Oil Rises For A Fifth Day

OK, very good morning to you. It is Tuesday the 5th of May. As you can see, I've managed to get myself a haircut, but I didn't leave home. I took the unprecedented move of allowing my wife to cut my hair, so Fortunately, it appears to have worked out okay. However, you can't see the back of my head, so who knows what type of mullet, what Joe Exotic mullet I've got going on at the back. But yeah, risky times. But, but yeah, just hope everyone is well. I hope everyone is dealing with the lockdown okay. And certainly a couple things I'd like to go over markets-wise this morning. So, you know, if you're new to this channel, don't forget to like and subscribe. Plenty more updates forthcoming throughout the week. But first screen I wanted to start with was this one, which is a tweet I did yesterday. So every now and again I put out a poll. I like to put these polls out when I myself, as I was yesterday, were generally a little bit neutral about what I think for the day ahead. I think yesterday was a day where we had— you remember on the charts, well, you can still see it now if I transition over— got the 3 major indices up here in front of me: the Dow, the Nasdaq, and the S&P 500 future in the center charts. And If you look at the S&P, obviously we had a fairly sizable gap down and a little push lower in Asia. However, as you can see, we have fully recovered that move and some. And I think yesterday was one of those days where, you know, if you came in in the morning first thing Monday, a lot of the press was quite negative about this escalation in the tensions between the US and China. And I think that could have skewed, if anything, your outlook of how you were going to approach the day. So really two things that I would really look at in those circumstances, which was correlations. So what are T-notes, what is gold doing, what's generally the Japanese yen doing? And so I like to see the multi-asset kind of mix and to basically give a higher conviction rate between whether I think, you know, generally sentiment is going to sour and equities potentially could remain further heavy I would want to be seeing these kind of coordinated moves across markets. And yesterday, not a great deal of that. And, you know, the second point being that politically, obviously, we're in a presidential election year. Biden's been taking his fair pops at Trump, saying he's weak against China. And obviously, Trump can't resist but come back at that. And so how much of it is reality, as we've said before? China, like for like, overnight, you know, criticizing Pompeo but not actually criticizing Trump. And same with Xi being exempt from some of the Chinese criticism coming by way of America. So again, they're definitely large significant tail risk towards a further mismanagement and escalation of tariffs. But Jim Cramer, I know people have a bit of a split opinion about Mad Money's Jim Cramer on CNBC. But he was making a good point yesterday, I thought, which was the idea that really there's not a lot of ability for Trump to do further tariffs on China because that's only going to put more jobs at risk, potentially at a point when we're in the depths of the pandemic situation. So a lot of this perhaps a little bit of hot air at the moment, certainly warrants monitoring, of course, but You know, yesterday— and the reason why I'm showing this poll is that, you know, people when I, when I did this were overtly kind of, kind of bearish on their outlook for the week. And that's, that's, you know, we're only on Tuesday, so they might, they might be right in the end of the week. But, um, you know, just that whole idea about being okay and comfortable with having quite a neutral short-term outlook when you're trading intraday and then being able to adapt as the situation evolves, because I think Quite a few people might have got caught wrong side trying to sell into that equity move yesterday when inevitably we just continued higher and we finished up. The Asia-Pacific session is still a little bit, um, down in terms of the general liquidity. Japan, China, and South Korea are all closed overnight, but going into the European session, if I just flip over to the DAX, we are currently trading up about 140 at the moment. And in the DAX, if I just go up the center left, we're just kind of hovering around the high of the range of what we had yesterday. You can see fairly important from a near-term technical perspective, looking at the last, you know, 7, 10 days worth of price action at around that 10,628 level. Any firmer push above, then you'd be looking for an attempt for a gap fill on a push-up to, first of all, uh, probably those lows that were seen on the 28th, and then the eventual move up toward the Friday low levels, which are currently about 140-odd points above where we are at the moment. Certainly not off the cards for, for the DAX in terms of the average ranges that we see in that index. Elsewhere, just looking at the broader markets, the dollar index is basically flat, so not really too many telling signs going on in the currency market for the moment. Uh, we'll have a look at the Aussie in a second because we had the RBA overnight. Uh, gold just seeing a bit of a bump higher as Europe have come in, albeit just still down about $4 on the session. T-notes down 4 ticks on the day, uh, just with some of the general stability seen in the equity market at the moment, uh, with those US indices holding on to positive gains at the moment in the futures. The other market is oil. Oil, you can see here, just looking on a 60-minute chart, uh, I've had that, you know, kind of rough trend line marked up over what has been quite phenomenal recovery in oil. And I was just looking at, you know, where we are to where we have been. And a couple things to be aware of, and I'm just going to run through a few headlines. For one, obviously we continue to go from a south of $10 really level, or $10.30 actually, in fact 7 was the low, and we're now trading up as of this morning at $22. So yeah, two areas really of