Bear with me on this chart/Discussion. Below find the 1 year nat Gas curve from today( Green line) and 1 week ago(Orange line).Below the line graphs is a Histogram which shows the change in prices of each contract over the one week period.You can tell quite easily that the front part of the curve has taken the brunt of selling compared to deferred months.The reason ,I believe is that the verdict is unknown when comes to forecasting Winter weather so some hesitation towards aggressive selling in those months.Summer is quite possibly over so more confidence to liquidate September and October contracts and spreads which have these as front months.Contract lows have been scored for many gas spreads today.
Summer appears over in the eyes of Nat Gas market.Peak Summer demand historically occurs in First week of August as temperature cool there after.Weekend forecast was calling for cool weather and Today’s mid-day forecast is even cooler .Managed money is still net long so It is quite possible we could see some long liquidation if Support levels are broken and weather stays cooler .Take a look at this Continuation chart of Nat Gas ,you can see support levels are already being violated.2.620 is a double bottom for Gas prices and very well could be the breaking point for the longs. Today Gas down 133 ticks or 4.5%.
Month end Activity to blame as FANG,OIl,Dax all being sold. Bonds trying to work Inverse to the sell off in Risk but struggling to find footing to upside.Euro chopping around the unchanged level and Dollar sideways.Very little Movement in Currencies is more evidence that Gyrations in Stocks is order flow driven.Things could get ugly if Nasdaq trades below Fridays low /last weeks lows of 5845. Amzon Dipped below $1000 with very little fanfare as prices quickly snapped back above the handle.$996 is an Area that I am Watching closely.A flush in Amazon=Flush in Nasdaq.The break of $1000 was a fake out for now.
Crude oil is still Stuck within Fridays Pit range of 49.15-49-81.Overnight action saw a break of $50 but action above that level was short lived.I would expect an increase in Volatility around the Europe/London Close due to Month end trade.I talked last week about the Front month Crude spreads becoming tighter as a way to measure bullish/Bearish Today these spreads are wider and point to a bearish outlook for prices.
A Mini reflation trade so far today. Stocks higher, base metals higher bunds and bonds lower by a few ticks. Basic resources sector leading Europe higher and sub sector of this, the FTSE mining index +1.6% so far today. Euro down a few ticks and Dollar up a few ticks. Per Mizuho and JPM ‘ dollar shorts/Euro longs near multi year highs” still waiting for something to trigger short covering in the Dollar, maybe todays Month End activity could be a catalyst. Earlier this morning we did see EZ CPI released.it was basically in line and provided to be a slight disappointment as some were expecting the Inflation metric to be stronger then consensus. Euro initially rallied on Releases but has dropped to near session lows as Morning progressed. Similar reaction in Bunds as they too were strong on release but since have faded. Also weighing on Bunds is spread trade with peripheral’s as Spain, Italy and Portuguese 10 year yields move lower thus spreads with Bunds tighter. Another economic release, German Retail sales was a beat on M/M metric but missed on Y/Y Movement in prices more to do with month end flows than anything else.
Oil is mixed. Opec Non Opec members will hold a compliance meeting on August7-8.The purpose of the meeting is to question members on why Compliance with production cuts has dropped. Europe largest refinery reported a shut down due to a fire. This has caused a sharp run up in Front month Gasoil as worries about supply take hold thus causing a huge spike in Front month spreads.US heating oil also moved higher but only by 100 ticks. This is negative for Oil prices as less demand for Oil will occur. Steel prices in China +2% also help with the reflate type trade. Grains Lower as weather less of a concern. Soybeans and corn down 1%.natural gas -3% as summer weather less of a concern for prices.
• Tensions with North Korea heating up after latest Missile launch.US flew B1 Bombers near North Korea boarder. Also Said no need for Emergency UN meeting about situation as it is a waste of time
• Sanction could be levied on Venezuela after Current President tries to consolidate power and turn Country away from Democratic rule.These sanction could cause a disruption in Oil flows.
• Trump said No bills should be voted until Healthcare bill passes.
Remember Month end today.
