This Week In Markets: 19th - 23rd July 2021 (Incl. OPEC update)

Okay, very good morning to you. Hope you had a fantastic weekend. It is Monday, 19th of July, so as per normal, gonna encapsulate some of the major news from this weekend where we can talk about things like the OPEC deal between Saudi, predominantly in the UAE. You can have a quick check-in on oil prices. I'm going to talk about the week ahead as well. We've got things like the ECB meeting on Thursday and we've We've got the flash PMI data coming out on Friday. So amongst other things, there are some of the major themes that I'll touch upon, but I'm actually off today and tomorrow. But fear not, I'll continue to deliver the briefings as per normal in the morning. I know it kind of helps set out the stall for the day ahead. So more than happy to jump on each morning and deliver these. So please do like and subscribe to the channel if you're watching this on YouTube. I'd really appreciate that. Um, but otherwise, look, let's get straight to it and talk about the charts this morning. And there's a little bit of risk-off trade being observed, albeit very moderate. So the reopening of electronic trade last night, and generally in the Asia-Pacific session, equities have traded south. And so index futures seen lower across the board. If I just check in here technically from a chart perspective, excuse me, the DAX has seen Quite a nice technical setup where you just had the previous areas of support and resistance, real inflection point for price over the course of the last, what, 2 weeks or so. We're just coming up finding a bit of a cap to that at the moment as we get underway in European trade. So a bit of consolidation here in the DAX for the moment. You've got the S1 sitting just above the bottom end of the range that was printed overnight, the APAC session. And that upside level around 15447 as upside near-term resistance from those previous lows that we've seen back on the 9th, and then high and low seen back before that. And so at the moment, uh, index futures, they said a little bit lower. The NASDAQ pretty similar in its setup for the time being following the late rollover in price that we saw going into the close on Friday, a generally negative finish to the end of that week. And so now we've got a bit of a a short-term upside area of resistance from those previous lows and highs here at 14656, as we just come up to test that at the moment with a bit of a recovery, um, just as European players start to come in. In terms of the Asia-Pac session, from equity perspective, that's leading to some of that movement. And the Nikkei was pressured early on by haven flows into the yen, albeit I'd say that has moderated more over the course of the last couple of hours. It was more at the initial open on Sunday night. Virus fears still in focus as well. First COVID-19 cases confirmed at the Olympic athletes' village just days before, of course, the start of the Tokyo 2020 Games. The Hang Seng Shanghai comp were also negative. Just more unrest happening with frictions amid the US-China ongoing, or somewhat, lack of dialogue after the Biden administration issued Hong Kong-related sanctions. And highlighted the growing risk to China's democracy crackdown in Hong Kong despite threats— they made those comments— by China to retaliate to such action. Now, also losses exacerbated, particularly more evident in the Hang Seng, by the tech sector, still somewhat weighed upon by lingering concerns of tighter regulation by Beijing. And then on Friday as well, China's military also conducted a beach assault drill as a warning to US and Taiwan. So although that has— things like that have happened before, it's kind of a number of things to explain why there's some underperformance still ongoing in China at the moment. But overall, other asset classes, what's going on? If the dollar's a touch firmer— and I do want to talk about the dollar specifically this morning from a technical perspective— um, cable just finding a bit of a short-term top on price recovery seen late in APAC trading hours and around the low that was seen, um, just going into the close on Friday around 1.3762 here in the sterling future. Of course, um, this, the so-called Freedom Day today, and we'll talk about that, and some UK politics over the weekend which I'm sure you read about the PM now self-isolating, but we'll touch that in a moment. Euro-dollar Slightly negative, but not really too much dramatic in fashion at the moment from a technical perspective that really stands out for the time being. As you can see, having generally been slowly trending lower here over the course of the last 2 or 3 weeks. From a, from a currency perspective, the one thing I did want to touch upon with the dollar was this, and this is taking a look at non-commercial traders that have been positioned short on the dollar against other major currencies since the COVID crisis hit and US interest rates fell toward those in other countries. Remember, it was kind of this ongoing dovish mantra from the Fed that created that short positioning in what we've been seeing in CFTC data. But now, as you can see, these, these kind of green wave patterns here is the short positioning is getting less and less and less. And now with the Fed, the Fed started to hint about tapering to come. Traders have basically reduced their positions so that we are essentially neutral. And again, this would be the first time since basically the onset of the pandemic. Now, I don't find this particularly surprising as we kind of tiptoe towards then getting to the point of tapering. And certainly, although Powell's generally holding the line, we are moving ever closer towards having those more detailed discussions about tapering. It's not a matter of if but when. So this was always going to happen, um, but this has coincided with the slight rebound in the dollar, and it could be a sign of things to come. You would expect then that overall switch, and just given the situation where other central banks like the European Central Bank are so far behind the curve, then we could well see— start to see a bit of disparity where dollar positioning starts to switch to long which could be a weighted factor. Just generally speaking, if we're looking at the dollar index, it is kind of poised for a bit of a break. You can see we've been here, the acceleration in the dollar price really kicked off after the hawkish FOMC we saw back on the 