This Week In Markets: 10th - 14th May 2021 (Colonial Pipeline & Dogecoin Update)

Okay, very good morning. It is Monday the 10th of May. Hope you had a fantastic weekend. Couple things then to get you up to speed to start the week, and really condensing the overnight weekend news flow, which was predominantly dominated by the Colonial Pipeline, strategically important for gasoline in North America. So we'll have a look at that. What's happened? What does it mean? How has price reacted? We're also going to talk about the pound outperforming so far this morning. We have had the results out of UK local elections, very positive for the Conservatives, and also update on the Scottish elections. As I said, sterling this morning outperforming that of its European counterpart. Otherwise, updates elsewhere on the likes of COVID particularly in India, and then having a look ahead for this week, in particular emphasis on the US economic data with inflation still at the forefront of investors' attention. You've got US CPI on Wednesday, US retail sales on Friday. But look, let's get straight to it and talk about market sentiment for the open this morning. And first of all, I guess we've got to start where we left off, which was summarized by that screen I just had up, which was a note that's come out of JP Morgan at the end of last week post-payrolls. And obviously, if you were there, you will know payrolls was a shocker on Friday, and it just reignited that kind of trade mentality of the Fed are not going to move quickly given the fact of their job-centric focus irrespective of inflation concerns. And what JP Morgan note was saying over the weekend was that the same thing that we have been seeing, they think, is going to continue for the time being, as essentially the disappointing jobs print justifies the ultra-easy policy that obviously some investors have been questioning the Fed. Are they right, particularly with CPI expected to rise up to 4% later on this week to hold fire and continue to be cautious and accommodative. And the jobs data really validated that stance, if anything, in the near term. JP Morgan suggesting that tech cyclical stocks rally in tandem after April's jobs whiff. And there's kind of talking about this idea that the stock bull run will continue to just go on, basically. And they were looking at some of the breakdowns as well In terms of, um, to JP Morgan strategists, now is the time to, to not doubt equities as long as Powell and Biden are in charge of the economy. And they were talking about the idea as well that any efforts to heal the economy are likely to drive up inflation, meaning that banks and airlines will also benefit. So in a sense, kind of uniform in a way, we saw the NASDAQ respond quite quickly after payrolls came out, given the NASDAQ 100 generally and, and tech and growth stocks were underperforming for the majority of last week. So they kind of bolted higher. But longer term here, uh, JP noting about this kind of reflation view, and that's obviously going to keep inflation up. But also the Fed will remain accommodative given the view of it being transitory. And all around then, that kind of lifts the equity market. So this morning, I mean, Asia followed suit, generally broader higher as a region. The S&P 500, as you can see here, is now tracking up at 4232 in the futures market, having hit a high of 38 and a quarter overnight. So you can see this move here that we had through the, the US non-farm payroll data breaking above the previous all-time high. And on the daily chart, you can see after we had what was last Tuesday, that kind of wobble where Yellen came out, started inferring about potential need for rate hikes, which obviously she walked back few other things that were happening. A technical breakdown in price through the range support of 4166 saw us move down, and that 4110.5 still going forward is a really strong area of support on the higher time frame. But as you can see on Friday, closing above that previous all-time high, and we continue to remain fairly elevated this morning, albeit futures change is moderate. So in a sense, just holding on to the gains that we've seen into close on, on Friday, and that's fairly uniform elsewhere. Otherwise, a quick look at the, the other charts then, and that will lead us into the, the oil one. But we'll bring them in one by one, and let's look at oil. Not so much oil, Arbob Gasoline. It gapped up at the recommencement of trade on Sunday night about 4%. Looking at the chart here, um, it has settled since, and we're up only, uh, you know, about a quarter to a third of that gain now from that initial price spike at the open. It faded that pretty quickly. But still slightly elevated, and it did feed through in sympathy to a certain degree, but much lesser extent given that Colonial Pipeline is a critical, critical source of gasoline, diesel, and jet fuel, uh, to the East Coast. And so therefore oil popped up about 1.5%, but if it repaired that fairly quickly, we're still trading up though from around a sub-$65 to $65.27 at the moment, up 37 cents. So What exactly is the Colonial Pipeline? Because I'm conscious of the fact that some traders, some of you watching this, will have, have no idea what that is. So let me walk you through a few different things and I'll show you some maps of the system and give you some context to quantify its importance in the US. So the Colonial, the nation's biggest fuel pipeline, was halted all operations on its system late Friday after suffering a cyber attack. That affected some of its IT systems. And the thing that made markets a little bit apprehensive last night, and still is to a certain degree, is the fact that they've said they're working to restore operations, but they don't have a specific timeline as yet for when a restart is going to happen. And the longer that goes on, obviously, the more impact underlying