Oil Continues To Slide As USO Sells June Holdings

Okay, very good morning to you. It's Tuesday, 28th of April. Hope you're doing well. First thing I just want to mention is obviously we've got the latest FOMC meeting happening tomorrow night, Wednesday, and we're going to be covering that live via an exclusive kind of webinar using Zoom video technology. And so I on the link to this video, I'm going to put a registration link. Uh, feel free to, to join us. Absolutely, we're going to cover that. It's going to be me, Will, Piers, Sam, everyone's going to be on board. We're going to talk a little bit, as well as the title would suggest, not only about covering the latest Fed announcement, but also a little bit about trading psychology. So I'll share the link with everyone. Everyone is welcome to join, but obviously anyone new to Amplify, I think this would be a really good session to hear from all members of the team and also to see us cover a news-driven event. And being a kind of macro fundamental firm in terms of what's core to our trading strategies, it'll probably be a good session for you to see how we go about things. So yeah, I'll drop the link in the video, so please do register and join us tomorrow night if you are free. But moving on, let's have a look at markets and let's have a look what's going on. And generally a higher close on Wall Street last night. The S&P, Dow finishing up approximately 1.5%, the NASDAQ a little bit lower but still positive territory. Most of that coming, you know, from a top level on the underpinned by sentiment improving a little bit about economies talking about the easing of their lockdown measures across the globe in various different areas. So equities generally a little bit were a little bit more buoyant, T-notes down, and you can see this morning A little bit of follow-through. Equities generally holding on to that move. The DAX, you can see in the center left here, just forming a nice little base with some of the recent price action. You can see from those highs that we were printing in yesterday morning's high initially when Europe came in just ahead of cash open in the futures market, and then again when the US came in before that eventual break. So really nice technical level of, of interest there for support now in the DAX. Having played out quite nicely in yesterday's futures market. With that, then, T-notes pretty much flat. But as I said, holding on to losses that were seen yesterday. And gold continues to unwind some of its kind of premium, if you like, on the flight to quality status, just as risk sentiment or appetite just picks up. $1,700, the next kind of level beyond that of then the S2, which is where we've seen a bit of a bounce already this morning in the futures. So trading at $1,710. Currency markets, not too much going on. I did hear the squawk talking about citing Barclays for month-end flow, something to just be mindful of as we go into obviously the end of April, going into Friday being the 1st of May. They've been talking about the potential for some down— moderate downside in the dollar as we go into that month end. So nothing to apply immediately right now, but if that is going to be the case you might well see a little bit of downward pressure, uh, over the next kind of 48 hours or so. So worth bearing that in mind with the major pairs. Euro-dollar just forming a bit of a nice base around the low that was seen yesterday just after Europe exited the market, had a bit of retest of that late Asia-Pacific session around that 1.0828 mark. Oil prices probably a bit of a standout. I'm going to talk about that a little bit more, but obviously a bit of an unwinding of those June futures contract from the US Oil Fund yesterday. And we provided a nice kind of setup here. That previous low we had on the 23rd in the overnight session, we broke below that yesterday afternoon, obviously came back up to that level, similar price point, albeit a little bit choppy around the 6 PM mark. And then we've kind of come all the way back down under pressure, a little bit exacerbated by the overnight conditions, of course, in the Asia-Pacific session, managing to break that yesterday afternoon low That just saw us tumble from around $12 all the way down to sub-$11 for a moment, and that's kind of where we trade at the moment, bang on $11, down close to $2 for the session. Let's just run through some of the headlines then and the calendar. What have we got on the agenda? A quick update on COVID-19. This is going to focus on the UK. I know a lot of the followers of this channel are based in the UK, so as much as I can talk about markets, I think it's worthwhile just for our own personal sake to know where we're at at the moment. And obviously Boris Johnson returning to work after his, his period with dealing with the virus himself over recent weeks. Uh, UK, there were 360 hospital deaths from the disease yesterday, and that was the lowest daily number since the 28th of March. While the 7-day average is showing a gradual decline in mortality, Johnson said that lifting the curbs too early would risk a second spike in the infections. The Chief Medical Officer Chris Whitty warned the coming months are fraught with uncertainty. So definitely a bit of a different tone from the likes of Boris. Whitty probably slightly more consistent in that sense, but trying to give the, the general public the overall reality check that I think is probably necessary in order for them to manage what's likely to be a very gradual return to normality over an extended period of time. Whitty did say that they're definitely not consistently past a peak across the whole country. The government is due to review restrictions at the end of the week. There's been quite a few reports, I think The Times, talking about that Johnson's going to give more details later on this week, so something to be looking out for. Sunak, the Chancellor, of course, he's