Another volatile day for energy with WTI up over $122 and Natural Gas extreme volatility falling from 9.40 to 8.60 on an explosion at Freeport LNG. Fresh record highs in Exxon Mobil (XOM) and Chevron (CVX) and fresh 52-week or record highs among 11 other energy sector components helping the group extend its Q2 gain to 20.7% versus an 8.4% quarter-to-date loss in the S&P 500 (-0.8%). Another warning, another ignored, Intel (INTC 41.23, -2.30, -5.3%) after the macro environment has been weaker and that circumstances at this point are much worse than it had anticipated coming into the quarter.
The 10-yr note yield slipped back over 3.00% (-7 bps to 2.97%) and we had a Another Weak U.S. 10-year Treasury Bond Auction Graded D Minus with High Yield of 3.03% and 1.2 Basis Point Tail across the Fixed Interest desk with weak demand from the international market.
Enjoy live commentary from Our Trading Room at YouTube as the day wraps up – feel free to like and share
This week we have inflation data and more Central Bank action as a result yields, energy prices and the USDJPY are in focus.
Those Energy Rippers – at 1 hour to go
- Halliburton (HAL 43.27, +0.74, +1.7%): best performer in the sector, rising to its best level in nearly four years.
- Exxon Mobil (XOM 104.93, +1.56, +1.5%): hit a fresh record high before narrowing its gain.
- Baker Hughes (BKR 38.24, +0.58, +1.5%): touched its best level since late March before narrowing its gain.
- Chevron (CVX 181.93, +1.73, +1.0%): rising to a fresh record high.
- Schlumberger (SLB 49.42, +0.49, +1.0%): rising to its best level since April 2019.
- EOG Resources (EOG 146.97, +1.04, +0.7%): rising to a fresh record high.
- Hess (HES 129.88, +0.79, +0.6%): rising toward its record high from May 2008 (137.00).
- ConocoPhillips (COP 123.48, +0.77, +0.6%): rising to a fresh record high.
- Phillips 66 (PSX 110.47, +0.55, +0.5%): rising to its best level since January 2020.
- Valero (VLO 145.43, +0.35, +0.2%): hit a fresh record high before turning negative.
- Diamondback Energy (FANG 160.24, -0.16, -0.1%): hit a fresh record before turning negative.
- Occidental Petroleum (OXY 69.55, -1.00, -1.4%): weakest performer in the sector, trading near the midpoint of yesterday’s range.
We talk through to today’s action and where to now ….
In today’s post market wrap live from the trading room traders discuss the patterns through the options and futures markets that have played out perfectly from last week to today. We discuss trading psychology, risk management and trader development in today’s markets. Listen to our technical and market psychology read on the day. Join the Traders Community Podcast crew @traderscom @knovawave @Mahdavi4 @MetaJohnny1 plot out 2022.
Around the table today was packed with the Fed, geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. After hours earnings and chart pattern review. This is a high-risk market.
- Crude Oil Futures settled settle at $122.11/bbl, up $2.70, 2.26%
- WTI off the 2022 high price of $129.44. The highest in 2008 was $147.27.
- Brent Crude Futures settle at $123.58/bbl, up $3.01, 2.5%.
- Natural Gas Futures at $8.6990/MMBTU 8.692 -0.592 -6.42
- EIA Forecasts US LNG Exports will Increase 22% in 2022 to 11.9 Bcf/d and to 12.6 Bcf/d in 2023
- EIA Raises 2022 Oil Production Forecasts, says OPEC Production Returned to Pre-Pandemic Levels
- Rystad Energy said the war-induced uncertainty is likely to continue to impact gas prices. “The gas market remains highly volatile, and news driven,” said Rystad analyst Fabian Rønningen. This week, in particular, “the market remains anxious for clarity on rules governing ruble payments for Russian gas supplies.”
Commodities and FX
- The U.S. Dollar Index adds +0.2% to $102.50.
