Market Wrap – Oil and Natural Gas Prices Soar as Inflation Hits 40 Year Highs

The market bounce continued to recover off the strong technical levels as volatility stalled. Oil continued its bounce over $82.20 as Natural gas soared over $4.80 on freezing weather. The oil and gas prices saw multiple energy stocks hitting 52 highs. Tomorrow we have PPI to feed the inflation mantra. Around the table today was packed with oil and gas, semiconductors and Bitcoin v GBTC.

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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.


Market Closes

Energy

  • WTI crude futures settled higher by 3.9%, or $3.03, to $81.14/bbl. 
  • February Nymex natural gas (NGG22) settled Wednesday up by +0.608 (+14.31%)..
  • Freezing temperatures as a major winter storm is expected to sweep the U.S. South this weekend and climb up the East Coast on Monday.  Atmospheric G2 said Wednesday that below-normal temperatures are expected across the eastern U.S. starting Jan 22, which will boost heating demand for natural gas.
  • BNEF data showed gas flows to U.S. export terminals Wednesday were up +5.4% w/w at 12.9 bcf, just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The U.S. Dollar Index on Wednesday fell -0.676 (-0.71%) to a 2-month low. 
  • February gold (GCG22) futures on Wednesday closed up +8.80 (+0.48%), 
  • March silver (SIH22) on Wednesday closed up +0.395 (+1.73%). 
  • Bitcoin stronger at 44056 after breaking back above the channel and retesting 39600 low

Stocks

  • The Dow Jones Industrial Average rose 30.30 points or 0.11% at 3629.33 up for the second consecutive day. Was up 201 points at the high. All-time high at 36952.65.
  • S&P index rose 13.28 points or 0.28% at 4726.36 for the second consecutive day. Was up 35.54 points at its highs. All-time high at 4818.62
  • NASDAQ index rose 34.95 points or 0.23% at 15188.40 for third consecutive days. Was up 165.5 points at its high. Well above the 200-day moving average (14690). 
  • Russell 2000 fell -17.94 points or -0.82% at 2176.05 closes 12% from its all-time high
  • Apple 175.53▲ 0.45 (0.26%) off yesterday 168.17 low
  • Apple $3 trillion at $182.86
  • NYSE Adv 1654 Dec 1570 Vol 854.0 mln
  • Nasdaq Adv 1850 Dec 2609 Vol 4.3 bln

Recall Yesterday: 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 today.

Ark of the Covenant not as it appears

ARK ETF

  • ARKK 84.55▼ 2.43 (2.79%)
  • ARKG 53.42▼ 2.26 (4.06%)
  • ARKX 17.92▼ 0.17 (0.94%)
  • ARKF 37.32▼ 0.21 (0.56%)
  • ARKW 108.87▼ 1.27 (1.15%)

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

S&P 500 sector watch:

  • 10 of the 11 S&P 500 sectors closed higher
  • Materials sector (+1.0%) was the only sector that rose at least 1.0%.
  • Health care sector (-0.3%)

Markets YTD

  • Dow Jones Industrial Average -0.1% YTD
  • S&P 500 -0.8% YTD
  • Nasdaq Composite -2.9% YTD
  • Russell 2000 -3.1% YTD

Europe

  • Germany’s DAX gained 0.4%,
  • UK’s FTSE gained 0.8%,
  • France’s CAC gained 0.8%.
  • Spain IBEX up 0.1%
  • Italy MIB up 0.4%
  • Europe Stoxx 600 advanced 0.6%.

Asia

  • Japan’s Nikkei: +1.9%
  • Hong Kong’s Hang Seng: +2.8%
  • China’s Shanghai Composite: +0.8%
  • India’s Sensex: +0.9%
  • South Korea’s Kospi: +1.5%
  • Australia’s ASX All Ordinaries: +0.7%.

Bonds

  • The 5-yr note and longer tenors were in a narrow range with the 10-yr note at morning high just ahead of the completion of today’s $36 bln 10-yr note reopening, which was met with lukewarm demand.
  • 10-yr yield settled the session down two basis points to 1.73%,
  • 2-yr: -1 bp to 0.89%
  • 3-yr: +3 bps to 1.21%
  • 5-yr: -1 bp to 1.49%
  • 10-yr: -2 bps to 1.73%
  • 30-yr: UNCH at 2.07%

Key Treasury Bond Auctions Along Yield Curve Next Week with Newly Hawkish Fed – TRADERS COMMUNITY

Following the turmoil in the market last week following the Federal Reserve System Chairman Jerome Powell took a decidedly hawkish tone today at last month’s FOMC and the release of Minutes which sent US stock markets sharply lower. That day in the Treasury market the 2-yr yield, which tracks expectations for the fed funds rate, rose seven basis points to 0.83%. The 10-yr yield settled the session four basis points higher at 1.71%, with growing expectations for a run-up to 2.00%.