quite firm technical relevance. The nearest point being the, the breach that we had late in the US session yesterday, which was north of $20.50. That was helping restrict some of the price action through the 1st of May, and then we had a retest before the eventual break that came. That's pushed us back up to consolidate now, up and around the levels that we were trading back on the 21st of April. Above here, if we continue pushing, then I'm just keeping an eye here around 2270, that being the high that we had back on the, the 21st and that low on the 20th. And then I think if you go a bit further back, that does start to bring in as well a similar price point level that was seen back on the 20th of March as well. So I'm interested to see how we react up at these levels now. Why is oil rallying? Well, a couple different things. I'd say probably threefold. And let me just switch over to here. So, fifth day of gains. Output cuts easing glut concerns. So let's focus on that one first. And here's a graphic via the FT looking at coronavirus leads to a big drop in oil demand, but it should recover. And this is one of the things that we were looking at as we go into further into May. The more then that these OPEC cuts, which they had agreed at that meeting pretty much about a month ago now on April 9th, about not just OPEC+, but these other kind of G20 energy countries all getting involved. So the combination of a coordinated effort to reduce production, but also the natural lower price point, just taking off a lot of oil production offline. Is going to lead to this, this very sharp V-shaped recovery in total world consumption, is the idea. So here you can see then, by the time the FT graphic suggesting, citing the EIA, the Energy Information Administration in the US, that by the time we get to kind of June, July, then the production and the consumption rates should have hit a kind of equilibrium in that sense. So again, a little bit of stabilization. Certainly the calendar kind of spread and what we're seeing has started to narrow quite considerably, which is more of a reversion back to normality after that big negative price movement we had about 2 weeks ago. So that's kind of, I guess, point 1. The other points here that people are looking at is this particular comment: Genscape reports only a modest rise in stockpiles at Cushing. So for anyone new to energy markets, every week there's basically 3 pieces of information that we look at from an inventory perspective. Monday we get the Genscape reading, then we get the American Petroleum Institute, the API's inventories, which we'll get later tonight at 9, just after 9:30 London time, so very much later in the evening. And then we get the Department of Energy's, the DOE's, inventory numbers, which are the main kind of more market volatile release because it's dropped right in the middle of the session, and that's the kind of main event, if you like, for the weekly crude inventories. So the Cushing one specifically though focuses on Genscape, and it reported a 1.8 million barrel build in inventories at Cushing, Oklahoma. That would mark the smallest increase at the hub since mid-March. Remember, Part of what caused this whole oil situation, negative prices, was a lack of storage and this idea that we were closely getting towards maximum capacity. But what the Genscape data is suggesting is that yes, there are builds, but they're becoming ever more smaller, which is a more positive sign as well, that the actual getting towards hitting capacity is going to be slower. But also as well, hopefully then if consumption can start to pick up again and demand pick up generally, as what we're seeing with coronavirus lockdowns now being talked to be loosened across the globe, well then hopefully that can offset then some of this storage issue going over the next period of weeks and months. I guess there's probably a question of, well, who are Genscape? Other than having this super cool looking website, they're the world's largest private network of infilled monitors and distribute industry-leading alternative data Uh, so market intelligence essentially, but in a more real-time fashion. Um, who actually has visibility on the Genscape data? This would predominantly be oil specialists, those who need it in industry. So big oil firms, transportation, these types of things where you really need to be tracking it because a large volume of probably physical movement, as well as, you know, these, these power companies actually looking to manage and hedge their positions and so on. So does it get much of a look in from a, from a trading intraday point of view? Yes, people do look at it, particularly in the context of now when Cushing obviously is such a hotspot, but people are keeping an eye on in the crude market. So hopefully that makes a little bit more sense. So Genscape on a Monday, API on a Tuesday, and DOE on a Wednesday. The other thing then that's probably assisting some of the oil recovery is— we're looking at this, which is the update on the coronavirus situation. So several countries have turned the corner with a number of new cases now in decline. So just going to give you an overall kind of summary of what the situation is. So in America, California, which was the first state to go on lockdown over COVID-19, will start loosening its lockdown on Friday. Retail stores are set to open this week. Then in New York, I saw the number of daily coronavirus fatalities— well, this is not for New York, for the US— fell below 1,000 for the first time in more than a month on Monday. New York also seeing some signs of progression as well in terms of controlling the situation. Italy, they began to reopen its economy after 2 months. Spain has started to relax its lockdown regime. And Hong Kong's leader has said the city may relax virus restrictions soon. So we're all kind of getting to that, to that point. And obviously that's probably also having a little bit of a general supporting factor for markets overall. I don't think it's definitive, but at least the situation