This Week In Markets: 5th - 9th July 2021 (Incl. OPEC+ update)

Okay, very good morning to you. Monday the 5th of July, and for any of our US followers, a happy Independence weekend and holiday today. And that is a point of note for today's session. US markets are closed and no trade on the NYSE or the CME today, and an early close for electronic trade as well on Globex. So keep that in mind. Overall market prices this morning kind of semi-reflective of that. So it's going to be predominantly quite quiet barring anything unexpected, and then things will likely pick up when our US friends across the pond come back to market on Tuesday. But yeah, I hope everyone had a great weekend. Um, kind of like I said in the podcast at the time, I was feeling quite confident about England doing the business on Ukraine, and they certainly did that. So good job to the England football team, and onwards and upwards. As we look forward to this week's game. But getting straight into the, the briefing for this weekend and looking at the weekend news and also for some of the things that are coming up on the calendar, quite a bit to get through. So I'll do my best to keep this as concise as possible. And starting off as ever with the charts to see how things reside this morning. And as I said, it is a bit of quiet in terms of actual just general price change across the different asset classes. However, a couple things to kick things off, which was the end of last week, which of course when we had Non-Farm payrolls, which was a— I don't really like using the word, but it was kind of like a Goldilocks scenario where the headline print was, was firm but within the constraints of the top end of analysts' expectations. So it was kind of good but not great. The unemployment saw a marginal uptick, average hourly earnings at 0.1 miss on the month-to-month, year-on-year. Kind of the perfect storm for economic growth and recovery without then being firm enough to change the timings around what the Fed are going to do. Certainly not enough to to bump Powell off his projected course at the moment to join the hawks. And so, yeah, just a quick look at the US indices. This is the NASDAQ 100 future. Just been looking at it in this relative trend channel going back to the midpoint, kind of the 17th, 18th of June, to where we're at at the minute. So the all-time high we printed just going into the Wall Street close on Friday, and you can see here this big breakout of price activity that we had here on these areas of that double top where payrolls allowed us to break through. If you did miss payrolls and you'd like to see, um, it was quite good on the release. I actually thought the payroll report was quite tradable, um, in regard to there's some really nice correlated moves across assets that can get— could have given you a nice kind of flagging system to execute trades across the different products. And we did do that live on the channel, So if you just go onto the main home page on the YouTube channel, if you search Amplify Trading and search for it, you'll be able to review. It's kind of like a half an hour live session that we did. But yeah, really nice breakout there and extension. And we pretty much rallied all the way into the close. And so we've drifted a little bit here this morning as Europe have come in. And it would be of no surprise at all to see us to continue to drift south a little bit here. And just a little bit of wind coming on the sail of that big acceleration that we we saw on Friday. So where we find a bit of a landing zone, maybe pivot— wouldn't surprise me if we came all the way back down even as far as that, and that's a pretty decent down day by any stretch of the imagination. So there's probably going to be a few spots on the way that we'd look at, maybe these previous high and lows on that, that move higher that we had on Friday, and just be using that as reference points for any kind of short-term profit taking from those record high levels. Ultimately, down here at the bottom end of that trend channel, which has been respected on, on 3 clear occasions alongside with that horizontal area that was quite key for the breakout and up on Friday, I think overall it's going to be an area of support that irrespective of any pullback, the market I foresee still remaining in fairly bullish mode at the moment. And so yeah, not to over-interpret or misread any intraday downside in the bigger grander context of things. The S&P is kind of a similar deal, uh, obviously big breakout that we had on the back of payrolls, uh, and markets have really just kind of accelerated since. And so here we're just having a bit of a retest here, the European entrance at that overnight Asia-Pac low. Pivot resides about 3 ticks below that level. And then as we scale the move back down, we'd just be keeping an eye on these other previous points of resistance and then support in a similar fashion to the NASDAQ. So sub-pivot 4326, uh, 19, then you've got the S1 at 15, and then again that previous trend line. Same setup as the NASDAQ here on those 3 occasions, going back to the same kind of reference point of mid-June with that horizontal prior all-time record high and support at around the 4300 level, um, is still the main focal point. Quick look in the other markets. The currency markets are relatively quiet. I mean, if I just look at the Dixie on a percentage change, it's down about 0.1%. And obviously the Dixie got hit last week on the payroll figure because a lot of people, I was just kind of commenting on going into the release and erring on the side of upside surprises, but that kind of failing to really ignite or