that it could have. The US government, as you can see from these headlines here, enacted an emergency power ruling on Sunday in a bid to keep fuel supply lines open as fears of shortages rose following the shutdown of that essential pipeline. What that means essentially from enacting the emergency powers is to circumvent then the use of the pipeline. We'll talk about alternative pipeline routes that could be used, but what it means then is they've lifted various limits on transportation of fuels by road to ease the fallout. Um, the Colonial is a, is a critical source of gasoline, diesel, and jet fuel to the East Coast. From the nation's refining belt along the US Gulf Coast. So down here in the bottom left-hand corner, you see my mouse moving, that is Texas, and you can see Houston, um, Herbert and Beaumont, Lake Charles, Baton Rouge as we go through Louisiana. These are all the really key facilities that sit just within the Gulf Coast. And actually, the, the distance from let's say west to east, going from Texas up to New Jersey and Linden in Pennsylvania as well, that total distance would be around 5,500 miles. So it transports more than 2.5 million barrels of fuel every single day, and that's about 45% of all fuel consumed on what is obviously one of the most populous areas in North America, which is the East Coast. So going through the likes of Texas, Louisiana, Mississippi, Alabama, Georgia, South, North Carolina, Virginia, and so on and so forth. The line also supplies jet fuel, importantly, to major airports across the US, and prolonged outage could lead to disruptions in air traffic if supply disruptions become even more severe. Something to be aware of going forward. An alternate here, I haven't got the pipeline up, but is something called the, the Plantation pipeline operated by Kinder Morgan. It's smaller but serves some of the same regions that the Colonial does and may act as a possible and potential alternative. The Plantation is capable of delivering around 720,000 barrels per day of similar products through its approximately just over 3,000-mile pipeline network, which originates in Louisiana essentially, and ends up, up in Washington, D.C. area. Um, but again, comparatively, 720,000 against the Colonial's 2.5 million, uh, will give you an idea of the proportion of the COVID But that, in combination then with the government enacting its emergency powers to move greater amount of transportation via road, that's how they're looking to address this and fill the gap in the short term. The reason why this is quite important as well is with gasoline inventories fairly ample, the price at the pump wasn't actually expected to tick much higher until Memorial Day. Memorial Day happens at the end of May, so in a few weeks' time. That is traditionally viewed as the start of the US summer driving season, and that's particularly important for consumption given the fact that in North America a lot of domestic state-to-state travel And so the summer driving season is particularly key. If the pipeline doesn't restart soon, it's only going to accelerate then that move higher because we've already got that seasonal impact to come in, in the short period ahead. So yeah, that's what's going on at the moment. So overall, things that I'd look out for— I mean, definitely this is much more for RBOB gasoline futures. The oil move, I would say, is much to a lesser extent, but somewhat a sympathy play. So it could see some volatility upon headlines that we get updates on. This timing is key. You know, is it going to be a day? Is it going to be 3 days, a week, longer? The longer, the more bullish it's going to be for gasoline prices. And then also, how quickly and how much are they using these alternate methods like the Plantation pipeline by Kinder Morgan? How much then do they quantify that's going by road route? And so on and so forth. That's how— what I'd be doing to try and judge the impact or longevity of that type of move that we've seen already from overnight. Obviously, if the company comes out and says all things are rectified and all systems are back up and running, XYZ, the pipeline is up and running, functioning again, well then you would expect a pretty quick normalization of prices, I would say, going forward. All right, a few other things then. I mentioned the pound. And pound rises after the SNP misses out on outright majority in polls. So let's have a, let's have a look. I've kind of highlighted here the, the bullet point which really summarizes that investor relief felt from the SNP result wasn't more emphatic. So actually, the Scottish National Party, who want to press, as you well know, for another referendum going back to that one that they saw in 2014 on independence fell 1 seat short of an outright majority after the election. And this comes in combination as well with Labour just having a really poor performance in the UK on a local election front. And so what we've seen is the pound is outperforming this morning. Cable's up about 53 comparative to EURUSD, up about 10 pips. You can see here big breakout in sterling going through the release of payrolls with the dollar weakness that we had, that surprisingly weak US jobs data. If we put cable on a 90-minute, and I'll shuffle this sterling chart along a little bit so you can see what I'm looking at. You can see here, um, on Friday's move we broke above the strategic point, which is really this 140 handle. I'm looking at sterling futures here, and we broke above that on Friday. We've actually come back down close to a test in the Asia PAC session. Really nice support area now in that zone. For then the continuation of the push higher. So that would be strategically important, not just for the intraday but for the week. To keep price above that point will be keeping the, the bulls kind of satisfied that sterling potentially could see further push on. And hard to see