Market Update & Importance of the Suez Canal Explained (Evergreen)

Okay, very good morning, Thursday, 25th of March. Hope you're doing well. Good morning to the Amplify Live community, and if you are watching this delayed on YouTube, as ever, it would be massively appreciated if you could hit the subscribe button. More content coming in the coming days, even over the weekend as well, so be great to have you as part of our online community. But let's get straight stuck into what's going on this morning, and not going to spend too much time time actually on the charts. I'll leave the guys on the live stream to go into that in more detail, but just giving an overall flavor of market sentiment here at the European Open. I'm filming this just going into 7 AM London time this morning, and markets, I'd say, a little bit indecisive, I guess, of how to take this latest new COVID wave idea. Um, yesterday we did see the NASDAQ then underperform, down around 1.68% by the time we closed on Wall Street, comparative to the Dow which was flat, which is almost the opposite case of what we had in the prior day. So much more reflective then of initially on Tuesday, it was kind of a move back into pandemic-related plays. Oil got hit, airline stocks got battered, whereas yesterday was a little bit of reversal of that. Perhaps people just picking up some of those particular sectors on the cheap and just riding them back up and and the, the NASDAQ was an underperformer. Oil bounced. We'll have a little talk about the Suez, some OPEC source comments as well, uh, in context of the potentially threatened demand on the new lockdowns pertaining to the new COVID wave, um, or helping support price there. But overall, the other interesting thing is dollar strength, and we pretty much have the Dixie trading at its highest levels of this year at the moment. Um, in terms of this morning, there hasn't been a great deal of fluctuation. It's pretty much flat up to around 0.1%. As you can see then, in the major pairs in the top left, the EURUSD and Cable still remain close to their relative lows. I'll just have a quick look at Cable here. You know, quite a nice breakdown in price that we've had through this week. On initial tests, break, comes back to the level and then moves lower. We've had now a few recovery up to the same level in the futures market, 137.36, before the move lower. And just this trend line here, short term, just keeping an eye on this morning. On the daily chart, unaltered from what we were talking about yesterday, really, uh, on the daily, that 36.81 was where the market found support yesterday, uh, and also so far today here at the open, which was that coinciding with the low on the 8th of Feb. But continuation in the dollar move then downside would be looking for potentially deeper moves here in cable towards really the 136 handle to keep an eye on. Um, let's get straight into some of the headlines then and talk about the news and what is going on. I'm going to start off with an update on the vaccine situation. Before I jump to AstraZeneca, let's just talk about this ongoing dispute between the EU and the UK over the distribution of ingredients and the exportation of vaccines. Britain and the European Commission last night issued a joint statement saying that there have been discussions on developing a reciprocal beneficial relationship to tackle COVID-19. However, they did caution not to over-interpret, and this was not a supply deal, rather the beginning of a negotiation. The EU leaders, they are meeting later on today. In fact, I'll get the timings of the exact discussions that are happening later on today. But they are going to be discussing the situation during a video conference summit on Thursday, that summit over 2 days, today and tomorrow, for those European officials. So a little bit of a, of a softening of what was looking like an increasingly contentious issue. So one to watch still, and potentially more comments coming out this afternoon. But a bit of a step in a more positive direction in that regard. AstraZeneca was the other one, obviously following on from the US criticism from that latest trial, which pointed to somewhat dubious data points in regard to the efficacy rate of their drug. The company have come out and said that their vaccine is 76% effective in its US trial. That came again after that independent monitoring board expressed concerns and is against comparable— its previous disclosure of 79% efficacy. But 79% to 76%, I don't really think is reason for concern in terms of the actual effectiveness of the vaccine. That's still a particularly high number. In fact, um, I understand that obviously comparative to some of the 90-95% readings we had seen, it's It's not up in that region, but comparatively as a vaccine, it's still, you know, margin— at the margin when we're talking about these few percentage points. What's a bigger impact here potentially is the fact that the actual key component in any successful deployment of a vaccine is the public's belief and confidence in the, in the, I guess, not just the effectiveness of it, but the reliability of of it. And that's something that's been severely dented for AstraZeneca, just given a combination of different things, not only a series of kind of data blunders that they've had since this vaccine has been in development several months ago, but also as well the types of vehement criticism it's come up against from European politicians has seen the, the likelihood of the general public wanting to take the AstraZeneca drug diminish rapidly comparative to others. So yeah, it's more of an issue for Astra generally, the confidence