Texas Oil Patch To Resume Operations As US Temperatures Moderate (Forex, Stocks, Commodities)

Okay, very good morning. Happy Friday, the 19th of February. Hope everyone's had a good week. Uh, usual routine, going to get up to speed to look across the charts and some of the headlines from overnight to hopefully give you a bit of a framework from a fundamental perspective for the day ahead. But overall, we had a lower close on Wall Street last night, and we closed down 0.44% in the S&P, around a similar margin the Dow and the NASDAQ. So fairly broad but moderate losses seen in the US, and that then followed on into the Asia-Pacific session. Generally lower in the region, but as you can see here in the center charts, got the DAX left, NASDAQ center, S&P futures on the right. We've had a bit of a kind of U-shaped recovery in some of the short-term price activity. So this is one of the first things I wanted to kick off on, was this idea that this week I definitely feel like there's been a lot more conversation or focus in the media about, you know, are equities due for a bit of a pullback? Is the catalyst of that rising yields? And that's making, you know, some people nervous about the ability for this market to sustain its current rally. And, you know, an observation we've talked about quite a lot is the kind of short-term dip buying and the aggressiveness of reversals. And there's a few things here. For one, you know, the behavioral pattern of price movement that markets move faster down than they do on generally the grind back higher. And yesterday was a case in point. You know, we had the jobless claims, albeit showed a deterioration in the situation in employment in the US. Jobless claims were above the top end of the estimates, and the market came down quite quickly. However, you can see here by the close on Wall Street, we'd taken all of that back. And we've seen that on a number of occasions. I mean, if I just quickly put an ellipse around— kind of here was yesterday, this was earlier, the day before, the day before, this was then going back to last Thursday, then it was the beginning of last week. Now, nearly every occasion this market goes down, and almost the more violent it goes down, the more violently it kind of springs back. I mean, you can see here, certainly in the last two sessions Definitely, you know, I wouldn't think or say that this strategy is kind of bulletproof, but I think for me, when you're asking that question about how does the generally the market feel overall on the balance about the sustainability of the equity move higher, I think a lot of the reaction effect to when markets move down says it all really. I think key levels to watch here are important. And we haven't yet over the month of February, really, once we broke above and out of this top end on the 5th of February, it's been a pretty decent level. You can see we have snapped through it but failed to close below it on a couple of occasions on the 10th, the 11th, and also yesterday's session. So that's going to be a key one to look out for over the kind of medium term. We're quite well above there at the moment. And as long as that holds, I think at the moment this S&P has got a floor under it, uh, to help support it. But even then, you know, if we start to pull back lower and there is more aggressive corrections, then I think still probably the next level here that's most clear, you'll get a degree of, of dip buying, and people will come in if there is an aggressive about-turn in this market. And, you know, just looking here in the S&P, 3860 you've got those previous— what would have been all-time high double top, the break and test support, and then the push-up, which is seen as the next level. So yeah, I've not, I've not lost the faith just yet, uh, is my current perception. As far as the more near-term price action is concerned, again, we have been edging down. The, the kind of highs are becoming lower at this point, so definitely I'll be interested to see how we play out in the US indices later on today. But yeah, back to flat basically. And the DAX future in fact slightly positive. We did have in the DAX a slight breakout this morning over a trend line of the last 48 hours price action first thing. And we've come back down, you can see there, to just test back on the trend line here this morning. So maybe just worth keeping half an eye on here on the DAX. As well. Any further break on the upside, uh, there you've got around that area of those, those two price points that were highs in the morning of yesterday's session, and that'll be at 13,953, and then a higher move above, uh, the high that was seen kind of midweek, and then the R1 just above it should we continue any upside there in the DAX. Otherwise, in the currency markets, um, gonna go back to that chart we've looked at a number of times this week, which is the dollar index over the long term. Which is that trend line, which I think continues to be particularly important to watch, particularly this morning where you've got the eurozone flash PMI data points, which could just be enough to— given the fact that we're sat right on that trend line and it's been so important for this week, really, price activity in these major pairs, whether it being resistance at the end of last week, beginning of this week, or or support as it has done over the course of the last 2 sessions. Now, if we were to get a really strong surprise in the eurozone PMIs, is that enough then to bump then the euro up, consequently the dollar down through that trend line, and we start to see some, some continuation of the general lower trend we've had over the last 24 hours in the Dixie? If that does happen, well, what does that translate into? Well, in terms of cable here Cable has a really nice level of support at 1.3953. Looking at the sterling future here, that played out really nicely actually. In fact, in the overnight Asia-Pac session, you can see here the response. We've had a decent 40-pip reversal off that back to the kind of range high that we've been printing for this week. And of course, in close proximity of 1.40, so any push above the upper boundary of that price action later on today. 