the dollar really staging a dramatic comeback with the jobs data so weak, irrespective of the inflation data, which is going to be moving quite sharply higher going forward. On a daily chart, you can see here perhaps a different kind of look on the same setup, which is that importance of the 140 handle. You could see here was really restrictive of price for the majority of, of 2021, so through mid-Febr up to the current date until we broke out on Friday. And as you can see here on the upside, there really is not a great deal of meaningful resistance in the near term, um, after we put in that initial year-to-date high at 142.45. There's a few stops on the way If you were looking at the chart here on the, on the daily, that low for the day's range on the 23rd is just about where we're trading some short-term resistance at the moment after the move higher. Move moving up, I'd say a good target there was the high on the 22nd and the low on the 24th. That would come up at around 1.4090. I'd say that's probably a nearer stronger area of resistance than that current one on the 23rd, uh, looking on the daily charts. Um, so yeah, sterling seeing a decent reaction to those political events, but also, um, there is the matter of the lockdown roadmap. And the cabinet today in the UK will sign off on the third stage of lifting the COVID-19 lockdown in England. Most businesses in all but the highest risk sectors will be able to reopen, including indoor servicing in pubs and restaurants. Hotels, cinemas will reopen indoor sport and exercise will be able to resume, uh, individuals can do one-night stays, things of that nature. So that as well, probably just underlying, just helping support things that so far in the UK, touch wood, all things going as planned. And so I'm sure Boris will be banging the drum on that front when he speaks later on. Quick run through some of the other things that have been going on over the weekend. India still really, uh, confronting a challenging situation, of course, with COVID India's capital extending its lockdown for another week and adopting stricter restrictions to control the new wave of the COVID-19 outbreak. India on Sunday had just over 400,000 new virus cases, reporting more than 4,000 deaths for a second consecutive day. Um, moving on to something a little bit more light-hearted. Um, was Dogecoin. Um, this was definitely garnering a lot of attention because it was just ramping aggressively higher last week, and people were looking to Saturday Night Live of all things. And the reason for that was that Elon Musk was going to appear, and he's obviously being a big proponent of Dogecoin right from the beginning, and people were building up in anticipation that he was going to give it the classic pump which he has done on so many times before via Twitter and things like that. But he was part of a sketch essentially, and he came out and he called it in, in that sketch, Dogecoin hustle. And Dogecoin didn't like it, didn't like it one bit. Just looking at Coinbase to look at the Dogecoin price, and this was the move that we saw when his appearance happened and Dogecoin fell down to about 30, which, looking at sterling price here, 30, which was a loss of about, um, 30-plus percent. I think it was down about 33-35% at the worst. However, we'd now, by the end of Sunday, we'd pretty much reversed that to a loss of only around 12 or 13%. So yeah, a lot of headlines pertaining to Dogecoin at the weekend. Uh, probably there's a lot of people who are uneducated in the space feeling a bit of pain. But ultimately, um, well, with an asset— I was kind of tweeting a few things about this yesterday when it was dumping, and I was kind of of the view that, you know, when it comes to something like Dogecoin, it's heavily behavioral, and it's one of those kind of stick it to the man trades, if you like, given what it represents. And as such, all I thought was looking at Twitter, seeing the likes of Dogecoin to $1 trending, Dogecoin to the moon was trending. This was all as it was going down 20, 25, 30. The more aggressive those tweets were becoming, and I was just thinking it's the perfect storm to kind of galvanize the troops to just start defending Doge coin. And this is completely out of the realms of anything I've ever done in my career, which is trying to fundamentally analyze the value of an asset, base it on rationale. I'm just purely doing it on a behavioral perception of what I feel then these kind of Dogecoin diehard crypto fans will be reacting to the, the haters as the price is going down. And, you know, sure enough, the price came back and trimmed the entire move by about two-thirds. Um, and going forward, you know, is, is what that weekend kind of volatility— does that mean anything for Dogecoin? Who knows. I mean, ultimately, if Dogecoin at the end of today, in fact, is printing up at new highs, wouldn't surprise me one bit, to be quite honest. But yeah, it was interesting to watch over the weekend. Final article, back, back to planet Earth for a second, is about the ECB. And the reason why I just wanted to point this out is this chap is called Olli Rehn. He's the Finnish council member at the ECB, and he made some comments in an FT interview at the weekend where essentially, you know, he was just talking about the ECB should follow the lead of the US Federal Reserve by accepting an overshooting of its inflation target to make up for years of basically below-target inflation. And the ECB is widely expected to change its inflation target this autumn when it has its first strategy review come due for 18 years. So it's just another idea here of moving to a more flexible mandate when it comes to the subject matter of inflation. I think the ECB are kind of wising up to what we're going to see this week, which is a, you know, really fast acceleration in inflation. And the ECB would, you know, one of the things I think