within the firm. We have seen earlier in the week their stock price has been underperforming to some respect on the back of that kind of idea. But overall, the actual drug, you know, standing out of the crosshairs for a moment, you know, I think overall this is generally a positive story in terms of the overall COVID crisis that the globe is facing at the moment, because obviously AstraZeneca is a pivotal drug in the global solution to, to getting it under control and inoculating the global population. The other thing I quickly wanted to mention was, was the Suez. I had a few questions about this yesterday, and I'm going to talk about the details, going to talk about the maritime routes, and then we'll talk about a few tips about, you know, why this type of episode is really good for your, for your learning on the fundamental basis. Bloomberg, Reuters, the other media news agencies are talking about the rally we had in crude yesterday being pinned on the Suez. I find that a bit of a stretch, to be quite frank. If that were true, and at the moment the passage is still blocked and therefore the number of— the size of disruption is getting worse, well then on that theory the price would still be going higher and it's not. So for me, I think Brent on the— not yesterday, the prior day prior to that, it was the biggest decline we'd seen in Brent since October of last year. So for me, it was a bit of buying off the lows. I still think that there's a healthy degree of appetite to buy strategically, technically key points, and definitely I think Tuesday into Wednesday session offered that. Uh, $57.32— I mean, these are again unaltered charts from the markups from Monday's briefing. And having a discussion with one of the senior traders here, uh, yesterday, you know, both of us remain still relatively secure in the fact that even if this price does come down, it will be supported. Because even if there's a COVID wave that just disrupts demand short term, more medium, longer term, overall economic activity will boom in the period ahead. It's just a matter of timing. And then your insurance policy on the back of that is the fact that OPEC+ will do whatever is necessary in order to ensure then that the price is supported. And in fact, we actually had sources yesterday saying exactly that. They said that they were likely to keep output mostly steady at the April meeting due to the lockdowns. So lockdowns that we're seeing, like some mainland Europe and elsewhere, as COVID cases start to rise again. Also as well, increasing oil exports in Iran, and that's watering down somewhat the actual, um, kind of strength, if you like, of the supply pack. So all the more reason to roll it over. And as you can see here, technically a nice bounce off those lows that we were seeing, initial resistance support back in early, early February. So could we get lower? Can we get below this point? Yeah, perhaps. But even if we come down to say 53, 51, I I do think you'll get strong buying from people in more medium-term positions that will step in and lift the price if we have to get there. We're already kind of seeing that at the moment, some of the price activity. So the Suez thing, the reason why I'm saying it's not as, as simple as the Suez problem, price goes up, not only because of the price fade that we're seeing at the moment, but generally how short-term market prices react in WTI crude is much more about, you know, where is the production refinement of these products, not so much the passage in the maritime route. I guess it's kind of a timing issue. If it was to be prolonged, then, then it could have impacts. And certainly then, talking about the Suez, the Suez is strategically important globally. So a bit of detail here: as many as 10 crude tankers carrying around 13 million barrels of oil could be affected by the disrupted traffic in the Suez Canal. And obviously that number's going up all of the time. The approximate rate of backlog is around 50 vessels per day, and any delays leading to the rerouting around the Suez would take around 15 days extra to voyage between the Middle East and Europe. I just wanted to give you a bit of, you know, a geography kind of lesson in regards to what does that look like. So the Suez obviously is situated here and acts as a conduit, if you like, to connect then the voluminous amount of crude oil that comes out of— sorry, just back this up a little bit— that comes out of the Gulf of— the Persian Gulf. So here you've got Saudi Arabia, Iraq, Iran, and Kuwait, so which are the top 4 producers within OPEC. And the predominant amount of deposit of crude oil that's been extracted coming out of the northern part of the Gulf of the Persian Gulf. We then have two key straits that need to be navigated from a maritime perspective, and obviously around approximate a third of the world's transportation of all maritime crude at one point has to go through the strategic choke point of the Strait of Hormuz. And that in itself, uh, highly contested waters because you've got the northern tip of Oman and the southern location of Iran here, and obviously the ongoing friction historically between Saudi and Iran, and how this gets expressed then through US sanctions and then Iran's proxy war in Yemen down here at the bottom, with predominant concentration in western Yemen of Houthi militants, which then fire north missile drone strikes and so on into Saudi Aramco infrastructure. Beyond then, the passage of the Straits of Hormuz, where there is obviously large global, predominantly US and Western military support to ensure the passage of transportation of goods through this area. You then have