Desperately Searching for a Bullish Narrative | S6 E35

07/17/24 • 31 min

Although the market and the narrative want to be bullish, there's no impetus for it to be there. It's a weak week in Brent futures, after being within in touching distance of $88/bbl. We've seen both long and short prod/merc in Brent 200mb in 2 weeks in Sep 0I. The team explains why bearish economic data from China is adding to the pressure of oil prices.
Greg, James, Martha and Vincent discuss Iraq, Kazakhstan, and Russia having to submit compensation plans for exceeding quotas in 2024. The OPEC+ Joint Ministerial Monitoring Committee will assess compliance on August 1, and Iraq’s management and its relationship with the KRG are crucial for OPEC+ compliance and global oil stability. While this isn't massive news just yet, there's so much lying beneath the surface of this story, which is leading to people getting nervous on the producer side as a summer rally is yet to come to fruition.
The sentiment of extra supply is being supported by crude loadings from Guyana, which are planned at 21 million barrels, (or 700,000bb/d) in September, according to programs seen by Bloomberg. This daily volume will be a new record, compared with a revised 613,000 b/d in August. The July volume was also revised higher to 452,000 b/d.
Looking to macro news, there was disappointing data out of China with GDP 4.7% YoY (est 5.1%) retail sales 2.0% (est 3.3%). CPI 0.2% YoY, PPI –0.8%. House prices in China fell 4.5% YoY in June, the most in 9 years. U.S. prices 28bp cuts in September, 67bp cuts by year end. Weak CPI and the Fed is now concentrating on the weaker economy.
The team discuss Trump's impact on oil and suspect he will want to be bearish and take credit for lowering gasoline prices with a target range of between $60/bbl and $65/bbl, whilst simultaneously putting pressure on the central bank in hopes to restimulate the economy.
The trade idea for this weak is to buy heating oil. With such a heavy contango in the heating oil spreads it's a good risk reward-trade to buy. We're also seeing strong harvesting in corn and wheat, so if that continues, we'll most likely be seeing some more demand there.
Chapters for this episode are:
0:00 Welcome
0:52 Brent Futures, OPEC, and production
12:04 Macro market news
19:04 "Googling oil:" world oil news
24:33 Refinery margins
26:40 Trade idea of the week
30:29 Poll results and outro

Previous Episode

Macro Mondays | The Impact of Trump’s Attempted Assassination on the Market

U.S. CPI was lower than expected, (-0.1% MoM, 3.0% YoY), while U.S. PPI came in higher than expected (U.S. June producer prices rise 2.6% Y/Y; EST. +2.3%).
Chinese CPI was on the cusp of deflation again (CPI +0.2% YoY, PPI -0.8% YoY) and Chinese GDP and retail sales were weaker than expected (Q2 GDP 4.7% y/y estimated +5.1%).
James and Harry dive into Chinese New Homes Index data which shows new home prices falling 4.5% YoY in June 2024, the most in 9 years. This data comes despite Beijing attempting to mitigate the impact of a prolonged property downturn and weak economic recovery.
Off the back of Donald Trump’s attempted assassination on the weekend, Harry discusses the impact the event is having and will have on U.S. swing states and why the event caused a Bitcoin rally.
James Brodie’s chart of the week is Gold, which is rallying and approaching $2,430.
The key data releases this week are:
Monday 15 July – Fed Chair Powell to speak
Tuesday 16 July – U.S. June retail sales
Thursday 18 July – Philly Fed manufacturing data

Next Episode

Macro Monday LIVE | Biden Withdraws from Presidential Race; Endorses Kamala Harris

Macro Specialist James Brodie and Research Analyst Harry Nedeljkovic weigh in on the latest news in the presidential campaign, discussing who the Democratic Party will select as a replacement for Joe Biden as their candidate, who will likely be chosen as a running mate, how Donald Trump’s could react, and subsequently how these critical decisions may affect markets.
US June retail sales remain unchanged (0.0% m/m; est. -0.3%) while industrial production is up +0.6% m/m (est. +0.3%). Powell said yesterday “Now that inflation has come down and the labour market has indeed cooled off, we’re going to be looking at both mandates.” Looking at other US data, jobless claims are trending higher.
The Chinese central bank also unexpectedly cut key lending rates to new record lows at the July fixing to aid the country’s fragile economic recovery following weak Q2 GDP readings. In Japan, the yen continued its rally to below 157 per dollar, however, the Nikkei fell 1.16% on Monday morning to 3-week lows.
In the US, the Nasdaq had its worst day since 2022 last week, whilst the S&P 500 has now gone 350 trading days without a 2% correction (the longest since February 2007). According to GS Prime, the hedge fund de-grossing activity over the past 5 sessions is the largest in 20 months and ranks in the 99th percentile over the past 5 years.
Canadian CPI has fallen to 2.7%, with the probability of rate cuts for July 24th having now risen to 90%.
The chart of the week this week is Nvidia, with critical support at 117.80.
Key data releases this week:
Tuesday; GFK Consumer and IFO Business sentiment
Wednesday; Eurozone Manufacturing & Services PMI
Thursday; Q2 advance GDP (2% expected annualised)
Friday; Core PCE (est. +0.1% m/m, 2.4% y/y; prev. 2.6%)