Market Wrap – Oil, Natural Gas, Meta and Amazon Deliver Volatility

Stock markets came off after Meta $FB fell 26.4% after earnings reversing a four-day rally for the markets. S&P 500 fell 2.4% on Thursday, the Nasdaq Composite dropped 3.7%. Oil prices soared after Nancy Pelosi sounded more war drums with Russia over the Ukraine to a new 7 year high at $90.45. In the Nattyverse futures March Nymex natural gas on Thursday gave back around 50 cents despite bitterly cold weather. After hours Amazon and SNAP reversed their losses when they reported better than expected earnings. This is a high-risk earnings season. Another Bear Market rally or something more after initially soaring on BTFD. We look at the indices, $AAPL, $AMZN, Gold, Copper, BTC, ETH, Natgas and oil in the podcast.

Enjoy live commentary from Our Trading Room at YouTube as the day wraps up – feel free to like and share

Live on YouTube:

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 & Kimo plot out 2022.

Around the table today was packed with our outlook on the Fed Reserve FOMC, Ukraine and US energy policy and global disorder. Topics included the Fed, geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. De-risking may threaten progress that has been achieved on since the COVID bailout. It also has the potential to reverse some of the progress made in protecting downside risk if banks close or restrict access to money.


Market Closes

Energy

  • March WTI crude oil (CLH22) settled on Thursday closed up +2.01 (+2.28%)
  • OPEC+ reaffirmed its decision to increase production by 400,000 barrels per day in March while the EIA reported an unexpected draw in weekly crude inventories (1.05 million). 
  • March RBOB gasoline (RBH22) closed up +3.57 (+1.37%). 
  • Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Jan 28 rose by +4 rigs to a 1-3/4 year high of 495 rigs.  U.S. active oil rigs have risen sharply from the Aug-2022 15-year low of 172 rigs, signaling an increase in U.S. crude oil production capacity.
  • March Nymex natural gas (NGH22) on Thursday closed down by -0.613 (-11.14%) reversing yesterday’s close up by +0.750 (+15.79%).
  • The Commodity Weather Group on Wednesday said that below-normal temperatures would descend from Texas to Maine from Feb 12-16.  Nat-gas prices are also climbing on concern that a cold snap in Texas will freeze wells and disrupt natgas production.
  • Geopolitical concerns in Ukraine are underpinning European gas prices and sparked short covering in U.S. natgas prices.  Goldman Sachs warned last Monday that Russian gas flows to Europe could be curtailed for “an indefinite period” if sanctions hit Russia’s Nord Stream 2 natgas pipeline to Germany due to escalating tensions over Ukraine.
  • BNEF data showed gas flows to U.S. export terminals Thursday were up +16% y/y at 12.48 bcf, just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The dollar index (DXY00) fell 0.4% to 95.99 amid relative strength in the euro from ECB rate-hike expectations which rallied to a 2-week high as German bund yields jumped on hawkish comments from ECB President Lagarde. on Thursday fell -0.562 (-0.59%).  Strength in GBP/USD as the pound climbed to a 2-week high against the dollar after the BOE raised interest rates Thursday.
  • April gold (GCJ22) futures settled $6.20 lower (-0.3%) to $1,804.10/oz, ending a 3-day winning streak.
  • March silver (SIH22) closed down -0.332 (-1.46%).
  • Bitcoin down $36,868.73-2.17%

Stocks

For The Day

  • Dow industrial average fell 518.17 points or -1.45%. The Dow all-time high close at 36952.65.
  • S&P index fell 111.94 points or -2.44%. The S&P all-time high close at 4818.62.
  • NASDAQ index fell -538.72 points or -3.74%. The Nasdaq all-time high.
  • Russell 2000 fell 38.48 points or -1.90% to 1991.03 The Russell 2000
  • Russell 3000 Growth Index fell 3.7% v 1.1% decline in the Russell 3000 Value Index. 
  • CBOE Volatility Index VIX 24.83AT CLOSE‎ -2.83 (‎-10.23%)
  • NYSE Adv 586 Dec 2658 Vol 905.0 mln
  • Nasdaq Adv 946 Dec 3305 Vol 4.2 bln

S&P 500 sector watch:

  • 10 of the 11 S&P 500 sectors closed lower
  • The S&P 500 communication services (-6.8%), consumer discretionary (-3.6%), and information technology (-3.1%) sectors fell amid weakness in the mega-cap stocks.
  • The consumer staples sector (+0.01%) closed fractionally higher due to its defensive qualities. 