that the Fed were quite quick to do was adopt this average inflation targeting, AIT, strategy quite early on, given the idea that they knew upon reopening that prices were going to surge. I guess the question point at this point is that as the reopening has happened, kind of supply, if you like, can't quite keep up at the moment with demand. And so we're seeing a lot of bottlenecks, particularly in a lot of natural resources like we were seeing last week, from everything from platinum to copper to lumber and so on and so forth. And the idea then on how transitory or not inflation is going to be— and if you didn't get a chance to listen to it, strongly encourage you to check out The Market Watch podcast, just search for on Spotify, Apple. That is a conversation that me and Piers, the head of trading, had on Friday where we go through that conversation, this transitory argument, and are the Fed right or is the market right in regards to this standoff between inflation is going to be more long-lasting or temporary of nature. And so I'll leave that to the podcast. But taking us to the calendar then, that really takes us to, to to two key releases coming out of America. And this week overall is fairly quiet comparative terms to last week from a set economic data point of view. So gonna jump us over to Wednesday. And Wednesday, reason why I'm jumping there is because we get US CPI. Now core CPI, which I do think is of the two, even though the preferred metric at the ECB, at the Fed is the PCE number, is the core to extrapolate out then the fact that a lot of the inflationary pressures has been exacerbated by energy prices. So X-ing that out, the core reading, irrespective of taking out the energy component for April in the US on Wednesday— that's coming out— is expected to rise to 2.3% year on year. That's a meaningful impact, um, or pickup from 1.6% last month. Um, but, you know, my overall take with that is, as much as there's going to be a lot of media fanfare around the inflation. The year-on-year figure could be up at 4%, let's say. People are going to be, uh, really pumping that drum, um, of, you know, inflation concerns and so on. But ultimately, with the job situation as per Friday in the labor report being so bad, I just can't see the Fed moving off their, their seat of accommodative policy as yet. And I think that irrespective of a very high pickup in inflation, I think this is all part of the perceived plan that they foresee in this transitory journey of inflation going forward. It might be more long-lasting because of the bottlenecks we're seeing, but it's not going to stay up at those levels going forward over the medium term. So yeah, that, that's good. That was how I'd read it as a week as a whole, but don't Don't get me wrong, I'm sure that Wednesday 1:30 release of US CPI will be a meaningful event for any day trader. Also on Wednesday, just sticking with Wednesday, you do get the March, um, GDP figures out in the UK, uh, that is expected to come in at 1.3% month on month, and that's a pickup from the previous 0.4%, partly as a result of a boost from the education sector as schools have reopened. Quarterly data, however, is forecast to show a decline of 1.6%. As a reminder, we obviously had the Bank of England meeting quite recently, last week in fact. The BOE upgraded its growth forecast for 2021. If you remember those growth forecasts, what they said, bringing forward to the point of which it expects the economy to recover to its pre-pandemic state by the final quarter of this year. So we're really resurgent UK economy through the next 2 quarters into year-end. And so what does the inflation reading— what does the GDP meeting reading mean for the one coming up on Wednesday for March? It's an improvement against previous, but it's going to get way better in the UK, all things remaining equal. And on the political side, obviously with the COVID situation at the moment, the roadmap remains on track, and so therefore do those growth forecasts as well. So I don't really think that's going to be a massive isolated factor, but it certainly helps that sterling bid keep a floor on that price of 1.40 to carry us higher in the context of the generally softer dollar at the moment. Um, the other two things I just wanted to mention were Tuesday, when we come in in the morning, we do have Chinese CPI for April. A particular emphasis might be on PPI data, um, as that's forecast to climb 6.5%. That would be the fastest pace of growth since 2017 if that happens. So on the manufacturing side, again, talking about this kind of bottleneck idea, PPI prices up at 6.5%, consumer price inflation in China up only 1%. And then going ahead to Friday, you've got University of Michigan sentiment, but you've also got US retail sales for April, the other kind of major set event from the data perspective, expected to post a decent gain. After jumping 9.8% month to month. If you remember for March, this is the April report, and that was because of the back of the $1,400 stimulus checks that were coming out. Importantly, analysts at ING say the cash deposits from those stimulus checks were made in the second half of the month, of the month of March, and this could mean that there's a bit of a carryover of that spending into April. And the reopening of the economy also means there's lots more options to be able to spend that money as well. So we could see another robust print for, for that reading. All right guys, gonna leave it at that, uh, and let you get on with the session. So hopefully that was useful. Uh, if you're watching this on YouTube, um, remember to like and subscribe and don't forget to go to AmplifyLive.com cuz you can now access this briefing for free by using the free subscription. There's other subscription levels to get you access to other premium content. So do check that out. And I wish you a great week ahead. Take care, guys.