Below is the breakdown of the Employment Cost index.Look at the highlighted area,I know the line is crooked but it does show the drop in Wages and salaries over the last quarter.This is what moved markets this morning as the wage acceleration the Fed is hoping/ waiting for did not materialize.Very little change in rate hike probabilities for December meeting.
News that is impacting markets overnight:
1. German Inflation Data for July higher than expected
2. AMZN reported disappointing earnings
Even though the Pickup in German Inflation will have a minor Impact on Overall EU Inflation the higher prints have weighed on all European 10 year yields. Sovereign Supply from Italy also weighing on prices. Yield changes in basis points overnight:
• Italy +6.7Bps
• Spain +6.1
• France +5
• Germany +4.5
30 year yields from the European majors all up between 4-5 Bps. Germany, Similar to US see her Yield Curve steepen overnight. The Inflation metrics have provided a reason to buy the Euro as it trades higher by 50 Pips and looks to take out yesterday’s highs of 1.1777 .The weakness in European Debt =weakness in treasuries a Pattern we know well. I am watching 30 year yields as they are once again flirting with resistance of 2.95.A topic for another day but the continued widening of the spread between 5 and 30 year yields can be blamed somewhat on posturing for upcoming 30 year supply and possibility that fed is on hold for a while in regards to rate hikes and the Rundown of balance sheet will be main Policy tool.
Amazon collapsed yesterday afternoon as it now appears someone had a good idea on what her earnings were going to look like. Amazon dropped an additional 3% after the NDX cash Close taking the nominal drop in prices yesterday’s roughly $80.Actually EPS was a big Disappointment For AMZN.Weak AMZN=Weak tech. European stocks Lower,France and Portugal -1% Dax -.5%. Spoos -7 handles and Nasdaq -40.Gold steady as We await US GDP to set tone for morning.
This morning we do get first look at GDP for Q2 and preliminary Michigan Confidence. I am hoping for something Dollar positive.
Obamacare Lives for another day as 3 Republican senators voted against a skinny Bill. Tax Policy will be front and center now as the healthcare debate will move to back burner. Congress gone for 5 week recess.
Volatility not dead…yet.With the sell off in Amzn=Fang=Nasdaq=Spoos collapse VIX and Nasdaq Vix both caught themselves a bid.Something we haven’t seen for awhile.Top chart vix lower chart NDX Vix. Vix was +15% at one point and VXN +20% at peak of sell off in Stocks.Most of the time moves happen when you least expect it .
Amazon $30 off session highs as prices collapsed fro no apparent reason.Earnings after close today so my first thought is that earnings had leaked,No evidence of that …yet.Down goes Amazon down goes Nasssy and Spoos.Nasdaq dropped 60 handles as the sell all tech stocks and ask questions later mentality took over.I will keep you updated.
Both Crude and Brent Front month Spreads continue to tighten getting closer and closer towards backwardation.( front month higher than deferred).brent has 7 ticks and Cl has 11 ticks to go to achieve this.The Gartman adage that backwardation=Bullish market holds true.Another way to think of this is that you don’t want sell into a market that is backwardated.Now Oil has not achieved this just yet but another round of Bullish Statistics next week will most likely do the trick.The Whole OIl curve is becoming Tighter over the last 2 weeks as prospect for tighter supplies gains traction. Money managers are not net short so this is not a short covering rally ,this is a rally based on momentum and a possible shift towards less shale supply.
US production has dropped 3 out of last 8 weeks,This does not appear to be significant taken at face value but the last time this occurred was Late january early February.Weekly rig count has dropped 2 out of last 4 weeks.Again taken at face value not a big deal but if you look historically we haven’t seen this all year.These are small drops in production but none the less drops .lastly to repeat Halliburton and baker hughes have said they will lower Shale production as Costs becoming higher then profits.If this can continue backwardation is almost assured.
30 year yields coming up to real good resistance at 2.95 % roughly 152-02 ish in futures price.Currently yields at 2.93%. very heavy selling continues in the longer end today as AT &T comes to market with long end paper and a 7 year auction just adds more supply to the mix.