140 is the, the kind of psychological target above there. Otherwise, in the euro, similar kind of setup where we've got a pretty decent line here of near-term support to price. If I just move this over so you can see the areas I'm looking at here, going back to the kind of 8th, 9th of the month, the support area on the 12th, again on the 17th before the breakdown, the backup for the kind of pullback on the classic before then the move back lower. And so yeah, 120.89, a good level of support. Again, the overnight Asia-Pac session based on those previous reference points. And as I was just saying, this upside level here, which you can see has, has some previous area of significance as well for price, would be key to keep an eye on. 121.04. So they would be key things I'm looking out for Again, just to be clear, if the PMIs are strong, which would be probably a decent type reaction in euro appreciation if the German-French figures are that way, because I would say on the balance the consensus estimates are for a slight deterioration from the prior month, given the fact that really vaccination rollout in Europe has been relatively slow. A number of those big economies are still in fairly strict lockdowns at the moment. So one would think that, um, the market's probably erring on those numbers on the side of pessimism. So a positive surprise probably has a high impact value. And if that does then materialize, um, it would be quite interesting to see if we do get any kind of break above those levels and then maybe a push back up. You've got the R1 sat here at 21.19, uh, just above there would start to bring in some of that range play as well from last week and the week before up here. So yeah, definitely quite easy to watch the currencies this morning. Otherwise, elsewhere, oil prices definitely quite key. And let's, let's, let's literally drill down into that a little bit more and, and talk about that in more detail. So the, the story of this week has of course been what's been going on in the US where record low temperatures have basically resulted in a huge unprecedented loss of oil output in the US, tantamount to 40%, 4-0. And that has then seen a dramatic rise in a lot of the energy space, nat gas, oil prices. And so irrespective of what Saudi are saying about reestablishing, let's say, a million barrels per day of crude. Really, that pales in significance in the near term because the more existential impact on supply and demand is coming from a huge monumental size loss of output short term that's being witnessed in America. So we had a big ramp up obviously going into, uh, what was towards the end of last week, and then we've kind of remained bid as well over the course of the last 2 days. And then yesterday we, we sold off quite aggressively. Now, a couple of things I can update you on, on this. This is some of the headlines then. The Texas oil patch is slowly restarting wells after the deep freeze. So Marathon Oil, Devon Energy, uh, Verdon Oil have begun using restored power from local grids or generators to restart output across the Eagle Ford shale basin that was halted by the frigid weather, according to people familiar with the matter. Now, a couple of things here then. Um, oil traders and executives have said they hoped that most production lost will return within days. And the reason for that is as temperatures rise and power becomes available. They have warned though that a small percentage may still be shut down longer due to repairs. But that does then lead to the, uh, a question of of weather. And, you know, some of the discussions that Tim and I were having with the community on Amplify Live yesterday were about, okay, what's the best ways and means of tracking this type of thing? And the National Weather Service, I would say, if you're, if you're not in ability to pay money to have privileged access to a lot of the more granular level detail, the National Weather Service do a pretty good job at putting out fairly frequent updates and giving you forecast projections over different time frames. Like 4, 8, 12, going out to 2, 3, 5 days out temperature patterns. And, you know, this is it here. So their latest update, the slow warming can be expected across the southern US going forward. So temperatures are beginning to moderate in the south. And so this is what's acted as a bit of a bearish factor for crude oil prices in the last several hours. And that's seen the price go from north of $62 in front month futures down towards, you know, sub-$59 in a price point. Now, a couple of other things then. We mentioned just briefly there that Marathon Devon Verdon Oil, they're looking to restart output across the Eagle Ford shale basin. Now, I guess a good thing to become more familiar with then is the kind of lay of the land as far as the lower 48 states shale plays. And if you're looking down here, Eagle Ford is here, and you can see most of this then concentrated in the area around Texas. So Eagle Ford, you've got the Permian Basin, which is the largest. You've got the Anadarko Basin sat just above there as well. So, you know, when you're mapping, um, US oil production in— and weather temperatures, it's kind of similar to when you're looking in the Persian Gulf and the Straits of Hormuz in terms of let's say, geographic sensitivity. So here the geography would dictate where the, the kind of deposits in the basins for shale, which you need to track. And so whether or not here on the National Weather Service there continues to be very cold, wintry mix in the Mid-Atlantic Northeast area, that's probably not so important because actually when you look at it, It's the reason why the Texas oil patch has been a particular focal point. So hopefully that makes, makes more, more sense. In terms of estimates, a couple of things that a few banks have said. Goldman Sachs kind of ratifies this, this thinking, saying that the deep freeze in Texas will only have a small and transitory impact on the global oil market, estimating an average decline of 700,000 barrels per day in February production of the Lower 48 onshore crude states due to a pickup then and rebound of expectations on warmer weather expected to materialize by this weekend. Citigroup estimate that as much as 1 million barrels a day of Permian Basin oil output could remain offline though over the next 10 days. So all in all, you know, how, how would you look at oil this morning? Well, you if you X out this, this kind of energy