Earnings

News Highlights

Around The Barrel – U.S. Crude Oil Stocks Lowest Since Oct 2018 – TRADERS COMMUNITY

WTI Oil futures have rallied after OPEC+ held the status quo and the Macro world unravels with Omicron and Kazakhstan. EIA reported US Crude last Week crude drew -4553Kbbl (incl -2468kbbl draw at Cushing). Gasoline stocks grew +7961kbbl. Utilization fell 1.40% to 88.3%. Production -100k to 11,700 kbpd.

US December CPI +7.0% y/y largest Increase in Consumer Inflation since June 1982 – TRADERS COMMUNITY

US CPI in December rose 0.5% m/m in December (consensus +0.4%). Core CPI rose 0.6% (consensus +0.5%). On a year-over-year basis, total CPI is up 7.0% (versus 6.8% in November) and core CPI is up 5.5% (versus 4.9% November). Inflation remains persistently high as Central Bankers keep trying to reassure us that soaring inflation will come under control.

US Added Lowest New Jobs In 12 Months in December with Just 199,000 But Wages Higher – TRADERS COMMUNITY

US in December added 199k non-farm payrolls jobs, less than forecasted 450k. November previous 210K revised to +249K. Wages increased more than expected and the jobless rate fell to the lowest since February 2020 to 3.9%. US Average Hourly Earnings (M/M) rose 0.6%. Change in private payrolls +211K Change in manufacturing payrolls +26K

Into The Vortex – EIA Reports Draw of -31 Bcf in Natural Gas Storage – TRADERS COMMUNITY

Into New Year and U.S. domestic natural gas demand for heating has weakened   Atmospheric G2 models said that warmer-than-normal temperatures in the eastern U.S. should continue to curb heating demand.  Last week EIA reported a lower-than-expected draw of -31 Bcf of working gas in storage lower than expected. With the global energy crisis LNG exports continue to grow but we balance supply shortages with deliverability.

ISM Non-Manufacturing Index Backs Off Record High in December – TRADERS COMMUNITY

The ISM Non-Manufacturing Index for December pulled back to 62.0% (consensus 67.1%) from a record high 69.1% in November as the Omicron variant runs roughshod over the economy. The Prices Index increased to 82.5% from 82.3% in November. Earlier the ISM Manufacturing Prices Index fell to 68.2% from 82.4%. However, the services is 80% of the US economy, making it an inflation risk.

Looking ahead:

  • Producer Price Index for December, Jobless Claims, EIA Natural Gas Storage and the weekly MBA Mortgage Applications Index on Thursday.
  • The week also marks the beginning of the fourth-quarter earnings season, with big banks JPMorgan Chase, Citigroup and Wells Fargo reporting Friday.

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!

2 thoughts on “Market Wrap – Oil and Natural Gas Prices Soar as Inflation Hits 40 Year Highs”

  1. Truman says:

    Major European indices trade mostly higher.

    British politicians calling for Prime Minister Johnson’s resignation.
    U.K.’s trade secretary said that the aim is to double trade with India by 2030.
    The Bank of England’s quarterly survey on liabilities and credit conditions showed that the availability of secured credit to households increased between September and November.
    Availability of unsecured credit improved in Q4 and is expected to improve again in Q1.
    The Federation of German Industries expects Germany’s 2022 GDP to expand 3.5%.

  2. Truman says:

    December Producer Price Index (PPI) for final demand increased just 0.2% m/m (Briefing.com consensus 0.4%) — its lowest m/m increase in more than a year — while the index for final demand, less foods and energy, increased 0.5% (Briefing.com consensus 0.4%).

    The PPI data corroborated the findings from the CPI report and the Fed’s Beige Book yesterday, both of which pointed to signs of an ease in inflation pressures in December.

    The 10-yr yield is currently unchanged at 1.73% after trading at 1.75% prior to the report.

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