to— this is the second strait, which is over here, then over towards the tip, western southern tip of Yemen, when we're talking about El Mandeb Strait, which then goes into the Red Sea, and that ultimately then goes up into Egypt and into the Suez As I just mentioned, if the Suez is blocked, then the alternate is going around the African continent and the Cape of Good Hope in South Africa to go all the way around. And, you know, this is a historical kind of trade route, if you like. And to— in order to circumvent, if you like, going through the Suez and around Africa, it would add approximately 15 days to transportation. And obviously when you're talking about the cost of goods, the cost is going to become more expensive for lots of different reasons. So a bit of context and then moving back, then some of 12% of global crude and about 9% of total seaborne traded petroleum, including crude oil and refined petroleum products, do pass through the Suez Canal and Suez pipeline. According to the EIA estimates. So 12% of global trade is going through the Suez. You might have read about— there are in fact two Suez Canals nowadays. There's actually a new and an old one. The problem is, is that this graphic doesn't quite go into the greatest amount of detail, but wherever Evergreen, the ship, is grounded is right at the— pretty much the entrance. There's actually kind of like a reservoir pool, if you like, a little bit further in, which would then split off the old and the new Suez, which then could have created an alternate kind of route that the traffic could have taken. But the problem is, is this, this is right bottlenecked at the bottom, so it's blocking everything else coming through. Um, the Sumed pipeline, as you can see here, is the other transportation area Aside from the Suez, you know, one of the things here as well, I guess, while we're talking about it from an educational point of view, you know, this, this type of, um, passage and voluminous passage of crude oil, of course, is one of the key reasons why there is strong Western, particularly US military interest in this particular region, uh, and an alliance with Egypt in particular, as well as Saudi Arabia. If you think about the alliance with those nations, although Islamic terrorism, you could suggest from a locational point of view, from the— where, where these people come from is predominantly Saudi Arabian and Egyptian, in fact, in terms of Western terrorist activity on US soil over the last 50 years. But actually, when you think about it from a strategic point of view, Saudi Arabia is the key predominant producer of crude oil in the Middle East. And then Egypt is ultimately very key, as I said, contributing to 12% of global trade of crude going through the Suez or the Sumed pipeline as well at the same time. So makes sense then from a strategic point of view to have US military presence and a political alignment with these nations for those reasons, irrespective of other things that might come on the back of that. Um, the final things then to, to mention when can we expect this to be rectified and what would that look like and how would it happen? The things that I've read is the best chance of freeing the massive container ship, as much as there's been reports about they're trying to dig out a little bit, they've tried tugboats and things like that, probably the most likelihood here is freeing up this tanker might not come until Sunday through to Monday. And the reason that is, you've got to start timing then just the, just natural flow of tidal waves, uh, and tide will reach its peak. So spring tide peak is, is between Sunday and Monday, and that's going to add approximately 18 inches, which will allow for the potential for more maneuvering for the ship. So it might be that we need to let nature take its course, uh, in that respect, rather than trying to intervene in any other way. So it could be that we don't actually see any movement on this until the next couple of days, until the beginning of next week. To give you a visual idea of what the actual Suez looks like, my wife says she's actually swam in the Suez when she was younger. My wife's Egyptian, and she was— she couldn't believe it when she saw some of the photos because she said, I don't remember it being that narrow. And as much as I was saying, well, I'm sure it's all not that narrow, the idea here being that at its most narrow point, it's only about 205 meters wide. So, you know, if you think of Usain Bolt running 100 meters, times that by 2, and that's about the size that you can visually think of. This is very narrow, and one of the problems that it encounters is that if there is ever poor visibility from a weather perspective, there's obviously just very little room for error when you're trying to pass through. Um, the other, I think, good point to be aware of here is the top 3 exporters of crude and oil products who use the Suez in 2021 so far: the Russians, 546,000 barrels per day, Saudi Arabia, 410,000 barrels per day, and Iraq, 400,000 barrels per day. So the, the end kind of point that I wanted to, to have with this discussion. I know I've gone into it in quite a bit of detail when arguably it's not really, I know, a product that a lot of you might look at, or the price isn't spectacularly swinging around. The reason why I've gone into quite a bit of detail here, it might be worth just rewatching again and making some notes, is that I'd say one of the, one of the things that I've learned in my career being working in what I do, which is to understand and interpret news and information. It's not the sort of thing that you can just kind of read and