Oil Steadies As USO Extend Average Expiration

Okay, very good morning to you. Hope you're doing well. It's Thursday, 23rd of April. I'm just going to quickly start off by saying, if you haven't done so before and if you're new to the channel, then obviously thanks for joining us. Please do subscribe for more daily content. But here's the Amplify Trading website. So I know we do have a bit of a mixture between people who, who are generally traders who tune in to listen to the briefing but we also have quite a few students as well looking to just generally improve their, their kind of knowledge and awareness of what's going on in markets. So when you're on our home page, there's a couple of different options, but specifically the red and blue ones here for if you are a trader or if you're a student. This is predominantly aimed here at those who are either brand new to trading or those who have been retail trading but are looking for more kind of answers in a sense to us being, I guess, on the professional side of the prop world. 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We already had that capability, but it's the first time we've really kind of— we've not been able to obviously be on the physical trading floor in the city, and so we've done everything online and And so far, hopefully so good. And the beauty has been we've had guys tuning in, you know, working with us from Morocco, from Northern Ireland, from, you know, lots of different places. So, you know, it's been great to have that kind of ability rather than just teaching someone, you know, kind of face-to-face in that sense. So check that out, the link will be in the video to have a look at. But yeah, let's talk markets. Let's just have a look at what's going on. And actually, it's a fairly, fairly tame open, I would say. You know, it's a strange thing, and I was kind of inferring this in yesterday's briefing about that idea that now we've had that massive shock event with oil, I did have a feeling that, you know, the market would become somewhat desensitized to the second time round. I think the other thing we were talking about yesterday was the idea that the June futures contract could be targeted And certainly it was. And now there has been, as we're going to discuss, some movements that's happened to counteract that happening again. So, you know, we were talking about the fact that, you know, what happened to the May WTI contract was probably going to happen to June, and everyone came to that same idea and kind of front-run— front-ran that and liquidated a lot of those positions. That has caused some degree of variance, but we have settled now a little bit in oil. And, you know, as I was kind of saying before, and, and we're going to look at a note in a moment from JP Morgan. I kind of agree with them. It's kind of, look, I don't really think that oil move really is a systemic risk, to be quite, quite honest. I mean, if it were, you would have seen a much bigger kind of correlated fallout in other assets, i.e., say equities, for example. And that really hasn't happened. I mean, we have a little bit of downside, but as you can see here, we had a positive close on Wall Street. The Dow was up just shy of 500 points. We've reversed pretty much half of that sell-off that we saw during this kind of, um, this super contango situation we've had in the oil market. And so all things back to kind of normal in a way. Um, don't get me wrong though, the oil situation is far from solved. But the important point, I think, from a broader market perspective, it hasn't. And now that it's kind of gone over its worst, and people are now more aware of this type of thing outside of, say, specifically the oil market, I think, I think the ability for that story to really rock things has diminished quite considerably at this point going forward. Otherwise, the other asset classes— I mean, oil in itself, this bottom chart here in the futures is up about $1.50, up just over $15. We're going to talk about Trump. He's made some fairly interesting tweets. I get a little bit suspect with the timing given how low oil has been for him to try and bump prices back up again. But as I said, we'll look at that in a moment. Gold pretty flat, technically up and around the peak of the overnight Asia-Pacific high, worth keeping an eye on. That came in at around $1,745. We're up marginally, about $3. The DXY off just a touch, 1/10. So both major pairs, EUR/USD and CAD, just coming up a little bit European participants have come in, and T-notes are pretty flat. Slight underperformance in the Bund. There's been a couple of comments out in regards to the ECB and the FT last night that I was tweeting about. So if you don't just follow my handle on Twitter, I tend to, you know, never stop looking at the news basically. So can be quite useful sometimes. I put out things at some weird times of day just because I tend to be quite glued to my screens at the moment. Might be quite useful for you. But look, let's, let's go through the news because that's what hopefully I can help on. I'll leave the technicals to, to you guys. And starting off with a quick update on coronavirus. I know we've kind of been sidetracked almost, it feels like, in the last couple of days, so, so focused on oil. But you know, there still is this COVID-19 situation, of course. So a quick run-through of some of the top-level headlines, and this has been one of the first ones. So The UK Chief Medical Advisor yesterday spoke and said the chance of having a vaccine in the next calendar year is incredibly small, and until then we need to rely on disruptive social distancing. Now, this is one of the things that we were saying, if you remember, last week in the briefings. I was very bearish when that Gilead Sciences headline came out. I thought the market was over-exaggerating given the kind of emotiveness of the subject matter about finding, let's