carry through into being an exceptional reading, and thus a bit of an unwind on short-term dollar longs. And so that has helped some of the major pairs. Probably technically, I've just— was just looking at again a trend channel here in cable going back to the 24th of June, and we're just retesting the upper bound of that at the moment. So short term, I'm just keeping an eye on that this morning. It did hold. That was kind of peak of the move that we saw on the dollar weakness assisting some of these major pairs. And, and certainly it was a bit of a reprieve for the euro and cable. You remember last week they were really under some pressure upon the back of Dixie strength, where in the month of June the Dixie put in a multi-month kind of best performance. And so they were already quite depressed in price, and so that just allowed with the general market positioning of some of these pairs, a decent upside reaction. And so fundamentally here for the UK, there's a few things I can update— government, COVID lockdown related— but nothing really meaningful to, to change that. So really I'd say it's still really down to dollar dynamics. And, and technically we'll keep an eye on here, perhaps not too much follow-through of commitment without the US participants being in the market today. But I'd be keeping an eye on that area, um, at the moment. Um, elsewhere in terms of WTI crude, I'll have a quick look at the chart, but we're going to talk about that quite a lot because it's obviously an OPEC meeting that's still unresolved. A bit of a hangover from what should have been concluded on Thursday is still ongoing at the moment. And again, just going back to the 29th There's a couple of areas here where price has been supported, and this is very much now wait-and-see mode, just to see how this OPEC situation plays out. I'm going to go over it in a minute in a lot more detail, but the bottom line is we're kind of waiting on, on tenterhooks at the moment for what is it exactly that they're going to do. And so I think everyone's just a little bit cautious and staying out until we get more definitive action on that. The OPEC Um, plus ministers are going to be reconvening at 2 PM London time this afternoon, but no doubt you'll get some rumors and hearsay before that, which will probably create then some meaningful price reaction. But near term here, upside 45— excuse me, 7549 would be an upside level. Any breakout of that, then you've got that previous high that we had on Thursday last week when it was coming across the the, the wires about a slightly shallower supply increase of 400K rather than the 500K the markets were looking for. And obviously that's that multi-year high as well. And then we'll look at any reversal in that deal. Then there's obviously scope for breaches on the downside to pull back some of that general price incline that we saw of around $4 in a fairly progressive move from Thursday of last week. But get straight to it. Let's talk about the news and what's going on. And gonna start off in Asia, um, and this is the headline on Bloomberg talking about, um, Chinese President Xi Jinping, the German Chancellor Angela Merkel, and French President Macron are expected to hold a video call later this week according to people with knowledge of the matter. There isn't an agenda apparently, but again, just like the US are having words and kind of verbal confrontation, amongst other things, as they continue to kind of flesh out that relationship. The same thing and the same case is for Europe as well. Tensions have been quite high between Europe and China, as what they have been with the US as well. Foreign Minister Wang Yi echoed Xi's centenary kind of celebration speech that we saw last week on the 1st of July and criticized the US and its allies over the weekend for holding on to an outdated Cold War mentality that's seen as opposing the Chinese government. So definitely at the moment in the geopolitical space, it is something to just be mindful of. I think it definitely is lower down the pecking order of kind of risks to market prices as they reside at the moment, because we know that a lot of this rhetoric is purely verbal on the basis of trying to eke out more leverage for, for generally a trade conversation. But nonetheless, at the moment, it's kind of China against the world a little bit. And that does carry some connotation, of course, and means that we need to keep our eyes open for any developments on this front. In other news in China, the other thing that's been quite interesting was that China have expanded a cybersecurity probe into the ride-hailing firm, uh, Didi Global, uh, to include two other recent US debutants. And the Communist Party-backed Global Times warned in an overnight session, um, that Didi's information hoard posed a threat to individual privacy as well as national security. So more clampdowns, if you like, into the Chinese tech space And that has weighed on some of the subsequent names that are listed in like Hong Kong and China, uh, in the overnight session. There was some data as well out of China, which is not impactful for the market open, but quite interesting from a data perspective. The Caixin Service PMI for June came in just above 50, so remained in expansionary territory at 50.3, but quite a market deceleration from 55.1. And in fact, growth in China's service sector slowed sharply then in June to a 14-month low. That figure is just above 50, and it was predominantly weighed by resurgence of COVID-19 cases identified in the southern part of China. Now, on the breakdown of the data, a couple of interesting components to, to talk of. The sub-index