- Gold futures settled $4.40 higher (+0.2%) to $1,856.50/oz
- Silver Futures 22.060 -0.118 -0.53
- Copper Futures 4.4425 0.0070 0.16
- Corn Futures 763.50 6.50 0.86
- Wheat Futures 1075.00 3.25 0.30
- Bloomberg Commodity Index 136.04 -0.37 -0.27
- Bitcoin USD 30212 -1129 -3.60
- Ethereum USD 1798.37 -46.36 -2.51
- Ripple USD 0.4010 -0.0127 -3.06
US Indices & S&P 500 sector watch:
- Dow industrials Average fell -269.24 points or -0.81% at 32910.91
- S&P Index fell -44.89 points or -1.08% at 4115.78
- Nasdaq index fell -88.95 points or -0.73% at 12086.28
- Russell 2000 index fell -28.55 points or -1.49% at 1891.00
- NYSE Composite 16019.56 171.11 1.08
- CBOE Volatility 24.02 -1.05 -4.19
- NYSE Adv 2272 Dec 1035 Vol 945 mln
- Nasdaq Adv 3052 Dec 1650 Vol 4.3 bln
- Dow Jones Transportation Average dropped 3.8%; the Philadelphia Semiconductor Index slumped 2.4%
- Worst-performing sectors were the economically sensitive real estate (-2.4%), materials (-2.1%), industrials (-1.8%), and financial (-1.7%) sectors.
- Every sector with the exception of the energy sector (+0.2%), finished the day with a loss.
Market Pre-Market Notables
- Affirm (AFRM 23.30, -1.05, -4.3%): Wedbush initiates with Underperform rating; price target $15
- Spirit Airlines (SAVE 22.35, -0.32, -1.4%): postpones special meeting of stockholders related to Frontier (ULCC) buyout proposal until June 30 as company wants to continue discussions with stockholders, Frontier, and JetBlue (JBLU)
- Credit Suisse (CS 6.55, -0.39, -5.6%): warns that it will likely post a loss in the second quarter
- Novavax (NVAX 52.45, +4.91, +10.3%): receives positive vote from US FDA advisory committee recommending emergency use authorization of its COVID-19 vaccine for people 18 years and older
- Thor Industries (THO 81.60, +5.37, +7.0%): beats by $1.47, beats on revs
- DocuSign (DOCU 91.74, +4.00, +4.6%): expands its strategic partnership with Microsoft (MSFT) to accelerate anywhere work
- Ollie’s Bargain Outlet (OLLI 47.21, -3.78, -7.4%): misses by $0.11, misses on revs; guides Q2 EPS in-line, revs above consensus; guides FY23 EPS below consensus, revs below consensus
- Scotts Miracle-Gro (SMG 88.69, -13.49, -13.2%): Sees FY22 (Sep) EPS of $4.50-5.00, which is well below the current consensus estimate
US Markets YTD
- Dow Jones Industrial Average: -9.5% YTD
- S&P 400: -11.3% YTD
- S&P 500: -13.6% YTD
- Russell 2000: -15.8% YTD
- Nasdaq Composite: -22.7% YTD
Key After Hours
- Five Below (FIVE) beats by $0.01, misses on revs, misses on comps; guides Q2 EPS and revs below consensus; guides FY23 EPS and revs below consensus… FIVE down 6.1%
- Mission Produce (AVO) beats by $0.04, reports revs in-line; expects Q3 volumes to increase sequentially, but remain lower by approximately 10-15% yr/yr… AVO up 4.1%
- Owens Corning (OC) forms joint venture with Pultron Composites for production of fiberglass rebar… OC down 2.5%
- Oxford Industries (OXM) beats by $0.74, beats on revs; guides JulQ EPS above consensus, revs above consensus; guides FY23 EPS above consensus, revs above consensus… OXM up 4.6%
- US Foods (USFD): The Teamsters Warehouse Division and numerous Teamster locals currently in contract negotiations with US Foods are putting the foodservice giant on notice that work stoppages are imminent… USFD up 1.2%
- Yext (YEXT) beats by $0.01, beats on revs; guides Q2 EPS below consensus, revs in-line; guides FY23 EPS above consensus, revs below consensus… YEXT up 3.2%
Cboe Daily Market Ratios:
Recall in January: JP Morgan quant maestro Marko Kolanovic was out with a comment near lows that didn’t go unnoticed.
