Oil Remains Heavy But Stocks Stabilise

Okay, very good morning guys, it's Wednesday 22nd of April. Hope you are doing well. Before I begin, just wanted to address a few questions I had yesterday. Just given the kind of historic movement we've been seeing in WTI crude futures, I've had lots of questions about you know, timing-wise and what type of equities from an energy sector point of view could be good to look at and so on and so forth. So what I did yesterday was— this is our YouTube channel, so if you are new to this channel and these briefings, please do subscribe to the channel for daily updates. But one thing I did yesterday is I spoke to Eddie, the chap you can see there. We've just released this new video last night entitled US Oil Price Crash: The Winners and Losers, and he really gets into some detail and explains because he is much more focused on, say, a micro level than me on a macro level. And he's kind of combined the two and identified a couple of potential companies to just keep an eye on, both from those who could be at risk from a further potential tidal wave of bankruptcy to those who could be potential winners in this type of situation. So yeah, check that out, it's on the YouTube channel. Just go down to the second kind of playlist and you'll be able to see it there. Otherwise, the other thing that we've had Well, a few things. We've obviously had our first fully online interactive group that started on Monday, and what a time to start learning about financial markets. So for those interested, check out our website amplifiedtrading.com. We have basically an on-demand e-learning portal which you can kind of pick up and go anytime, but the guys that started on Monday are doing an intensive online training because obviously everyone's in lockdown at the moment. So you can get more information on the website for those interested. And then, yeah, excuse the shirt. I wouldn't normally sit here wearing a freshly ironed shirt, satin, at home, but I'm going to be with some of the grads at Citigroup. And again, I'm going to be doing that fully virtually, so joining their team and delivering a little bit of an update. So I'm quite looking forward to that as well, given everything that's been going on. But let's talk markets. Let's get straight into things. This was the, the close that we had on Wall Street last night, and again, quite a negative day once again. And most Asian equities overnight following suit on relatively low volumes following the general risk-off finish to proceedings in North America. Underperformance, you can see a little bit, it's only slight, but the tech sector— so some of the big, big guns, Microsoft down over 4%, Google similar, similar amount, Amazon and Apple down about 3% margin. Remember yesterday there was that news in regard to the Trump immigration ban, uh, and just generally the dependence that that sector has on that particular demographic to support its workforce. And you know, if you remember back to when 2016, when Trump actually won the election, there was some quite immediate, um, kind of sector movement on the back of that, and tech was one that got hit but quickly recovered. And we did see a little bit of that kind of knee-jerk reaction yesterday. Other things that, that have come out are White House and congressional leaders have basically passed $484 billion of an interim economic stimulus package. Again, this is more kind of aimed at small businesses, really striking at the heart of what potentially could be the main issue from an employment situation, and obviously looking to assist hospitals going through this challenging time that they are at the moment. Trump also— his administration said to be working on plans to make money available to the oil industry to prevent any further potential layoffs. And you've got to think that those layoffs are forthcoming, just particularly now, almost accelerated by what we've seen in the last 24-48 hours, but was already an issue given the massive demand shock we've had from the lockdowns, of course, being stringent, and that kind of demand shock or demand destruction that we're seeing at the moment is going to put some companies unfortunately out of business and lead to job layoffs. Overnight as well, if you're looking in the FX markets, the Aussie had a little bit of a blip overnight and it started to rise again just as European traders have started to come to their desks. Better than expected retail sales data just triggering a bit of unwind of some short positioning and just helping us squeeze up to the R1 in Aussie futures this morning. But overall, quick, quick glance at the charts. I'm not going to spend too much time on this. One thing I did want to quickly mention, because we were talking about this with some of those new traders that are with us just for the week worth of training, and it was looking at this, the way of which the S&P has been performing. So obviously we've been on this pretty decent bounce in the US equity market. I think if we just put it back here and We got up to that area that you can see from the October low, uh, the bounce and sharp bounce that we had at the end of February, uh, before then we came kind of crashing down and the continuation of that fall from all-time highs. Now where we're at at the moment, um, you can see that 50-day moving average is the blue line, but then more so that area of previous support now kind of turned resistance. It's really in fact failed to really get substantially above that point. We've had quite a decent pullback back obviously through 2,800, and that 50% fib of that entire, uh, all-time high to March low that we, uh, that we saw. Now what we'll be looking at more short term then, as the market's been coming back down, it's just generally its behavior. And here you've had this kind of movement where you can see I've put some ellipses here on really two points, and that's this kind of price level around the 2,800 handle and then a bit lower down around 2,750. And just the way the market has been behaving in terms of support, support, then I've put a rectangle here. The breach comes back up to the tick of the same around point that's been a reference for, uh, the previous week and a half or so. Before then, you get