say, cure vaccine. I was always of the opinion that medically getting that into the point of passing these kind of trial stages and then getting to the point of manufactured and distributed was going to be a very long timeline. So for me, this is exactly what I feel we've been saying in terms of our, our desk's view about the timeline. I've always thought governments have had to balance this kind of, this double-edged sword of trying to politically appear to be in control of the situation, but pretty much every government pledge across every single country has been broken in terms of the deadlines that they had set, whether that be testing, whether that be lockdowns, and all these other things. So to me, this is completely unexpected, but unfortunately the reality is that if, you know, if you were hoping that, let's say, the lockdown being unwound was going to be a fairly smooth, quick, orderly process, and that meant that you could go about your normal working and, I guess, personal lifestyles. Unfortunately, that's going to be not the case. Social distancing, as we said a few weeks ago, is probably going to be a staggered fashion, but over several months, given this nature of the secondary waves that could come apparent, and then until a vaccine might become available later on. So yeah, it's kind of reality hitting home a little bit. And certainly when people talk about the shape of the recovery, this is going to be much more kind of graduated than in terms of how quickly that might happen. But to be quite honest, when we look at charts and markets this morning, nothing's really moving on the back of this because I don't really think it's that unexpected, to be quite honest. And the, the point being now, I think, you know, I get this question a lot, you know, is the current— is coronavirus priced in? Well, yes, I would say it is priced in for all things remaining equal as we are at the moment. I guess the testing time will come when we do actually start to relax the lockdowns in graduated phases, at what point and how severe then is the pickup which is going to happen in renewed cases? That's, for me, is going to determine whether or not the government can strike the right balance and therefore comes the test that they face. You know, the longer it remains locked down, the more economically damaging it is, but obviously the cost is immense. The cost is loss of human life. So here elsewhere, New York deaths were at their lowest rate since early April. Spain's parliament backed the PM's request in order for a further extension of a state emergency aid until the 9th of May. The Treasury Secretary Steven Mnuchin has been out yesterday and anticipates most of the economy will restart by the end of August. Again, this is, this is crazy talk for me. Steven Mnuchin saying the economy is going to be pretty much completely reopened by August Remember, Trump said it was going to be completely open by Easter. Again, I wouldn't really get too tied into the emotional, your political view, to be honest. He says these things because he has to say them. Whether that comes from Trump's order or not, he's just trying to convey a message to the public. You know, it's not going to be completely reopened by, by August. I can tell you that now. But again, it doesn't really impact markets. That's the important point. Remember, politics and what gets said and market impact can be a little bit disconnected at times. Well, let's move on. Let's talk about oil then. I'm just going to do a very quick recap, and certainly things have steadied, I would say, a little bit. We're definitely out of that period of this kind of euphoric movement that we were seeing. And, you know, I was watching the ladder when it did go negative at the time. It was pretty insane watching the movement. But we're looking here on my, my screen is the the kind of active WTI futures contract. So this would be like if you're using a trading platform, the continuation chart. So kind of mapping the front month contract. So it kind of shapes in the, the May and June movement. And obviously we went negative near $40, but we've now steadied and we're trading $15 this morning, which is above. So we have settled as to be expected. And has been a couple of different things that have happened in order to address some of the main problems. And one of the main things that that was happening was this US oil ETF, um, and Bloomberg talking about this, this morning. So basically, one— the key summary here is this: the USO has moved further out the oil futures curve for a second day. Now, we've done some previous videos on the channel, so do check them out, where we've talked about the curve and what that should look like in normal times in terms of contango versus backwardation and extreme contango that we have now. So check those out when you, when you get a moment. But let me just kind of run you through a few different things here. So why, why is this important? Well, the USO is the biggest oil traded, uh, exchange traded fund in, in the world basically, and it's reshuffled a mix of futures that it owns to track crude prices, extending the average expiration date. Now one of the problems that led to what we saw, it was it typically would be heavily geared and it would roll from month to month, the front month contract. But as you saw then, when we have this storage issue that we face now, both in the US and somewhat now globally, it can lead to these massive runs on people just needing to get out, even at a loss let's say, of those, those contracts. And so in order to avert this type of thing, they— the fund, which are the single, single largest owner of WTI crude futures at any one point in they've moved its money into contracts expiring in August and September while reducing exposure in June and July. So basically they've spread out the proportionate futures contracts further out down the curve