by Intex Neville | Apr 22, 2020 | Uncategorized
• OIL NEWS CONTINUES TO DOMINATE
• US FISCAL FLOWS COULD SUPPORT EQUITIES
It has been a busy day in all things Oil related and the CAD has benefitted from a more positive outlook for the price of Oil going forward, whether that be due to a decrease in production, military action in the Persian Gulf or some stimulus package from the US administration. USDCAD was down today ~0.5% as it retests the April 20th high price level. Canadian data out today showed Core CPI unchanged from 0.1% but CPI down -0.3% on market analysts’ expectations.
A lack of storage at Cushing in Oklahoma and the USO ETF getting crushed, was a driver for negative prices in Oil this week and today we learn through the EIA report that over the last 4 weeks we have had a 44 million build and a break above the seasonal range. All whilst there is further demand destruction due to the coronavirus pandemic and lockdown responses by the world’s governments. From the Russian energy minister Novak, we hear that global demand was down 20-30mln BPD, which is a range that in most analyst’s opinion of what the large producers should cut by, if there is to be any support to the Oil prices. US Treasury Secretary Mnuchin says the administration is looking at different plans to support US oil prices and that he believes we could see $30 per barrel by August but the news today was that Saudi Arabia have to turn their boats around as the US may impose a ban on crude imports. This need for supporting the US oil industry comes as President Trump looks to get re-elected in November and the 10 million votes that could come from the Oil industry employees are key. Iran and Trump go head to head as Iran looks to close the Hormuz Strait but as some commentators point out this is very unlikely to happen as China is a friend to Iran and they require the oil to pass freely. US President Trump tweeted that he has instructed the United States Navy to ‘Shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.’
Secretary of State Pompeo criticised Chinas role in the COVID-19 outbreak and said that China should keep to the agreement of supplying the US with PPE. USDCNY was down today but most of the other USD crosses had the greenback stronger.
US fiscal flows are massively up and around >$518bn year-on-year, with the US spending $3.37trn in total this fiscal year so far. Areas like unemployment benefits are up >$20Bn year-on-year, which perfectly describes the jobs situation and the need for the Government to step in while the public sector is on its knees. Speaker Pelosi is looking to sign off on the COVID-19 Relief bill tomorrow and last night the Senate passed Stimulus version 3.5. The next fiscal stimulus could come in as an Infrastructure Bill at around $2trn. US 10-year yields were higher today and followed the Spooz which were bid from the London open. The Risk-On sentiment meant that USDJPY traded back to the top of its 5-day range.
by Intex Neville | Apr 21, 2020 | Uncategorized
• US DATA COMES IN WORSE THAN EXPECTATIONS
• OIL BACK ABOVE ZERO, BUT FOR HOW LONG?
• EURGBP BENEFITS FROM A WEAKER UK ECONOMY
US Existing Homes Sales for March 2020 came in worse than expected reducing by -8.5% from the previous month. The drop is the largest since late 2015 but due to the data including contracts pre-coronavirus epidemic (January + February) the next batch of monthly sales could be a lot worse. US equities failed to rally beyond the data release and sharply reversed to test toward last week’s lows on the S&P500. US 10-year yields had been on the back foot for the majority of the day and the USDJPY also felt the pressure as the Home Sales data and Oil shock moved traders into a risk-off position. The US dollar index is trading back above the 100 level again as the green back shows no sign of faltering from its current safe haven position.
The Oil futures (May 2020) look to be settling above the zero line, which will offer some relief for those holding next month’s contract, which is teetering above the $12 p/b level. OPEC+ is to have a conference call in which they will attempt to work out a way to stabilise the oil markets. Saudi Arabia and some fellow OPEC members could cut production before the May 10th meeting and maybe before the May 1st, when their original agreement comes into effect. President Trump said today that he would never let the great US Oil and Gas industry down and has asked the Secretaries of Energy and the Treasury to formulate some relief plan, in what now appears to be a situation of who can hold out the longest between the Middle East, Russia and the USA. The US had become energy self-sufficient and will need to offer some help to the shale and heavy oil industries, if they are to stay afloat during this pricing crisis. Yesterday the front month Oil contract went negative as storage facilities ran out of room, supply continued at a massive pace and demand remained minimal. Today we have the May futures WTI expiry and the US API weekly crude data, which last week showed a build of 13.1 million.
Cable is starting to feel the pressure of a country under lock down, a Prime Minister still far from recovered and oil prices at all-time lows. The FTSE like the rest of the risk markets was down following on from poor UK Unemployment and Average earnings data. GBPUSD has traded lower from the London open and the inversely correlated EURGBP has found support at the 61.8% retracement level of the Feb low to March recent high and now trades 1.75% higher. EURGBP could benefit for some time as uncertainty around the Brexit deal becomes more of an issue as we get closer to the first set of deadlines proposed by Prime Minister Johnson, of having something in place to work on, from as early as June this year.
by Intex Neville | Apr 17, 2020 | Uncategorized
• CHINAS GDP DATA REFLECTS 2 MONTHS OF LOCKDOWN
• RISK OFF SENTIMENT SENDS TRADERS TO SAFE HAVENS
• CANADIAN DOLLAR ROCKED BY 18.5 YEAR LOWS IN OIL
The big news today was that China’s GDP contracted -6.8% year on year, which is a far cry from the 15% seen in 2007 and even the recent average of around +6.5% since 2017. If China’s GDP data follows their manufacturing data, we should see GDP back up to more normal readings in H2 of this year, but they are reliant on the rest of the world getting back up on their feet and buying Chinese goods in the very near future. The world supply chain has been shown up for its largest vulnerabilities and just maybe things won’t go back to the recent way of doing things. The anti-China murmurs are getting louder and so much so, Huawei is asking governments to not backing out of the 5G deals that were agreed to late 2019, early 2020. The CSI300 index was up today and the USD/CNY traded lower but still ends the week up, which is keeping the US dollar strong against other major crosses.