16th of June. And since that point, we've just found a bit of a hiatus and we've started to consolidate just under the 93 level, which does kind of come in with this trend line from September November, April, or March, April, and where we're at at the moment. So if it did break higher, a quick run-up towards that, um, what would be the late March 31st high, about 93.44, and then back up. Key level there would be here. You can see the initial pandemic low that we saw on the onset of the pandemic before the safe haven rally commenced. That coincide with around that top of price recovery that we saw back in September. So 95 generally is the big target there, uh, going further forward. Certainly a lot of other things to monitor, but, but definitely quite interesting from the medium-term perspective. Generally the dollar then a touch stronger this morning, so precious metals just suffering a little bit, um, just right on cue. Gold's just breaking down through the technical levels of support. You can see here going back to what was, um, what, last Wednesday's session, and seeing off the floor of price points down on Friday session. So a bit of an extension of weakness here in gold on the break of that technical move with some dollar strength this morning, uh, just probably targeting down, down to around these lows that was seen midpoint of last week at $1,805. So down about $9 there in yellow metal. Silver, as you'd imagine, Also, Precious Space following suit, just printing session lows as we speak. Otherwise, the other thing, or major things to talk about from the weekend, which you probably caught, was OPEC headlines. So OPEC and its allies struck a deal, Saudi Arabia meeting the UAE basically halfway in its demand for a more generous output limit. They basically had a very quick convened meeting on Sunday ahead of the Islamic long holiday happening this week for Eid, allowing for monthly supply hikes of 400,000 barrels per day. So before I get into some of the details here, the overall impact on price was absolutely minimal. WTI crude— I was at my desk last night because I just wanted to check in at 11 PM to see the initial opening print, and there was a little bit of volatility. The opening price was actually If I go back to this candle here on— excuse me, here. This candle was the opening price for WTI crude last night, was here, and it was really tame to be quite fair. As we went into the overnight APAC session away from the OPEC deal, generally sentiment overnight a little bit negative, a lot of focus on the COVID front in the Far East. So therefore, perhaps just impacting a little bit on demand sentiment. We just drift a little bit south, but you can see a lot of that very short-lived. And in fact, we've seen a bit of recovery and just pivot providing a bit of near-term resistance on that, that price reversal from the overnight lows. So overall, very minor impact to, um, the, the latest OPEC comments. I don't really want to go into it too much, and largely that's because the $400K and the agreement that did come is all pretty much expected. You remember what I was talking about, a lot of briefings over the last 2 weeks or so since their inability to make a deal. I've always had the view that the UAE are just make— they're just taking advantage of the situation and looking to leverage that to make a better deal for themselves. And so whilst that they can, with the price trading where it is, it's time to cause some headaches basically and look to extract a little bit of a better outcome for yourself, and you could argue that they have done so. Um, the UAE's level will be increased now to 3.5 million barrels per day. That is below the expected 3.8 million it was demanding when it blocked the OPEC deal earlier this month, uh, but it's an increase from 3.17 million. So hence the kind of art of negotiation, right? You put it out there, quite a big figure at 3.8, you're currently at 3.17, they meet you halfway at 3.5, job done. You've just earned yourself a couple of extra 100,000 barrels a day. So I don't think it was that surprising, to be honest. The numbers are in fitting. The next meeting is— well, nothing is set in stone is what some analysts were saying. OPEC+ will still continue to hold talks every month, including a review of the market in December. It could adjust the schedule if required. According to the Saudis, the next meeting is on the 1st of September. However, the baseline adjustments won't alter the pace of the 400,000 barrels per day monthly output increases when they take effect next year. Um, so yeah, overall I would say not— I don't think a particularly big deal comparative to market expectations, but definitely I'd be interested just to see how crude settles as we go into the North American session today, to see how our friends across the pond really digest that news as well when they come in later. The other thing from a news perspective you probably read plenty about because of the absolute debacle between 3 of Britain's most senior cabinet ministers. You know, so Boris Johnson and Rishi Sunak, the Chancellor, are going to be self-isolating as of today after Sajid Javid, the newly appointed Health Secretary, tested positive despite being fully vaccinated on, on Saturday. He came out on that, and then there was this dramatic row over self-isolation because Johnson and Sunak were trying to get away that they were part of some pilot program which meant that they wouldn't have to self-isolate. And they basically U-turned. I was looking at the alerts on my phone from Sky News and it was pretty much within an hour, the amount of backlash that those guys got, Sunak came out and U-turned and said he would self-isolate. So away from the kind of political headlines. A couple of things to be aware of. For one, some 530,000 people were forced to isolate last week after being contacted by the authorities by this kind of pinged by Test and Trace. And, you know, why is that an important thing? Well, I do think it is quite important because even where I am, I live very close to a school and there's a whole, the whole street. I mean, anyone of the certain age will, will know that people move within catchment areas of schools and so on. So everyone on the road is kind of, their kids goes to these schools and everyone's at home, can't go to work because a pupil's had it an entire year, has had to self-isolate, impacting then all of the families and households of that, of, of