of new business stood at 50.5. That was also the lowest since April of 2020. Firms also cut staff in June for the first time in 4 months, um, in regard to slowing demand. On the flip side, however, a lot of people, of course, very inflation-focused, and a survey did mark an easing in inflationary pressures. Input costs rose at their slowest pace since September 2020, um, as services firms in China cut their prices charged for the first time in 11 months in an attempt to win new business. So a couple of bits there that, that are quite interesting. So generally then, I mean, China was— Chinese data, particularly these PMIs, were just on fire coming out at the back end of their reopening process. But so it's kind of moderated since then. And interesting, the latter point that inflationary pressures have somewhat eased a little bit as well. But otherwise, one of the main talking points of the weekend certainly has been OPEC. And on Friday, the UAE blocked an OPEC+ deal that the cartel leaders led by Russia, of course, and Saudi Arabia hashed out to increase output. That was that 400K increase every day over a period of time, demanding basically the UAE for better terms than itself. So they basically just said, look, we're not signing up to that deal. But obviously without someone like them who are fairly sizable in terms of the amount of oil they produce, there is no deal. And so again, just like we were talking about last week how the Russians were kind of playing it cool, trying to hold off from agreeing too early with the Saudis to leverage a better position for themselves, well, now the UAE want a slice of that action. And failure to reach a deal at all could definitely lead to a bit of a squeeze in already tight market. And we've seen what's been happening in oil prices, that's been a predominant factor for the, for some of the rationale for the reason why we've moved higher of late. It is worth noting that late last year— this is an important point— Abu Dhabi floated the idea of leaving OPEC. While this time the UAE hasn't repeated that threat, no one even at the heart of the talks is sure of what could happen if negotiations fail today, according to what Bloomberg were reporting at the weekend. An exit, they said, would almost certainly trigger a price war. And in that scenario, of course, everyone loses. A price war being if UAE breaks out, well, guess what they're going to do? They're going to undercut OPEC for sure. And therefore OPEC are going to have to respond. And then you get an all-out price war discounting. And then all of a sudden the price can collapse quite quickly if you're looking at WTI crude futures. One thing I would say is that This is to me an idle threat. It's the sort of thing that you say when you're playing, you know, poker in negotiation, these types of things. You're trying to call OPEC's bluff here and trying to leverage it up. But the fact that they've done it once and not followed through, to me, I don't think they're going to pull the trigger. This is purely just politics playing out at the moment. So the idea of them leaving OPEC, I just don't think could happen. The UAE, I guess from context is important. The UAE at its current level, their quota is set at about 3.2 million barrels a day in April 2020. They foresee that or state that that is too low and they say they should be at a quota of 3.8 million. And so I think that's a pretty good reference point for if you see any breaking news or rumors or Source comments come out. So they're currently at 3.2, they're looking to get up to 3.8. What do OPEC, um, what concession does OPEC make to accommodate them, and what do they eventually accept? So these will be quite key numbers to keep in the back of your head. In another sign of tension, as OPEC standoff intensified on Friday night, was Saudi Arabia moved to restrict citizens' travel to the UAE, citing the pandemic. So here then is why Abu Dhabi can't pull that trigger and walk away from OPEC. There are lots of different ways and how intertwined that Persian Gulf kind of region is where they could all team up to kind of penalize the UAE in many different ways. And so hence the reason why I see very little threat in that UAE threat that they've made— little reality to that threat, I should say. The other thing is the current OPEC+ production deal ends in April 2022, when every country will be able to renegotiate its baseline. But now Saudi and Russia, with the support of everyone else at OPEC+, want to extend that agreement to the end of next year. So that's the other point away from— so you've kind of got 3 elements to this. You've got the overall supply increase, so 400K, yes or no. You've got the UAE. How do they satisfy them? What quota? And then you've got the duration. Does it get extended or not from April to the end of next year in 2022? The other thing then that's also happening, of course, and still a talking point, is Iran. Iran's oil minister made some interesting comments at the weekend, said his country has taken many measures to ensure it can raise crude production in a very short time if sanctions are lifted. Despite the extraordinary challenges faced by the Iranian economy, the country can easily increase production to 6 million barrels a day, the oil minister said. And again, context, they're currently pumping at about 2.5 million. Now, how quickly can they get to 6 million? Well, I think he's talking up a big game there. I find it incredibly hard to believe that he could quickly just turn the taps on and go from 2.5 to 6 million, but he's the oil minister, so what else is he going to say? So again, I think very important to