more of a directional move as we come back down. And then timings-wise, I mean, a little bit different in terms of the actual execution, this being an overnight Asian session, uh, this being more so around the midst of the US session, but it's the technical setup and the way the market has responded. Push, and then we come back up, and then we eventually grind it down lower. We test— we— and you can see the, the kind of the, the rationale behind the price reacting to around these levels at 2750. Then we push back down, get close back to the lows on the 13th, before then coming back up to that point to then push back down again. And then we're right back to that kind of level at the moment around pivot. So there has been some opportunities, definitely. And, you know, rather than try to catch a bit of a falling knife with, with tackling oil, which is insanely volatile at the moment, you know, I think it's more astute sometimes, or prudent, to be looking for other potential plays that could be less associated risk of just seeing these big massive moves in, in price. The other thing has been gold, and, you know, it's more of a word of warning that I was issuing yesterday than it is of anything else. And that was we had this, this kind of immediate blip, kind of late European morning, where the price just dropped about $20 pretty quickly with no rhyme or reason really. I mean, you could say perhaps a break of the Asian lows and so on, but it was, it was pretty rapid. And actually, I think one thing to be aware of here is, you know, remember when equity markets were getting hit during the period of March And that was leading to these massive shakeouts in the gold market where, you know, the kind of necessity to free up some available cash to meet margin calls was a real thing. You know, don't forget there is going to be some definite casualties from this oil price rout that we've had. And so for sure you could be susceptible in gold, although it would be counterintuitive because you think generally risk-off should support the price. I think you just got to be mindful of that type of price move from yesterday was quite classic of what we saw in March. And the more that oil price becomes a complication, the more that I think a couple of funds might run into a few issues, and therefore you could see some of that similar type price movement in gold. So I guess from a practical point of view, just going to be a little bit more savvy about the duration if you're trading intraday of holding those open positions of risk if you're looking at the gold market. Perhaps we want to be a little bit more shorter time frame to not have overexposure to kind of headline risk in, in that sense. Um, but look, let's get, let's get stuck into a couple of headlines. There's a few things I want to go over for sure. Um, this is what the headlines in Bloomberg are saying. So Brent futures for June delivery lost 15% to trade near $16 a barrel, while WTI fell 5%. This is looking at the overnight movements. This of course comes after the June contract WTI lost about half its value on Tuesday. And again, we talked about this pretty much at length, so I'm going to go into too much detail again. But we were talking about the idea of why June was going to be no different really to what we've had in the last couple of days for the May contract. And the only thing that happened is everyone came to that same conclusion we did yesterday, and they were kind of front-running it, liquidating those June positions to try and just offset what is going to happen, uh, in a few weeks' time. So, um, again, the global demand being, being hit severely by coronavirus, um, the overwhelming kind of lack of storage facilities in, in Oklahoma, in Cushing. Crude inventories— we had the API inventories last night, they were up for the 13th straight week. We had a number of 13.226 million The Cushing number was about 5 million. The OPEC+ coalition did hold an unscheduled call yesterday. However, the outcome of that, basically through their discussions about this current price situation, they signaled they didn't have any new policy measures at this point. And, you know, that's something we talked about as well, is the idea that there's nothing much really they can do The kind of real payoff from the agreement that they made back on, what, the 9th of April isn't really going to start kicking in until well into May. So at the moment, if they deepen that promise, I don't really think it's going to have much in the way of an immediate effect that they, they would want. And so therefore, this isn't so much an OPEC thing, it's more of a storage issue which is causing that specific WTI issue. In the futures market. Um, so yeah, I mean, that's, that's the current, current situation. But let's look at a couple of different things. I mean, this was, you know, just a couple of graphics to, to really summarize of what I've just been saying. So here you can see Brent has been trailing WTI, but it is kind of being dragged down in the noise with the move, if you like, albeit obviously the, the selling pressure definitely more evident uh, in the WTI oil product. US total oil storage, you can see here, and this will be something which I'm going to talk about, a couple of options potentially the US can deploy to help this situation. So this might be quite useful, this graphic on the left. But as you can see here, in terms of the, the US total, um, it's about 57% at the moment. But if you look at Cushing, which is obviously so critical, that's about 70% full at the moment, and on current rates would due to hit maximum capacity in only a couple of weeks' time. The huge time spread on WTI— so this is looking at the 12-month forward spread. So again, we're looking at this, this idea about these extreme contangos where, you know, normally the curve over time would be like this, but we're seeing this quite unusual period at the moment. So this is something I know Piers was trading, this time spread, yesterday. So if there was any questions, you know, just drop a comment in the chat and I'm sure he can, uh, he can help. But yeah, that coupled with the, the infantry build situation is just making matters somewhat worse. But it does lead to question then, well, how can