announced a program of government-backed microloans for the UK's smallest businesses, talking about a very fast-track turnaround for applications of, I think it was up to £50,000 sterling. But again, the idea being to support those that really backstop a lot of the, the country's employment levels, being these smaller firms. So that's kind of where we're at with that at the moment. With that in mind, I did actually tweet you probably saw it. Again, my handle's there if you, if you did want to follow my ramblings on Twitter. But yesterday, The Telegraph were putting out what their kind of criteria for lockdown ending measures, and this was their kind of 5-point plan: protecting the NHS, consistent declining death rates, lower infection rates across the board, testing and PPE issues under control, and prevention of a second peak. So the point I was making yesterday is that do find it quite hard for them to be too aggressive with the winding down of lockdown, given the fact that I would say on most of those 5 points they're currently not quite there yet. So this is the kind of benchmark, or I guess reference point, that you'd be looking at to ascertain how— where are we, where are we at this point in time, and how close are we to that point. But again, Johnson's like to give an update, uh, given the pressure he's under from not just the public but also business communities in order to get the economy reopened. Elsewhere, oil prices, as I just said to you, WTI in terms of the June futures contract getting hammered yesterday again. Obviously not quite as violent as what we saw last week, but, you know, we are— we have gone from where we were at the beginning of reopening electronic trade Sunday night from around +$16 to try trading now sub-$11. So what exactly has been going on? Well, the US Oil Fund, United States Oil Fund, the USO otherwise as it's known, unexpectedly began selling its holdings of the most active contract, that being now the de facto kind of front month June futures. The ETF now has changed its investment policy 5 times in the last 2 weeks, and that's incredible. In terms of them trying to mitigate this, this kind of run, if you like, on those near-term contracts and looking to spread their average duration out now, going out for, I think it's up until the next 12 months or so. Um, an interesting point that I read in the Bloomberg article to, to be aware of, and obviously everyone's been quite sensitive to this situation about coming up to maximum capacity, uh, of cushion And again, there's another tweet I did yesterday, probably graphically can, can help explain that. And this is where we were at as of April 17th. So obviously, you know, things have got even more tight on capacity since that point. But you can see here, this is from the EIA weekly commercial crude oil inventories at Cushing in Oklahoma, and the working storage capacity is around 76 million. So this is that green line, and you can see here how rapidly storage capacity has been diminishing, and that meaning that within 3 to 4 weeks we would probably hit that green line. Hence the reason why people have been panicking in the last week or so. On this point though, South Korea, which is the fourth, um, biggest commercial storage capacity in Asia, uh, was said to run out of onshore space run by two big operators. Elsewhere, Singapore's coastline has become even more congested with oil-laden tankers. So again, they're just literally just sitting there at the moment, which obviously comes at quite a cost in order to avoid the US hub of Cushing becoming more than 90% full in June— May and June, essentially. That's oil. So could we see more downside in the June contract? I'd say likely, probably to be the case. Again, if the USO had now exited all those positions, it's unlikely that anyone, any other type of investor, particularly a speculator, which predominantly backstops a lot of these futures contracts, is going to want to be caught in this big negative route in prices that we had before. Very tricky to try and get out of those positions. So that might mean that there's just a real lack of buyers, and, and that might force the price back down. And obviously when that does happen, it can happen very quickly if it is quite illiquid in that front month contract. Um, elsewhere, next story of note, Federal Reserve last night came out with some more news. So if you thought, uh, they'd taken every step possible, well, they've just gone another step further. Uh, they've expanded the scope and duration, as you can see here from the headlines, of the Municipal Liquidity Facility, a $500 billion emergency lending program for state and local governments is what this is. So a couple of details here. they lowered the population thresholds under which counties and cities would be eligible to sell short-term debt to the facility. And a new term sheet for the program also adds a so-called fallen angel provision, something you might have seen a video on our channel from my colleague Eddie talking about. And it's basically allowing some issuers whose credit ratings were downgraded after April 8th to qualify, provided they had been rated investment grade by two agencies as of that date. So making these exceptional rules in order for it to be more accommodating to, to help them on a more kind of county and city-based level. Earnings-wise, it's been quite a lot actually, uh, to look out for today. HSBC has already come out. I haven't heard of any pre-market calls as yet ahead of the cash open. I mean, I'm filming this shortly after 7 AM London time. HSBC expected credit losses swelled to $3 billion in Q1, almost double estimates. The bank said that 2020 credit losses could swell to $7 to $11 billion US dollars. Adjusted pre-tax profit missed consensus estimate, but like other banks, it has kind of made, made hay with the kind of turbulent nature of markets, particularly through that period at the back