at this point is not getting worse. Obviously, as we've stated many times before, we are far from out of the woods yet. In terms of the potential repercussion that any mismanaging of the unwinding of these, these quarantine measures being put in place could have further down the road. But for now, things are relatively okay. Um, elsewhere from the overnight session, we've had the RBA come out. They maintained both the cash rate and 3-year bond yield target at 0.25%. The Aussie It's pretty much neutral to where it started. Initially dipped, it rallied a decent amount, uh, hit a high when Europe came in. Now it's backed off a little bit. So pretty mixed really. I would say overall no real great surprises coming despite a variance of perhaps 25-30 pips in the, in the pair's price movement. The bank said it's prepared to scale up these purchases again in terms of what it's been actively doing in unconventional measures, and they'll do whatever is necessary to ensure bond markets remain functional. They decided to broaden the range of eligible collateral for its operations to include Australian dollar securities issued by non-bank corporations with an investment-grade rating. All in all though, they're bracing for an economic hit. They haven't done anything spectacularly new, but but similar, I guess, to what we've had from other central banks of late, and pretty much in fitting with what economists were expecting from the RBA. So net-net, not too much there. The other thing that's— that some people will be looking at today that isn't kind of on your mainstream calendars is this, and this is the German Constitutional Court is about to rule on the legality of the ECB's QE program. Now I've got here a bit of a short summary because a lot of this might be new for some of you, so I want to kind of wrap it up as to general terms, what we're looking at here. So the ECB is not subject to German law, but if you think about the way of which the Eurozone works is that every single member of the Eurozone has its own national kind of central bank. So in this case, in Germany, they've got the Bundesbank. So the Bundesbank though has to adhere to German law, albeit then on a top level the ECB might not. So what happens on this level can though have a precedence on what can happen then on a European-wide level. Now that's because— and the reason why it's such a big deal is that Germany's central bank is the largest shareholder in the ECB. If you think about more broadly the way the ECB functions in terms of things like quantitative easing, well, you cannot ask or expect a country like Malta to be contributing the same in terms of funds than someone like Germany. Economically, they're just so wildly different in terms of their ability and capacity to be able to do so. So therefore, it's more of a proportionate basis in this sense. Um, a no ruling from the court today would therefore take the eurozone into legally uncharted territory. The ruling was expected to happen actually about 2 months ago, but the court postponed as part of the broader coronavirus lockdown. They argue that the ECB is overstepping its authority with the QE program and removing the incentive for EU countries to pursue sound fiscal policy by creating then this ever-expanding safety net. You know, if you think about it, reading between the lines, then Germany are paying more. The biggest beneficiary of that is Italy, and a lot of people in Germany have a problem with that, um, as probably that you can imagine. So herein lies the problem. The worry, of course, is the negative ruling could throw some doubts as to the newly announced €750 billion pandemic emergency purchase program from the ECB, the PEPP. However, the ruling won't formally cover that particular policy tool, but the court's reasoning could hold implications for it, you know, as per— I'm sure you guys are more broadly aware of legal proceedings— you can set a precedent then depending on how this is dealt with, what it might mean then for other options that the ECB might have for QE going further forward, particularly this idea then about if they are going to expand the QE program going forward, then there's probably going to have to be some tweaks into how the ECB's purchases are conducted. And this is where then the issues could lie. So yeah, I haven't— I'm not sure on the calendar if they've got a time for this, but obviously you've got my Twitter handle there. Just follow me. Any timings I get or any hearsay rumors and so on, I'll keep you posted. I can see here on the calendar they've got the German court ruling happening at 9 AM London time. So I do suggest you keep an eye out for that. I'm a little bit unsure how much reaction you'll get, but I prefer then, by conclusion of that statement, to sit on the sidelines and just wait for that, to let the clarity emerge of what the exact ruling is before then committing to anything too, too brash on any euro-related moves at at this point this morning. That's pretty much it. So a quick look at the calendar. What have we got? So other than that court ruling, RBA is obviously done. You've got the UK— these are final readings for the service PMI, construction PMI. And then we go into the US afternoon. No real major 1:30s coming out of the States until we get to the afternoon. You also get the service PMI from the US, again final reading. API inventories coming later on this evening. Speaker-wise, ECB's Mersch speaking at 9:40, then Fed's Evans and Bostic speaking, speaking this afternoon, evening. But just a reminder, they are both non-voting members of the FOMC this year. And then from a US earnings point of view, I guess if you're an index trader, not really too much risk there. The biggest largest cap names: Walt Disney, Dominion, Allergan, uh, more for the single stock traders out there. All right, that is it. So unless there's any questions, let me know, be happy to pick them up, or just leave a comment on the video. Remember to like and subscribe, be much appreciated, and I'll see you same time tomorrow. Thanks very much, guys.