Last week opened with a tremendous capitulation in the oil markets and it has yet to fully recover. The March WTI Crude Oil contract traded below -$40.00. It expired nearly worthless a day later. Owners of the contract either had to pay people to take if from them or take delivery on the oil. This dragged the entire crude complex lower, with CFDs on Crude Oil closing the week -6.5% near $17.00. Initial Claims were horrible once again near -4,400,000, however they are trending better over the last 4 weeks. This week will bring BoJ, FOMC, and ECB meetings, as well as a slew of earnings and our first look at US Q1 GDP! In addition, it’s Golden Week in Japan! Watch for potential larger rolls and lower liquidity/volume during the Asian session.
Will crude oil ever trade back above $40 (fill the gap)? There is an abundance of oil in the market right now. It is stored any place producers can find, even on storage tankers out at sea. The March contract traded below -$40 last week because there was so much oil. Although OPEC++ agreed to cut production beginning May 1st, the June WTI futures contract is trading above $17. That means 1 of 2 things:
- Traders expect a depletion of oil supply which would cause prices to rise
- Traders expect higher demand for oil which would cause prices to rise
However, if neither of these happen by the 3rd week in May, the price of the June WTI futures contract may fall again, and we could have a repeat of what happened last week. The June contact could expire worthless, which would drag the entire oil complex lower.
Easing of measures due to the coronavirus seem to be on the tips of everyone’s tongue lately. Counties such as Austria and Germany, as well as 16 states in the United States, are attempting to “reopen”. However, at the same time, countries such as France and Spain, as well as the remainder of US states such as New York and New Jersey, said they won’t reopen until at least May 15th! Keep watching initial claims this week to see if the decrease in initial claims continues.
Central Bank easing continues this week, as the ECB said they will grandfather debt they currently hold as collateral, even if a country’s debt is downgraded to “junk” status. This was done in advance of a review of Italy’s debt, which many be downgraded. The BoC also provided further liquidity measures on Friday afternoon. This week the BoJ, FOMC, and the ECB are all set to meet. The press conferences will be carefully watched for clues as to when the central banks may begin to tighten supply in the funding and credit markets. Most central banks cut rates to 0% inter-meeting over the last month. In addition, they provided an abundance of liquidity to keep the overnight funding markets from drying up. Watch for hints as to when banks will begin to rein in this supply.
There is a massive amount of earnings due out this week. Traders are already expecting bad numbers and won’t be surprised if the they are worse than expected. The key will be the guidance. We have already seen companies revised their guidance lower, or even worse, removing it all together as outlooks are still extremely uncertain. Important (and possibly market moving) earnings and guidance due out this week: MMM, GOOG, BP (LON:BP), CAT, F, HSBC, SBUX, UAL, UPS, BARC, BA, DB, FB, GE, MA, MSFT, TSLA, AMZN, AMGN, AAPL, GILD, LLOY, TWTR, V, AAL, XOM, RBS (LON:RBS).
End of month flows will dominate through Thursday; however, we will also get our usual end of month data, including US GDP for Q1 on Wednesday. Expectations are for -4.1%. The GDP reading will tell us how bad the coronavirus has affected the US in Q1. Economists are already expecting a worse number for Q2!
Important economic data and events due out this week are as follows:
Monday
- China: Industrial Profits YTD (MAR)
Tuesday
- Japan: BoJ Interest Rate Decision and Quarterly Outlook
- US: CB Consumer Confidence (APR)
Wednesday:
- New Zealand: Trade Balance (MAR)
- Australia: Inflation Rate (Q1)
- EU: Business Confidence (APR)
- Germany: Inflation Rate (MAR)
- US: GDP Growth Rate QoQ Advanced (Q1)
- US: Fed Interest Rate Decision
- Crude Inventories
Thursday
- China: NBS Manufacturing PMI (APR)
- Germany: Retail Sales (MAR)
- Germany: Unemployment Change (APR)
- EU: GDP Growth Rate Q0Q (Q1)
- EU: ECB Interest Rate Decision
- US: Initial Claims (Week ending April 25th)
Friday
- Australia: Manufacturing PMI Final (APR)
- Australia: HIA New Home Sales (APR)
- UK: Mortgage Approvals (MAR)
- UK: BoE Consumer Credit (MAR)
- UK: Manufacturing PMI Final (APR)
- Canada: Manufacturing PMI Final (APR)
- US: ISM Manufacturing PMI (APR)
Chart of the Week : WTI Crude Oil Continuous Futures
This chart leaves me in awe. Price traded below -$40 and reversed. The May contract expired near zero, however the June contract picked up right where the May contract left off trading as low as $6.50. On the week, it closed near $17.00. This leaves the weekly candlestick with an enormous lower wick as a long legged doji candlestick, a sign of indecision. Price did not close the week high enough for this to be considered a hammer, which would have been bullish. A close above $29.00 would turn this formation bullish, with the next level of resistance being the gap between $36.35 and $41.05. However, those levels are over 100% higher! Support? The June contract got as low as $6.50. Below that support is at $0 and -$40.32!
Currency and stock markets were fairly quiet last week. Watch for this to change as month end flows may dominate. In addition, be very careful trading crude oil. The weekly fluctuation was massive last week. Pay close attention to earnings data throughout the week and Q1 GDP data on Wednesday! Central Bank meetings too!
Please have a safe week and continue to always wash your hands!