in order then to eradicate this need to see such a big move like we had 2 days ago. So it's an appropriate move, and again, it's attempting to control the extreme volatility that we, we had seen because it was the near-term contracts that were bearing the brunt of the losses that we, we were seeing. Um, one other thing on the oil front, uh, couldn't be better timing, of course. Donald Trump tweeting a few hours ago saying that he's instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea. So yeah, timing is obviously interesting, just given what's happening. Depressed prices— this type of rhetoric traditionally would obviously support prices because it would be indicative of rising tensions in the Persian Gulf, and the idea of a supply shock in more normal times would, would lift prices. It comes after last week the US military vessels were conducting joint integration operations in international waters in the Persian Gulf, and apparently they were being harassed at the time by Iranian ships of the Revolutionary Guard. So there is some reasoning behind why he's tweeting it, but obviously he's tweeting it, he's keeping it behind, and now he's unleashing it at a perfect time to give markets a again, a little bit of a floor to stop the, you know, kind of forced selling in that, in, in that case. So this is a little bit different to the kind of, I guess, a more function way of which futures markets in the USO work. This is a little bit more in the geopolitical space, which has gone pretty quiet, of course, since it was all flaring at the beginning of the year. How much do I think this would move oil? I don't think a great deal, to be honest. It's a very short-lived in nature type headline. So yeah, it's worth noting. I don't think it's really, really that much of a big deal. One thing though that I did think was quite interesting was, and something that I know my colleague Eddie's been talking about, is, you know, when we're trying to look more specifically to equity markets, I saw an interesting headline citing some energy law firms this morning in the Financial Times, and they were saying approximately half of the 60 independent US oil producers more likely need to review options for securing more liquidity. And it doesn't come as much a surprise, but again, it just goes to show, um, the reasoning why Trump now really has to literally do like a whatever-it-takes situation in order to control this. We talked about that in yesterday's video. There's the various different options he has, and specifically things like utilizing the the Strategic Petroleum Reserve, the SPR, and so on. Um, that JP Morgan report that I was talking about earlier, and the thing, it kind of fits in, uh, in step with what we've been saying. They, they said oil price collapse not a systemic risk to markets. And, you know, the underlying point they're making here is that, you know, technically speaking, there is a reduced weight that the energy sector has in the S&P 500. If you think about oil, oil has been coming down quite dramatically for a period of weeks, months. And so what that's meant then is the associated values of some of the energy-related companies has decreased, and therefore the proportional representation of the S&P from a sector basis has got smaller. So therefore that normal correlation, which is— can be quite tight between energy movement up or down, and that then influencing potentially then a larger component of a stock index like the S&P to track it, uh, hasn't That's broken down a little bit. As I said, we've had this massive move in oil and yeah, it hasn't really sold off a great deal. I mean, uh, sure, 100 points in the, the S&P, but you know, we've already recovered 100 points from the low in the space of 24 hours in, in that respect. Uh, so yeah, I mean, that's, that's what JP is saying. Um, you know, the kind of reduced exposure of the energy sector to the SPOOs, uh, asset purchase programs basically in large scale across many different central banks in the developed world also taking place. And then the physical production adjustments that are happening through OPEC+ and the G20 energy producers as well, which is going to kick in, don't forget, when we get into the month of May is the expectation. All right, the other story that people are looking at, and this is something definitely to be aware of today— let me just check the calendar if they've got time for when this stuff's happening. No, no time as yet, but definitely we'll be keeping an ear out on the Squawk Box for when this starts happening. So there's an EU teleconference call basically happening later on today, and the talk of the town at the moment is the European Commission floating an idea of a €2 trillion plan to support the economic recovery given how dire the situation has become in the eurozone. Under the draft plan, the EU would integrate a €300 billion recovery fund into the 2021-27 budget and borrow around €320 billion on the capital markets. They haven't really specified about the other remaining portions at this point. Italy and Spain are demanding joint debt issuance, as you can imagine. Who are opposing this? The Germans and Netherlands have rejected this over fears they'd be kind of stuck with picking up the tab, you know, so it kind of harks back to the days of the sovereign crisis. Similar kind of friction in terms of the contributing factors then that Germany basically gets lumped with. Um, France, they've proposed a temporary fund financed by joint issuance, and this is quite the hot topic people are looking at. Um, and they're saying it would only be operated for a few years to kickstart the economy. They're very much down the route that, you know, these countries are going to need funds, not loans. Obviously quite different in just issuing money rather than having to have these countries repay, because countries like Greece, Portugal, those that have