this guy help out in this current situation? This is obviously President Trump, and he was somewhat the dealmaker to get the, the OPEC deal over the line, uh, at the beginning of the month. And there's a couple of things here which I thought were quite interesting that Nothing particularly new, but I think just to summarize all the points in one place, the FT did a pretty good job this morning. So the options that Trump basically has, because, you know, think about his overall objective, which is basically to save the oil industry, which in the end is about saving jobs so that the economic fallout is not so devastating as to impact then the probability of him securing a second term. That's basically the, uh, the, the summary of what his goals are. Now Trump will be pushing on the likes of Saudi Arabia to be cutting again. And don't forget the way that kind of, um, geographical relationship works between the US and Saudi Arabia is that it's almost a, you know, dependency on one another in some respect, but particularly Saudi needing the US from an arms point of view, from a military protection in the Gulf region point of view. And so, um, you know, at the end of the day, what Trump wants— Trump tends to push, uh, put the pressure on. And it'll be interesting to see whether or not he can do so to get Saudi to do a little more. I'd say at this point, probably not. And for the reasons as well, I don't think Saudi would really respond given the, uh, the fact that what they would do now really is not going to have too much of an impact. Because as I said, it's not so much on the supply side, it's more the demand, and then when the supply side kicks in in a few weeks. The other part here is the federal government. They've already talked about this a little bit, which is they could buy oil to store in their Strategic Petroleum Reserve, so the SPR. In theory, the SPR has capacity for almost 800 million, but could go up to a billion according to some analysts if needed. A third point would be government to buy oil that producers leave in the ground until prices recover. Now at that point, producers extract and sell the oil for a higher price than the government paid them, and they repay the government. And so that could be another kind of another way of dealing with this issue. And then supported by the API and other US supermajors, so Exxon, Chevron, and so on, one thing they've talked about is basically just letting market forces take their toll that's going to then basically lead to a whole slew of bankruptcies of these smaller firms in the energy space, um, and therefore naturally production is going to come immediately offline. Now the last one I think is probably the last option that Trump would ever want to entertain because obviously that leads to massive job losses. You can understand why the likes of Exxon and Chevron want a piece of that action because then they can be like the vultures picking at the carcass of all these other firms. And kind of like the financial crisis, you know, one of the, um, one of the negatives that actually came out of that in, in the long run was that a lot of these smaller regional type US banks, um, went bankrupt. And what that meant was that these really big banks, your JP Morgans and so on, started gobbling up, consolidating the banking sector, which then inevitably leads to the issue of now, if they were too big to fail before, well, they're definitely too big to fail now because ultimately they've just accumulated all the assets of these other banks. And what was a big bank is even bigger, even more systemically important. Uh, so kind of a little bit same but different in, in ways. The thing about the energy sector, uh, would be obviously, you know, from a competition point of view as well, you don't want certain companies having too much power a monopoly on markets, and particularly in one specific country. But that's probably the last thing on the list. But yeah, I thought I'd summarize a couple of things. And I think one thing from a trading point of view I want to stress is that, um, when this first happened 48 hours ago, I think everyone was scratching their heads a little bit. And generally, if you're in the retail market, probably more so thinking, you know, how can you have negative oil prices? What is going on? What's the problem? The price is tanking. You know, you're seeing headlines like oil's dropped 300% and you're thinking, this is insane. You know, this for us at Amplify is bread and butter because, you know, we have guys who trade this type of product spread, you know, and for them, we will manage to put out an excellent video at the time it was happening. So One thing I would say though, from a practical point of view, is that markets generally will become probably more desensitized to this problem as time goes on. And that could be pretty quick. Over the next day, I would anticipate that, you know, equities which were coming under some pressure yesterday as this June contract was getting somewhat liquidated— I think, look, if June goes to zero today, which could happen, is that going to be that kind of massive signal to just start shorting equities? I think that that gets less and less over time because now it's, you know, people have rationalized the situation more. There's less panic. And I think if it does happen, it's not a massive surprise anymore like it was 2 days ago. So with that being said, now equities have stabilized. Uh, if that June contract does see— and it has done already today, it's shifted, it's gone from 14 overnight to 10 at the moment. So these are still massive moves, but if it goes to zero, I don't think that's necessarily right. I want short equity straight away. Obviously it depends how severe these moves are, but you did see a little bit of risk-off yesterday emanating from the oil price movement, but I think that now markets will start to get over that a little bit. And I think you're seeing that this morning. The dollar is coming off a little bit. That flight to quality, quality bid to the reserve currencies dissipating. Both major pairs in euro and cable are moving up a touch. Gold's not really doing a great deal, just sitting around the 1700, and T-notes are flat. So it's a little bit different