reaction, well then really, if you look at where we were trading before some of this recent elevated price action materialized, we were trading around a 59 handle, and that's pretty much where we trade at the moment. So a lot of that weather impact I do think is transitory. I don't think it's long lasting, and these facilities will come back online. And if there is any need for repairs or there's a period, a city say, of 10 days for some facilities to come back online, the point being is they will come back online. We don't need to wait 10 days. The market will already price that in. So I wouldn't be here thinking, right, let's short this market, oil prices are going to collapse further and start unwinding that. That was the trade yesterday as, as Tim and I were kind of covering live. at the time. Remember, when it comes to weather tracking, markets are very forward-looking, and so hence the reason why we came quite aggressively off the highs yesterday. Okay, one other thing to mention on the geopolitical front, which I guess has some connotation for oil, is about Iran. The Biden administration is said to be willing to meet with Iran to discuss a diplomatic way forward. Now, this would be meaningful because of course Donald Trump pulled out of that accord back in 2018, much to the dismay of not just his aggressive administrative approach to Iran, um, and but also the relationships on the issue with the likes of mainland Europe, so particularly France, Germany, and others. So this goes some way of restoring some of those severed links, something to just be aware of. Obviously this is very early days, but and we'll see how that plays out. But again, remember, it was Obama who managed to broker that deal, of which of course Biden was part of, of that, of that particular team, um, when they struck that accord, the nuclear agreement in 2015. All right, quick look at the calendar for the day ahead. You've already had the UK retail sales report come out, the month-on-month -8.8% versus expected -2.6%. This was for January data. Now importantly, you can see, look, the pound hasn't really reacted. And it's, you know, if anyone is new to markets, this is why, um, you've got to apply context to the news that you see. You can see very momentary little blip, couple of pips in sterling, and then reversed. At the moment, the key thing here is I think these, these FX pairs could be really interesting if we get some slightly upside numbers, as I said, in those PMIs that bump the dollar back down through that level, I think we could see some decent upside. I'd be looking for that 1.40 test, if not beyond, in cable under those circumstances. Now, the reason why I'm saying about context with the Sterling retail sales numbers is, look, we're in a national lockdown at the moment. You know, things are improving, vaccinations are going good so far, but, you know, I don't think anyone had an optimistic view about the state of retail sales in January. So it's just really not a surprise at all. And that does go some way as well as understanding how the market generally is probably positioned for these upcoming numbers in the flash European manufacturing service PMIs, is that these generally probably will reflect, reflect more broader expectations of pessimism. And so hence upside surprise might be quite interesting. On that note, it's worth just saying that whilst I've been talking, the euro in fact has now seen that breakthrough. So you can see a little bit of follow-through here, quite a nice pop on the breakthrough. And let's just see how it performs. But, um, before looking to enter on the pullback there to get back long, I definitely want to wait for the PMI data for confirmation because that data does have the ability to move the market quite substantially and it could go against your position very quickly. So want to see the data there. Otherwise, just rounding off the calendar and the other things that we've got, we'll get the US equivalent obviously for the PMI data at 2:45. So no major 1:30s coming out of the States. Um, you've then got Bank of England's Pfleger, Barkin, and Rosengren. And the one I think I want to draw your attention to is Barkin. I was just having a look back on my notes, and back on the 11th of January, if you remember, it was at the beginning of that week It was the Barkin-Bostic double team that started talking about the idea of having a discussion about tapering, and that was what planted the seed then that kind of fueled a bit of negativity in markets about, wow, the Fed under this reflationary view are going to start talking about tightening, and the markets didn't like it. And ever since then, literally the next day, every Fed speaker, um, as per ratified in the minutes this week have come out and pushed it back against that idea, and they've kind of reinstilled this accommodative dovish stance. So given that Barkin was, um, the original, or the originator of some of that thinking, he has spoken a lot since, the Richmond Fed president. However, I'd just be interested to maybe keep an eye on that. He's partaking in a panel discussion at 1 PM London time today. Um, it does have here on the calendar the Humphrey Hawkins testimony text release. I'm— I'll look to ratify that because I thought that was next week. Um, obviously if it is this week, it could be another thing to look out for, but largely a reiteration probably of what Powell's been saying of late. So no, not anticipating any— even if it is this today or next week— any definitive change in Fed comms just yet. All right, that is it. Um, couple of things: I'll be recording the latest Market Watch podcast with Piers in an hour or so's time. So look out for that, check it out over the weekend if you have time. Don't forget to leave a rating and a review if you're listening to things like Apple Podcasts, for example, would be much appreciated. And then I've got a special treat for any of our YouTube community. There's gonna be a video I'm releasing on Saturday, so make sure you subscribe to the channel, hit the bell icon, and you'll be notified as soon as that video goes live at midday on Saturday. All right guys, have a good session ahead, have a great weekend, and I will catch you in the Discord room. If you're not in there already, then I'll see you on Monday on YouTube. Thanks very much.