then it's like, right, you're set, now go off in the world and you're able to do your job. I would say being good at global macro from a news perspective, um, it's just about picking up these little nuggets of information at the time they arise, you know, go into some of the details you know, what is the canal, how big is it, what type of ships go through it, how often, what are the risks, what's the time to pass through the Suez, what particular countries are moving products through there. If you can actually just spend one afternoon going into that type of detail, make some notes, put it in your head, you can kind of compartmentalize it for later. But it's this idea of building up your repertoire, your building blocks of knowledge, that ultimately becomes a very powerful tool for memory recall when a headline breaks on Twitter or you hear a Squawk Box and they say something about one of these strategic areas of significance and you can just make a decision on the spot instantaneously. So, you know, hence the reason why trading the news is such a a difficult thing to do because ultimately it requires a very deep and a large breadth of knowledge about a number of different things if you're really going to be agile enough to trade within the intraday environment, reacting to news as it's really happening. So hopefully that was a good exercise to sort of talk through the Suez and give a bit of perspective. If you go on my Twitter account, you'll be able to find my morning note where I've got all the details, but I've just discussed as well if you want to check it out. Otherwise, final things to have a quick look at— North Korea. I think I've discussed this enough really about our expectancy of further activity from North Korea for the reasons between the proxy of US and China. Interestingly, from a symbolic point of view, this latest two ballistic missiles that North Korea have shot, it was actually into the sea near Japan. And yesterday in Japan was the commencement of the Olympic torch relay ahead of the Summer Games that were delayed. So somewhat symbolic there against one of the allied nations of the US. So again, ratcheting up the pressure on a geopolitical level. Markets unfazed, as you would expect, because this sort of thing, you can expect more of it to happen in future as well. In terms of the calendar for today, Um, it's pretty quiet UK European morning. US data is a bit more interesting. You've got the Q4 final GDP, so that's probably not the most exciting thing you're going to see today. Expected to be unrevised at 4.1%. But you do have weekly jobless claims, which obviously bumped up a little bit in, in recent weeks. Expected to decelerate slightly to 730,000 from 777,000. To keep an eye out for that. You've also got Joe Biden's actually giving his first formal press conference. I know we hear from Biden, it seems, quite a lot, but he hasn't given one of his keynote speeches yet. I did distribute a full primer in the Amplify Live community yesterday, so have a read of that. Definitely worth getting, getting yourself up to, up to speed. But all in all, it might be short on specific details, particularly on the infrastructure kind of new stimulus package plans. A little bit more broad brush, of course, but nonetheless it's going to be something potentially of interest and certainly something I'll cover in the briefing tomorrow morning. He's speaking just after 5 PM London time. Really busy though on the speaker slate. I mean, it's jam-packed. Everything from the Bank of England's Governor Bailey, who's already been on tape this morning, and also going to be followed by— I think there's another BoE member potentially later as well. But what is Bailey going to say? To be honest, I don't think a great deal. Again, he's speaking at the unveiling of a new £50 banknote, and also the proximity— yeah, so it's Bailey twice. But also the Bank of England rate decision was not that long ago. As I said before, not expecting much overall from these guys. Lagarde, um, again same case. But from a Fed perspective, potentially a little bit more interesting. And they're speaking throughout the day. So Fed's Williams is a voter, Fed's Clarida voter, Bostic voter, Evans voter, and Daly voter. Now the reason why this— these are a little bit more interesting is not all of them, but most of them— Clarida speaking on US economic outlook and monetary policy. Fed's Bostic speaking on measuring the economy during COVID-19. Fed's Evans, current economic conditions and monetary policy. Daly, monetary policy and fiscal policy. So, so unlike Lagarde and Bailey, a lot of the Fed guys are speaking absolutely on point of what the markets could be sensitive to if they were to say something out of line of what we've heard generally from Powell of late. So I would definitely have all of those marked up, um, on your, on your calendar for today. Then the final thing I wanted to mention, something to be aware of around 5 o'clock, uh, later on late afternoon, is traders will be kind of very much aware of the fact that the 7-year note auction coming out of the US, just given what a disaster it was back in February. So far, I think we've had 2s and 5s coming out of the US Treasury, and they've been okay, fine, no disasters. The 7-year was previously. If it goes through okay today, that will, I think, put to bed any idea of disruptions, um, after that initial failed— or not close to failed auction we had before. All right, that is it. Gonna leave you to it, let you get on with the day. Any questions at all, feel free to just drop me a comment, or I'll see you in the, the Amplify Live Discord room. Thanks very much.