end of Q1 in March. They saw a 25% gain in revenue in its global markets unit. The bank's medium-term financial targets, they're going to be assessed during the year. Their dividend will be reviewed at or ahead of their year-end results of 2020, is what they're saying at the moment. The bank pushing ahead as— or pushing back, sorry, with its restructuring program to deal with the virus at the moment. Other banking Names that have been out this morning, UBS, they reported lower credit losses than their peers including Credit Suisse, but sees major income streams being hurt by the impact of COVID-19. And then one other European name headline I saw this morning on Reuters, Germany has agreed to help the airline Lufthansa with a rescue package worth €9 billion, and they're called up about 2% last time that I saw ahead of the market open. In terms of corporate earnings, uh, for today, this is just looking at the most anticipated earning releases in the US pre-market. I'm going to focus on the pre-market because people like Alphabet, for example, which are due to come out after market, I'll be talking about those more later on today. But for the pre-market names, those are a bit small to see, but I did tweet this graphic out if you need it in a bit more detail. Uh, but essentially a few names that I am particularly, um, interested to see how the results come out as, um, 3M, Caterpillar, Pfizer. Now these are the kind of the larger market cap names, uh, pre-market. They are the 9th, 14th, and 29th biggest companies listed in the Dow Jones Industrial Average. They account for approximately 8.6% of the entire Dow index reporting ahead of the opening bell. So definitely worth keeping on the Dow futures ahead of the, the formal kind of US Open. A few things then, as I was talking about this with some of the kind of junior traders yesterday, Caterpillar is quite an interesting one for a macro-based kind of trader or analyst. Caterpillar can be quite telling in terms of its rolling machine orders. We tend to see them broken down into certain geographic areas like North South Americas, the Asia-Pacific region, Europe, and so on. And that gives us a really nice insight as to generally them being one of the largest industrial stocks to give an insight how the pandemic is hitting the sector. You know, the heavy machinery maker is expected to post a 42% drop in first quarter profit and 18% decline in their revenues. And they are very kind of telling, I guess, in terms of their performance. In terms of the state of play economically, acting as that kind of bellwether measurement for general sentiment at that point in time. Their outlook as well will be of particular interest. You know, this is some of the key differences, I guess. So, you know, we are not trading single stocks, but does that mean that I ignore single company news? Absolutely not. I guess the basic lesson here is about to find lining then who has large index market weightings. If there's a cumulative larger proportion, as there is today with roughly 9% or so of Dow reporting, that's obviously going to be potentially meaningful for the futures market, you know. And then you have certain companies that can act as bellwethers, as I said, like Caterpillar. Tomorrow you get Boeing pre-market. Now, now Boeing obviously particularly large as a company, quite highly ranked in the Dow in terms of where it sits in the order in the hierarchy. And particularly because, you know, a company like Boeing, not only does it have, you know, circa 150,000 staff worldwide, but they also work with around 17,000 suppliers who are linked to the company. And dependent on how well Boeing is doing is a little bit of an indicator then to the potential ramifications for the employment sector from a macro point of view. For the US economy. So, you know, these are the ways and means in which a macro kind of trader would look at this type of information, um, as well as going through the kind of line-by-line financial statement. It's more about, you know, that kind of implications for the general economic read across from the numbers we're seeing, and also from any potential index-moving point of view, which they've— they've generally got to be a larger market cap or kind of dominant within a fairly small sector, as we're going to see. I think AMD is another name that's coming out as well this week. All right, so yeah, here, here's the full kind of list of timings. The first bigger companies start kicking off at around 11:25 AM London time. You've got PepsiCo, Caterpillar, 3M. You've also got big pharma stocks, so Pfizer, Merck, pre-market. UPS as well, all ahead of the opening bell. Then aftermarket, probably the main ones you're looking out for: Alphabet, Starbucks, Mondelez, and then actually AMD is reporting aftermarket today, in fact. But again, I'll go after— over the aftermarket ones a bit later. From a calendar point of view, what have we got? Um, not really a great deal here, certainly nothing of stature coming out of the UK and Europe today. Then going into the US afternoon, no major, really major 1:30s. You've got the Advanced Goods Trade Balance number, and then you've got the US Consumer Confidence number at 3 PM, and then the weekly oil inventories from the API coming later on in the evening. So that's pretty much it. I'm just going to quickly go back to this screen again. I'll drop the link on the video. We're going to be doing that broadcast live from 6:30 PM London time. So give us a half an hour run-in to explain how we're going to tackle that release, and then we'll cover it live. We're going to do a bit of a session with Will as well on trading psychology. So absolutely feel free to register and join us, and we look forward to talking to you then. But otherwise, have a good day ahead. Any questions on, on what I've covered, just feel free to leave a comment on the video. I'm happy to help. All right guys, have a good day.