The Chinese GDP data does highlight how bad the European countries, UK and USA could also be hit, due to their recent 2-month lockdowns. China got back up and running relatively quickly but the likes of the UK could take longer to get back up to full production again. There is talk of wanting to get back to normal, but the governments have no defined exit strategy from the shutdown. We do know it will be staggered and the announcement from President Trump yesterday of the 3 phases the USA will use could be a template for other countries. Facebook’s CEO Zuckerberg showed how far this may extend when he announced the limiting of mass gatherings of Facebook employees will extend to June 2021, such is the fear of a second wave of shutdowns. EURUSD had traded lower since Tuesdays close but found some bids today from the London session with market analysts’ expectations for the EU inflation data being met. A resumption of traders looking for safe havens meant that the USDJPY, USDCHF were all down as the Risk Off sentiment was reflected in the buying of yen, Swiss franc, euro and Bonds.
Oil traded lower again today reaching $17.31 as the supply versus demand issue continues. Further extensions of lockdowns and slow restarts to economies is now pushing the lack of demand to the fore and producers will have to come back with larger cuts in production if there is to be any levels of support to the oil complex. Chinas economic downfall was another blow to the oil prices but the increase in builds to inventories as shown earlier this week from the USA data has had the prices of crude on the backfoot all week. USDCAD was unable to capitalise on the moves lower in oil and is carving out a pennant formation for the last month, reflecting the uncertainty around the US dollars ability to move much higher and the expectations that Oil is at the lows.
by Intex Neville | Apr 1, 2020 | Uncategorized
• US ISM MANUFACTURING DATA ABOVE EXPECTATIONS
• OIL DEMAND IS STILL WEAK – SUPPLY IS AT EXTREME HIGHS
• CORONAVIRUS TOTAL CASES DISTORTED BY CHINA’S DATA
US Factory activity declines but not by as much as the market expected? US ISM Manufacturing PMI for March came in at 49.1 which is a level above the period between August – November 2019. The headline figure does not tell the whole story though and the risk markets sold off on digestion of all the data. One metric surveyed is the supply delivery time, which under normal circumstances should it show a longer delivery time, this would mean factories were unable to keep up with demand. The current situation is that the workers in the factories have been furloughed and economic activity is at a standstill, while China cannot supply parts and materials as well as a drag from domestic suppliers too. The US dollar index has held up well today, trading in a tight range but USDJPY fell to 107.00 and the S&P500 traded below 2470 as of writing and Risk sentiment is fairly low.
Oil has traded in a tight range today between $20 and $21 as reports come out that Oil is being held in storage at sea on an estimated 25 to 40 super tankers. In 2009 traders stored over 100 million barrels on super tankers, of which there are currently 770 which can each carry 2 million barrels. Saudi Arabia and Russia have yet to reduce their capacity for production in their bid for greater market share. Today’s EIA report showed a massive build in Crude Stocks with only Distillates showing signs of economic activity as it is Diesel powering the haulage and vans that are delivering goods. Gasoline saw the biggest build since Jan 2020, but Crudes build levels have not been seen since October 2016. USDCAD had found resistance at the 1.4250 level but with Oil trading lower it has held up inside yesterday’s range.
Bloomberg posted a leaked document from the US intelligence agencies saying that China had under reported the true amount of coronavirus cases, which would go a long way to explain the disproportionate amount in Europe and the US compared to the outbreak’s epicentre. Yesterday saw the largest one day rise in confirmed cases as total cases that have been confirmed heads towards 900,000. USDCNY continues to trade above 7.000 which has translated in a higher DXY over the last few months.
AUDUSD had a 1 minute 100 pip spike which has not so far been confirmed as a fat finger, prices have since drifted back down to levels traded just before the incident.
by Intex Neville | Jan 13, 2020 | Uncategorized
• BOE SIGNAL RATE CUTS
• US-SINO PHASE 1
• RISK-ON SENTIMENT AT MARKET OPEN
At the start of this week traders will be watching the news around the UK economy to see if it will add fuel to the dovish tone set by the Bank of England Governor and two of his MPC colleagues. Sterling is near two-week lows as policymakers signal towards a rate cut should there be no optimistic news from the coming U.K. data. Mark Carney who is to be replaced this year by Andrew Bailey, said that “there is insufficient conventional policy space based on past experience” and that there could be a “relatively prompt response” from the bank if the current spell of economic weakness persisted. Brexit and the global slowdown are the main drags on the U.K. economy, with uncertainty remaining around not extending the transition period past December 2020.
Asian currencies have rallied since the open with the imminent signing of the U.S.-Sino trade deal being cited as the reason. The phase one agreement is due to be signed at the White House on Wednesday. Last week we identified 97.43 and 97.55 on the US dollar index as potential levels for a bullish USD to reach. The DXY still needs to break above the December swing highs before further bullish price action can be expected. At the market open, retail traders are positioned with a bearish sentiment towards the USD.
As central banks around the globe look to add to their balance sheets and keep an accommodative monetary policy, U.S. equities continue to make all-time highs. With tensions between the U.S. and Iran, deescalating currency traders have looked to move out of safe-haven assets. US bond yields could rise and Gold looks likely to trade back into its range below $1550.00