setup this morning, even from a sentiment point of view. And if anything, equities are ticking back higher and One thing I would say is that from an equity perspective, I'm actually, you know, the size of the sell-off in the S&P, I think, has been relatively small, all things considered. We talked a lot in recent weeks about could oil be, if it got down to these lower prices, you know, the kind of straw that breaks the camel's back in the equity rally that we've had. But it hasn't. And so I think that's quite interesting, actually, because we've gone through the early phase of earnings season. It hasn't really shook the market too much, albeit some of the numbers have not been pleasant by any means. But the market, even with this oil rout, hasn't sold off a great deal in my mind. So on that point, one thing— I'm not, I'm not saying that they're absolutely right with this, but it's an interesting point nonetheless. Um, Bank of America, they've been out with a research note overnight. They said the S&P 500 is to hit fresh lows if volatility pattern holds. I'm going to show you two charts that they're using. This is one. They basically said— I know it's a bit small here, but basically they're looking at the VIX and they're looking at the different paths of bear market rallies in 1987, 2008, 2002, and the current path. Current path being this one here. And they said the last three major equity market sell-offs saw bear market rallies of 15 to 25% over a 1.5 to 4 4 months since the peak vol. Uh, the S&P has been tracking the 2008 rally since the 16th of March VIX peak, which suggests upside up to 2960, about 5% up from where we are at the moment, before a potentially lower bottom. So again, this idea that we are— then they're suggesting yes, we can go up a little bit more, we can in fact get above the highs we were trading just a few days ago, But ultimately, this is still a bear market rally if these historic price patterns were to repeat themselves. Now, what they're looking at here, and I have tweeted these, my handle's here if you want to look at them in more detail, but this is looking at the story of volatility spikes and the subsequent mean reversion, visualizing historical primary and secondary VIX spikes and exponential decays over the last 3 decades. So the point being here is that, you know, you get these big ramp-ups like you had in obviously in the global financial crisis when Lehman went bust, and then you get this big spike and then this fade back to just generally where the VIX tends to sit, which is more kind of just sub the 20 level. And we've had this big pop akin to a similar type level, and now it's fading in, in that respect. So yeah, a couple of interesting points. Obviously Bank of America suggesting we're still currently in a bear market rally does fly in contrast to the likes of JPMorgan and Goldman Sachs, who've basically said, you know, we bottomed out now and this is it, we're kind of going to move higher or stabilize at these levels. So yeah, always think about what everyone's saying, not what one bank is saying, is my advice in this respect. But quite an interesting observation here from, from Bank of America this morning. One of the earnings I just want to talk about just very briefly last night was Netflix. Not that Netflix— well, I usually say not that Netflix is a big company. I think its market cap's probably near a $200 billion, probably over that now given the earnings report last night, because their shares shot up about 12% after market last night. I actually added about 16— I think it's 15.8 million subscribers That was against a street estimate of $8.47 million, a company estimate of $7 million. Again, the number was— it's almost 16. So phenomenal numbers. And obviously this all coming amid the, the lockdown and people being at home and so on. And obviously this guy making a big difference, then being able to tap into the reality show kind of market more successfully. Joe Exotic getting it done. For Netflix. Um, but what is there to come as far as earnings are concerned today? This is kind of the list divided into two divisions, pre- and post-market. The highlights pre-market, you've got the likes of AT&T, Biogen. Aftermarket, no one huge from a market cap point of view. CSX, Las Vegas Sands, these were all kind of around 30-40 million billion market cap. From a, from a calendar point of view, we've already had the inflation metrics come out of the UK. These are, well, haven't really yielded any way of surprise. I think just given some of the movement that we've seen in energy markets more, more broadly, the year-on-year core figure was in line at 1.6%. The actual year-on-year, um, or month-on-month CPI in the UK was zero. That was in line. The year-on-year 1.4% 5, which was in line. So nothing really surprising at all in that data. And as we go through the rest of the US session, it is pretty quiet. I mean, you've got the oil inventory numbers. We're looking out for another pretty sizable build for oil, which is just another headwind for price on the intraday, uh, just given the already fragility we're seeing and volatility in that market. So expectations are for 16.1 But obviously last night, um, we came in at what, 13 on the crude inventories? I think it was, yeah, 13.226 million. Cushing was just shy of 5. Gasoline 3.4 to still at 3.7.4. Um, the top end of the range here though is a, is a 21 build, uh, just to make that apparent. Um, so yeah, that, that's pretty much it. So I'm not going to talk for any longer. Again, any questions, just let me know on the, the comment section on the video. And then hopefully you'll subscribe to the channel, check out some of the other videos. The one from Eddie, I think, is particularly relevant for the current market conditions, particularly if you're an equity trader. So do check that out as well because he also talks about the potential knock-on ramifications for some specific US banks who obviously are loaning this debt to the shale industry. And if some of these companies start going bankrupt, that's going to be problematic for them as well. So definitely worth seeing his explanation that he goes through. All right guys, that is it. I wish you a good day and I'll see you tomorrow. Thanks very much.