speech in order to see whether he gives away any more insight as to what the Bank of England are thinking. They've kind of almost discounted negative rates for the time being. However, markets have kind of ignored that and we're still a little bit further out pricing in the potential of negative rates in the UK. So I'm just interested to see whether he gives any further policy kind of hints on forward guidance as to potentially then increasing QE or any other forms that they might take. He does tend to be, or has been happy to be an outlier. Remember, not the last meeting, the meeting before, he was against expanding quantitative easing, so he was the one dissenter of the group in the MPC. So I think of all the people that could potentially say something a bit more interesting, perhaps Haldane is your guy. So look out for that at 5 PM. Be aware of that if you're in any sterling FX position. Otherwise, the afternoon, we got durable goods coming out of the US. You get the oil inventory numbers, uh, following on from the APIs last night. So I'll update you on those closer toward the time so we can take a look at, um, and then from a supply side in fixed income, uh, another German auction, uh, and then floating rate auction coming out the US in a 2-year and $51 billion in a 5-year note auction. So obviously lots of supply coming the way of the US as well, and perhaps, uh, again, a little bit of short setting materializing in the Treasury markets to take on this new supply could also be a weighing factor on why prices have been declining of late. Yeah, that is it. So remember to subscribe to the channel if you don't already. As I said, got a really interesting video coming up on Saturday about options, and so hopefully that'll be something new for you to digest. And any questions on the briefing just delivered, just feel free to leave a comment, and I wish you a good day ahead. See you same time tomorrow. Thanks very much.