read through a lot of these comments. And obviously, uh, there's going to be a— even though, uh, the likes of Saudi and the others are not at the negotiating table for world powers led by the US on the reinstallation of that 2015 nuclear accord with Iran, which they still have not got a set date yet, although that's something to keep aware of for those nuclear sanctions talks, there's going to be a lot of pressure that the US are feeling from their other allied kind of nations like Saudi, where, you know, put relaxation of sanctions as part of Iran signing up to that deal. The Saudis will be very mindful of how quickly, as well as some of those other OPEC+ nations, Iran returns crude oil to the market, because that's obviously going to have an impact on this ongoing supply pact. So there's a lot of different angles there to kind of manage. The OPEC meeting, again, just to round off this section, scheduled to meet again virtually today from 2 o'clock. But look out for any source comments and so on before that time. All right, moving on. Other things— COVID update. Um, see, 4th of July, you'll remember a few months ago Biden had this penciled in in the calendar as a key milestone where he wanted to hit 70% target of people who had had their first vaccination, but he's fallen short a little bit. And we'll have a look at some of these numbers. To start with though, there was an interesting survey that came out from the Washington Post and ABC News. over the weekend that I thought I'd, I'd share. And they basically said that more than a quarter of people in the US said that they are unlikely to get a COVID-19 shot, 20% saying they definitely won't and 9% saying they probably won't. That compares with a combined 24% in April in a poll by the same outlets. Um, the survey found that 86% of Democrats have received at least one shot, and that compares to only around 45% of Republicans. And so it's interesting at the moment in terms of the, the US, and we'll circle back to why that poll is quite interesting, because 67% of adults in America, in the US, have received at least one shot. And if we just jump on to— this is a graphic of the share of people have received at least one dose of the COVID-19 vaccine, and I thought I'd put 3 countries here to give you a bit of context. We've got the UK, which is the outright clear kind of winner in terms of how quickly they've rolled out that first dose. And good to see in the UK, after a bit of a lull that went through April, May, we've kind of back on to a more positive direction in terms of the trajectory here going forward. And check out Germany. Germany, you know, very slow out the gate, but they've really continued to ramp up at quite a consistent consistent pace, and if anything, even faster currently than what the UK and US are doing. But of all the countries, the US is the one of these three that is flattening out, and the pace of shots in the US has fallen off by about two-thirds since April, with about 1.1 million now administered daily according to the Bloomberg vaccine tracker. And at that rate, doing the calculations then forward-looking, it would take about another 5 months for 75% of the population to be vaccinated. And obviously these are quite key metrics in terms of then trying to have a more clearer idea about whether or not the US can go into full reopening mode, or is it going to be the recipient of pockets of more isolated breakouts on a state level, of which we have seen with the more transmissible Delta variant of late. So Interesting, because as well as we start to get to these higher numbers in the US, 67%, and they're kind of gunning for 70% plus, you know, there's a large pocket of people in the US who just don't want to take it. And I think one of the things that the US will find difficult as they continue to go on is that unlike in the UK, where YouGov polls and so forth show that the UK citizens are among the highest in the world who would gladly put themselves forward to receive an injection. But in the US, those numbers are quite different as what we've seen in mainland Europe. And so as more people start going to work and COVID becomes less of a meaningful thing in terms of how restricted it's becoming for your life, all the more reason it gives to people not to have a vaccine. So yeah, some interesting things developing there over the weekend. From the UK side, you probably would have read, if you're based in the UK, that the wearing of coverings, of face masks, in England will become a personal choice, and data will determine if lockdown restrictions can be lifted this month. Was looking very positive. This was citing the Housing Secretary Robert Kendrick, or Jenrick, I should say. The Prime Minister Boris Johnson also did say at the weekend, expected to end restrictions on mass gatherings, reopen nightclubs and could also end the 1-meter social distancing rule as well. So again, I don't think this is particularly meaningful for the pound. I just think we're just continuing to go on track. I think government officials from Sajid Javid to Rishi Sunak to now the housing secretary and the PM are all pretty clear that we're, we're going to reopen given the fact that the hospitalization and death rate is low irrespective of the fairly elevated case rate at the moment, at this moment in time. Finally, on the global COVID front, a wave of infections may hit France by the end of July because of the Delta variant, based on what's happening in the UK. It's quite a stern warning coming out of the French, uh, health minister at the weekend. And elsewhere globally, Australia's New South Wales said overnight that the next 2 