really suffered over the last decade, they're going to find it incredibly difficult to survive otherwise. Germany and the Netherlands want to offer low-interest loans, which would still obviously leave indebted countries, as I just said, highly kind of saddled with even larger liabilities, which is not going to be a healthy situation for them or the eurozone long term. And obviously There's lots of euroskeptics I know that have been leaving comments on the videos over the last few days. So this is definitely something to watch, and this call that they're having is happening later today. Markets were a little bit sensitive when they passed a previous package of around half a trillion more recently in the last week or so. What would be particularly sensitive is probably Italian paper, so keep an eye on BTP futures today. And also the euro. I would imagine these talks and headlines will probably start coming out this afternoon. But any rumors around that, any lack of progression, more confrontation about the best foot forward, all the time that's delayed, all the, all the longer it's going to be until they can implement some kind of stimulus program to help the economic recovery. And why is that important? Well, you're going to see some economic data coming out shortly, which is the flash PMI numbers for, for the eurozone. Now, these are going to be very important because it basically gives us then insight as to how bad the situation is becoming. Now, are the PMIs going to move the market? Not so sure, to be honest. Probably not so much as you might imagine. Why? Because last month's PMIs were already dropping quite spectacularly. So the fact that they're going to be even more depressed this round. I'm not sure how much of a surprise that is, to be quite honest, but it does absolutely make real the idea that Europe really need to deliver something, and something quite quickly at this point. The other thing here is an article in the FT. I'm not sure if you saw it. I did also tweet this when it came out last night, but in summary, the ECB have changed its rules to accept what we call fallen angel fallen angel bonds. Now what that means is that bonds that lose their investment grade credit rating can maintain access to ultra cheap liquidity from the central bank. So about $275 billion worth of non-financial corporate bonds could become fallen angels by being downgraded below BBB. So when, you know, for anyone who's new to markets, basically when you think about the major credit rating agencies like Standard Poor's Fitch and Moody's, you have a different hierarchy in quartiles. So you have investment grade, and within investment grade will sit AAA, AAAA is the normal standard, BBB, BBB, and so on. But then you get down to the point of, um, being downgraded below the BBB level, and that then— that level is the minimum required for investment grade status. That can have huge implications then for what fund managers need to hold in terms of their quality of the the assets they have from the ECB's collateral point of view to access liquidity. You need to exchange then a certain quality of, of goods, let's say, in a simple sense. So here the ECB are loosening that. So they're basically saying that actually they'll accept lower quality, or at least those who've dropped below that threshold. And that's a move because they know that this is going to happen and they want to reassure markets that, look, that's going to be okay. That's not going to cause a liquidity crisis, and so on and so forth. Any questions on that, just leave me a comment. One of our team members, you might have seen his videos on our YouTube channel, Eddie Donmez, he used to work at Standard Poor's, so he's great at this stuff, and I'm sure he'd be happy to answer any questions if you're unsure. Final thing then, looking at the calendar, other than the flash PMIs I've already talked about, you've got the weekly and Initial jobless claims, of course, coming out of the States. Again, similar fashion to what we've been saying more broadly about some of the other things that have been going on. How important is initial jobless claims? Well, from a, from an economic point of view, is very important, right? Because it's going to be potentially another 4.2 million people in initial jobless claims, and that's going to take the overall 5-week average above 25 million. And obviously that means that payrolls come April is going to be pretty horrific into the kind of mid-20 millions potentially, which is pretty amazing to think of when looking at historical standards. But to be fair, now that number generally is not so scary anymore, certainly not as scary as it was a few weeks ago from a market function point of view in terms of reaction. So Joppa is definitely worth watching, and we will be. The range at the low is about 3 to a high 5.5 expected for 4.2. But I wouldn't be really expecting too much unless we get an outlier shock. If, let's say, jobless dropped to something like 1 million— 1 million is very high, but 1 million way lower than where we have been and what's expected, and a breach of that lower end of the range— perhaps that could be taken as positive in the short term. The jobless not quite as bad. After that initial peak. So we'll talk about that more with the guys as we get closer to the release. Earnings-wise, what have we got? I'm just going to give you a summary. Some of the biggest pre-market names— probably the biggest company to look out for is Eli Lilly. And then going into the aftermarket space, you've got Intel, which is the biggest company reporting. So they're probably the two big names if you're more of a looking at the index as a whole. Eli Lilly, uh, pre, and Intel post-market. All right, that is it. I'm not going to go any further than that. I'm going to wish you guys a good day. Any questions, let me know, and I'll catch you guys tomorrow. Thanks very much.