“Near term we recommend buying the dip on US indices given oversold conditions… though medium term we favor EM/China/Europe on a regional basis on improving activity and easing headwinds, and the UK on valuation.”Marko Kolanovic Jan 10 2022
- We stay positive on equities and expect omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll,
- As this wave fades, it will likely mark the end of the pandemic
- omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity
- signs of supply constraints potentially passing their worst point
Recall back in October he said to buy the dip because fears of higher yields were overdone adding the market could absorb higher yields. “We don’t expect a broad market selloff unless yields were to rise above 250-300 bps (US 10y), which we don’t foresee in the near term,” From there the S&P 500 rose 11.5%.
Perhaps this time it’s’ different but nevertheless the algorithms liked it that day but from then ……… not so much
U.S. longer-dated Treasuries retreated on Wednesday. Today’s $33 bln 10-yr Treasury note reopening was met with weak demand, akin to what was seen at yesterday’s 3-yr note sale. Post-auction selling pressured 10s and 30s toward their morning lows while shorter tenors finished a bit above their worst levels of the day.
- 2-yr: +5 bps to 2.77%
- 3-yr: +5 bps to 2.96%
- 5-yr: +5 bps to 3.03%
- 10-yr: +6 bps to 3.03%
- 30-yr: +5 bps to 3.18%
- Intel (INTC 41.23, -2.30, -5.3%) said the macro environment has been weaker and that circumstances at this point are much worse than it had anticipated coming into the quarter.
- Scotts Miracle-Gro (SMG 93.24, -8.94, -8.8%) slashed its FY22 (Sep) EPS outlook well below the current consensus estimate, noting its fixed cost structure has seen significantly greater pressure due to replenishment orders from its retail partners not being what it expected since mid-May.
- The OECD cut its 2022 global GDP view to 3.0% from 4.5%.
- The Atlanta Fed’s GDPNow model estimate for Q2 was lowered to 0.9% from 1.3%
- MBA Mortgage Applications declined 6.5% week-over-week versus a prior decline of 2.3%; purchase applications fell 7% and refinancing applications dropped 6%.
- April Wholesale Inventories increased 2.2% month-over-month (Briefing.com consensus 2.1%) following an upwardly revised 2.7% increase (from 2.3%) in March.
- Another Weak U.S. 10-year Treasury Bond Auction Graded D Minus with High Yield of 3.03% and 1.2 Basis Point Tail – TRADERS COMMUNITY
- Around The Barrel – Crude Oil SPR Pull of 7.3Mbbls to PADD3 with Exports 8.11Mbpd – TRADERS COMMUNITY
- EIA Forecasts US LNG Exports will Increase 22% in 2022 to 11.9 Bcf/d and to 12.6 Bcf/d in 2023 – TRADERS COMMUNITY
- EIA Raises 2022 Oil Production Forecasts, says OPEC Production Returned to Pre-Pandemic Levels – TRADERS COMMUNITY
- Treasuries Pull Back After Weak Demand for U.S. 3-year Bond Auction with High Yield of 2.927% – TRADERS COMMUNITY
- U.S. Trade Deficit Pulls Back from Record as Exports Rise Led by Natural Gas, Petroleum Products and Soybeans – TRADERS COMMUNITY
- Into The Vortex – Natural Gas Outlook with Production Pressured – TRADERS COMMUNITY
Index – Last – Chg – % Chg
- German DAX, -110.61 points or -0.76% at 14446
- France’s CAC -51.72 points or -0.8% at 6448.84
- UK’s FTSE 100 -5.93 points or -0.08% at 7593.01
- Spain’s Ibex unchanged at 8842.71
- Italy’s FTSE MIB -133 points or -0.55% at 24233
- Growing concerns over the recent rise in Greek and Italian yields relative to Germany’s yields.
- British Prime Minister Johnson is reportedly facing pressure from members of his party to lower taxes.
- French Finance Minister Le Maire repeated that he expects inflation to begin easing early next year.
- European Central Bank will release its latest policy statement tomorrow.