days will be absolutely critical in determining whether or not they need to roll over a latest anti-coronavirus lockdown in Sydney set to end later on this week on the 9th of July, and whether or not they'll need to extend that. So something to look out for, for any Aussie traders. Finally, from a news perspective, to round things off, um, just wanted to mention Tropical Storm Elsa. As you can see here, it's currently over portions of Jamaica, or it's set to be at the moment. Um, over the coming hours. Heavy rainfall then is going to impact the Cayman Islands and Cuba tonight into Monday, so pretty much as we're talking right now, before it approaches the Florida, Florida Keys and the Florida Peninsula, moving its way coastal up to Georgia Monday through Wednesday. Main point with this is it— this isn't, from what I see, a threat to oil prices at all, given the location is close proximity to the Gulf of Mexico, but is not going to be in the projected path, as you can see here from the satellite imagery from the National Hurricane Center, that's going to impact, um, what oil traders are looking at. But definitely it's going to be impactful in terms of, um, the Florida area. All right, quick look at the week ahead. There certainly is quite a few interesting things going on. Again, to reiterate, It's a US holiday today in observance of Independence Day on the 4th of July from yesterday. So no kind of cash trade and Globex futures trade will shut earlier than normal. We do have a couple of final PMI numbers coming out of the likes of the UK and Europe, but overall should be a fairly, fairly tame and quiet day. So moving forward to Tuesday, you can see here we get on Tuesday the ISM non-manufacturing PMI. That should show this— the sector is growing very strongly with increased business opportunities thanks to the ongoing reopening that we're seeing across the nation in the US. So that number still should be very high in, in kind of relative historic terms, 63.5. Moving further on then, we also get the RBA meeting happening, so that would be available to us of what the outcome is when we come in tomorrow, this time tomorrow. Tomorrow morning. And what we expected from the RBA, they're expected to decide against rolling over its 3-year yield target to the November 2024 bond from its current April 2024. At the meeting, an extension would imply interest rates won't go up until 2025. The central bank will also maintain its QE program, but likely in a revised form, with most economists expecting it to come up with a flexible approach than the first two tranches of around $100 billion Aussie dollars each. Also moving further on into the week, Wednesday is quite, quite interesting. You've got JOLTS, you can see here. So JOLTS job openings is likely to show a new record for job openings, but that hiring continues to lag far behind given potential workers are either unable or unwilling to to take a job at this point. So it's probably going to continue that narrative, which isn't too surprising, but it'll be interesting to see how that number comes out. And then you've got the FOMC minutes, of course. This coming from that surprise 2-dot plot, um, 2023 announcement, when that kind of initiated that round of cross-asset class move with yields generally firmer, allied with the dollar as well, when we had that hawkish tilt come out. So be interested to get the more granular detail out of those minutes. So that could be one to watch as well on Wednesday night. Then Thursday, jobless claims. You remember initial jobless claims last week came in at 364,000, which was a post-pandemic low. It's expected to drop again to around 355,000 this time round. The total number of claimants likely to further decline as well going further forward as we go into the coming weeks. Due to the early phase-out of federal enhanced employment benefits across many states ahead of the official September expiration and schools reopening, and demand over the summer starts to pick up. So I don't think it's— I don't think you should take it as a massive bullish signal because I would anticipate that initial jobless claims going further forward might show some degree of volatility, but should go, uh, should continue to decline in a nice healthy trend of people claiming less benefits as the job market starts to re-establish itself upon the further reopening of the economy. And then Friday, uh, we— it's not on here, but just to mention, we do have the Chinese inflation data. PPI expected at 8.7% for June, um, against then the Friday very high number, uh, well, May's very high number, I should say, of 9%. So you're going to get a big divergence again between PPI, anticipated to be up at 8.7%, whereas CPI is expected to be down at 1.3%. So, uh, just kind of reiteration, I guess, of what we have been seeing. Uh, PPI has been tracking it at its fastest rate of increase since the financial crisis of 2008 last month, clocking in at 9%. So again, kind of like what we're seeing with some of those price inflation pressures easing in the service sector in China, slightly coming off the boil, but still very high numbers and a big gap between producer to consumer prices in China is anticipated. All right. I've gone on for quite a while. There's quite, quite a lot of things that I've covered. So hopefully this sets you up for the week. Of course, if there's any questions at all, feel free to drop me a comment. If you need more explicit details, then just check out the Amplify Live community to see the full rundown in text form, or just check out my Twitter account as you can see below. Okay guys, have a fantastic week and come on England!