the street pretty much. And a lot of that's being echoed across the country at the moment. And it is creating quite substantial labour shortages. So factories, pubs, restaurants, public transport— this 10-day isolation rule is having quite a big impact. I mean, even a pub I was at at the weekend was literally— there's no food because there was no chefs because they're all just from different pockets of different pubs that they work at where various self-isolations were happening and they and they couldn't run it. So I do think this is quite a big thing because the government is set to exempt the double jabbed from self-isolation if they're contacted by Test and Trace, but that's not going to kick in for about another month until August 16th. So in the meantime, according to the Adam Smith Institute, 5.2 million people could be self-isolating by that point, and that's up from the current 1.73 million. and obviously that will have a degree of economic impact, of course. So just something to be aware of. I don't think it's necessarily a big sterling negative this morning, but there's a couple of things here that I am monitoring. And for one is, well, you know, what is the COVID situation? Well, we kind of know this. The UK is heading into this latest reopening at a point where case numbers are increasing rapidly at this point in time. I think we're up at the high 50,000s at the weekend. And that number is expected to head up to 100K. And then as far as hospitalization is concerned, again, this looks very different to the case chart because still comparative to the beginning of the year, thankfully, touch wood, the number of hospitalized patients is particularly low, and hence the reason why the UK government's pushing ahead with that strategy. But I would say 3 or Yeah, 3 things I'm looking out for really that could well start to influence the pound in a potentially more negative way. So for one, this test and trace— how many people is it affecting? Because it, it could well lead to a degree of labor shortages. So again, the kind of reference numbers are that it was about 530,000 last week were forced to self-isolate, and then the number being put out there by the Adam Smith Institute's 5.2 million by mid-August. So again, how far or not do we exceed these types of numbers as the, the, the kind of self-isolation numbers start to accumulate over the coming month? And then the other thing is, I would say 100,000 cases— and I say this with full understanding that this is a hugely kind of negative development, this is a really testing and challenging time for many people in their lives— But I'd say 100,000 cases is very much baked into price, as is 1,000 hospitalisations. So for me, tracking those numbers, I don't think it's really relevant to really track them until they start— until we start modelling them out and they start to show that they're going to exceed those numbers. And if that is the case, I think then you could see some negativity translate into the sterling currency. So for now, it's too early really to say. Uh, but that's how I'd be looking at it. Um, and then before I get into the, the kind of week ahead and what the economic calendar looks like, we do have earnings season starting to pick up a little bit of pace. So there's 79 S&P 500 companies reporting this week, including, um, 9 of the Dow 30 components. And the highlights here, just running through them, so after market today you've got IBM, Tomorrow after market, you've got the likes of Netflix. Their shares have been obviously on the recovery of late, given the fact as well they had a little bit of volatility on that whole gaming headline we had last week. But be interested to see how their subscriber numbers hold up. And then Wednesday pre-market, Coca-Cola, J&J, Verizon, ASML from the chipmaker side. On Thursday, AT&T pre-market, Intel, Twitter, Snap. So some of the social media names after market close. Then on Friday you've got Amex, Schlumberger, Honeywell, Kimberly-Clark, some of the larger cap names to be on the lookout for. So not until the following weeks when we start to get some of the mega cap tech names. And then for the calendar for today, it's super quiet. There literally is really nothing of greater magnitude happening today. And so really we start to look ahead towards the week Um, and it is a very quiet week, in fact, in terms of how data is concerned. Tuesday, tomorrow, you get, um, June housing starts in the US. But really, the main events are twofold: ECB meeting Thursday, flash PMIs on Friday. So what are we to expect from the ECB? Well, it's just 2 weeks after agreeing on its first strategic overhaul in almost 2 decades, in what promises to be potentially a lively debate among members over guidance it would give on the path of interest rates. And its bond purchases. Sources over the weekend said the ECB reportedly disagreed on stimulus guidance drafts for this July 22nd meeting, while talks on bond buying, according to sources, will reportedly not happen until the September meeting. I definitely think I agree with that latter point. I think it's way too early to give more kind of detail on, on the bond buying side. So Again, I'll be back by then and more detailed preview I'll issue on the morning of Thursday and I'll be covering that all live, of course. And then on Friday, probably the main data then is the eurozone flash PMIs, the June figures. So again, it's July figures we're going to be getting. So last month's June figures, which are shy of euphoric, is what the analysts at ING are terming them. And the question though now is whether the extreme positive outlook of the economy has been maintained despite the Delta variant taking hold in the eurozone, of course, which we know now, restrictive measures being reinstated, supply-side problems continuing for manufacturing as well. So how high is that kind of confidence remained amongst these purchasing managers about their general outlook given those circumstances? We also get the UK PMIs, we also get UK retail sales for June, also due on Friday as well. But that's pretty much it. Going to end it there. Let you guys get on with the day. As I said, I'm not around for the next 2 days, but I will continue to deliver my morning note and this briefing just so you're all set for the day. So otherwise, I'll catch up with you guys on, on Wednesday. All right. Good luck today and for the week ahead. Thanks for— thanks very much. Excuse me.