- Eurozone’s Q1 GDP 0.6% qtr/qtr (expected 0.3%; last 0.2%); 5.4% yr/yr (expected 5.1%; last 4.7%). Q1 Employment Change 0.6% qtr/qtr (expected 0.5%; last 0.4%); 2.9% yr/yr (expected 2.6%; last 2.1%)
- Germany’s April Industrial Production 0.7% m/m (expected 1.0%; last -3.7%)
- U.K.’s May Construction PMI 56.4 (expected 56.6; last 58.2). May Halifax House Price Index 1.0% m/m (expected 0.8%; last 1.2%); 10.5% yr/yr (last 10.8%)
- France’s April trade deficit EUR12.20 bln, as expected (last deficit of EUR12.70 bln)
- Italy’s April Retail Sales 0.0% m/m (last -0.6%); 8.4% yr/yr (last 5.6%)
- Swiss May Unemployment Rate 2.2%, as expected (last 2.2%)
Index – Last – Chg – % Chg
- Japan’s Nikkei: +1.0%
- Hong Kong’s Hang Seng: +2.2%
- China’s Shanghai Composite: +0.7%
- India’s Sensex: -0.4%
- South Korea’s Kospi: UNCH
- Australia’s ASX All Ordinaries: +0.4%
- Japan’s Q1 GDP -0.1% qtr/qtr (expected -0.3%; last -0.2%); -0.5% yr/yr (expected -1.0%; last -1.0%).
- Q1 GDP Capital Expenditure -0.7% qtr/qtr (expected 0.3%; last 0.5%).
- May Bank Lending 0.7% yr/yr (last 0.9%)
- May Economy Watchers Current Index 54.0 (last 50.4).
- April adjusted Current Account surplus JPY510 bln (last surplus of JPY1.56 trln)
- South Korea’s Q1 GDP 0.6% qtr/qtr (last 1.2%); 3.0% yr/yr (last 4.2%)
- Taiwan Semiconductor Manufacturing Company expects to spend up to $40 bln on capital expenditures in 2023.
- Australia’s Prime Minister Albanese said that the recent rate hike is a blow for families and that new policies to deal with inflation will be considered.
- Australia will also look to expand trade with Indonesia and India.
- The Reserve Bank of India raised its policy repurchase rate by 50 bps to 4.90% against expectations for a 40-bps hike.
- Record Private Equity M&A deals Targeting Australian Companies – TRADERS COMMUNITY
- RBA Accelerates Rate Cycle as it Raises Rates by 50bps to 0.75% – TRADERS COMMUNITY
Most of us are familiar with QE but what is QT? When the Fed reduces its balance sheet it is known as quantitative tightening, the flipside of quantitative easing. The US Federal Reserve at its December FOMC put the world on notice that tighter financial conditions are ahead. What does it mean? The possible Bifurcations would make Mandelbrot wince.
- Traders Market Weekly: Inflation and Central Banker Rate Watch – TRADERS COMMUNITY
- Tuesday: April Trade Balance (prior -$109.80 bln) at 8:30 ET; $44 bln 3-yr Treasury note auction results at 13:00 ET; and April Consumer Credit (prior $52.40 bln) at 15:00 ET
- Wednesday: Weekly MBA Mortgage Index (prior -2.3%) at 7:00 ET; April Wholesale Inventories (prior 2.3%) at 10:00 ET; weekly crude oil inventories (prior -5.07 mln) at 10:30 ET; and $33 bln 10-yr Treasury note reopening results at 13:00 ET
- Thursday: Weekly Initial Claims (prior 200,000) and Continuing Claims (prior 1.309 mln) at 8:30 ET; weekly natural gas inventories (prior +90 bcf) at 10:30 ET; and $19 bln 30-yr Treasury bond reopening results at 13:00 ET
- Friday: May CPI (prior 0.3%) and Core CPI (prior 0.6%) at 8:30 ET; preliminary June University of Michigan Consumer Sentiment survey (prior 58.4) at 10:00 ET; and May Treasury Budget (prior $308.00 bln) at 14:00 ET
Monday (June 6)
After-Hours: COUP GTLB
Tuesday (June 7)
Pre-Market: ASO CBRL PLAY GIII MOMO SJM REVG UNFI
After-Hours: CASY GWRE SMAR CURV VRNT
Wednesday (June 8)
Pre-Market: BF.B CPB KC LOVE OLLI THO VRA
After-Hours: ABM BASE FIVE GEF AVO OXM YEXT
Thursday (June 9)
Pre-Market: BILI FCEL NIO SIG
After-Hours: CMTL DOCU SFIX MTN
Friday (June 10)
Trust you all had a great day, sleep well and get your trading plan sorted.
Any questions please feel free to ask them below. Trade Smart!