Ark of the Covenant not as it appears

  • ARK ETF
  • ARKK 69.04▼ 4.10 (5.61%) Prior: 73.14▼ 3.94 (5.11%) 75.32▲ 6.41 (9.30%)
  • ARKG 47.47▼ 1.62 (3.30%) Prior 49.16▼ 1.60 (3.15%) 49.70▲ 3.76 (8.18%)
  • ARK X 15.88▼ 0.47 (2.87%) Prior 16.35▼ 0.18 (1.09%) 16.40▲ 0.58 (3.67%)
  • ARK F 29.53▼ 1.82 (5.81%) Prior 31.35▼ 2.09 (6.25%) 32.56▲ 2.59 (8.64%)
  • ARK W 9 86.50▼ 5.63 (6.11%) Prior 92.13▼ 4.84 (4.99%) 94.71▲ 7.44 (8.53%)

US Markets YTD

  • Dow Jones Industrial Average -3.4% YTD
  • S&P 500 -6.1% YTD
  • Nasdaq Composite -11.3% YTD
  • Russell 2000 -11.3% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: -1.76%
  • Germany’s DAX: -1.5%
  • U.K.’s FTSE 100: -0.5%
  • France’s CAC 40: -1.6%
  • Italy’s FTSE MIB: -1.0%
  • Spain’s IBEX 35: -0.2%

Asia

Lunar New Year sees China’s Shanghai Composite will be closed throughout the week.  Markets in China, South Korea, Singapore, and Hong Kong were closed. 

  • Japan’s Nikkei: -0.6%
  • Hong Kong’s Hang Seng: CLOSED
  • China’s Shanghai Composite: CLOSED
  • India’s Sensex: -1.3%
  • South Korea’s Kospi: +1.7%
  • Australia’s ASX All Ordinaries: -0.3%

Recall Last Month: 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

US For January

  • S&P and Nasdaq have their worst month since March 2020
  • Nasdaq has its worst January since 2008
  • S&P and Nasdaq have their best 2-day gain since November 2020
  • Tesla fell 11% in January
  • Amazon fell 10%.
  • Dow, -3.32%. The Dow was down -8.77% at the month’s low
  • S&P -5.3%. The S&P was down -11.4% at the month’s low
  • Nasdaq -8.98%. The Nasdaq was down -16.3% at the month’s low
  • Russell 2000, -9.8%. It was down -15.34% at the month’s low

Bonds

U.S. Treasuries 2-yr yield rose four basis points to 1.19%, and 10-yr yield rose six basis points to 1.83%. Interest rates moved higher following the European Central Bank (ECB) and Bank of England meetings. ECB President Lagarde expressed concerns about inflation and said she couldn’t rule out a rate hike this year. The Bank of England raised its key lending rate by 25 basis points for the second consecutive meeting, and four of the nine voting members preferred a 50-bps increase.  The 10-year UK gilt yield climbing to a 3-year high and the 10-year German bund yield posting a 2-3/4 year high. 

  • 2-yr: +4 bps to 1.19%
  • 3-yr: +5 bps to 1.41%
  • 5-yr: +6 bps to 1.66%
  • 10-yr: +6 bps to 1.83%
  • 30-yr: +5 bps to 2.15%

Fed planned $40B QE purchases from January 14 to February 11

The Fed taper is at $40B per month and is supposed to be reduced by another $20B in February. If they continue that schedule, the taper will be down to $0 in March. The taper would be complete, and the Fed can look to tighten.

What a world we live in the Fed is to continue to buy treasuries, whilst debating balance sheet reduction at the same time. Confusing?

Fed officials saying policy is accommodative, inflation is not transitory. We may need to tighten 4 times in 2022, but we will continue to buy bonds and mortgages at a $40B and then $20B clip.

Granted, it is small change vs what it was, and the balance sheet is near $9T so what’s another $60B or so, but if you are looking to stop accommodation, stop the extra accommodation.

As a result, one of the risks into the next meeting is if the Fed just says “we will not be buying any more treasuries after this tranche is complete”.

What You Need Know About Quantitative Tightening QT Bifurcations Explained – 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.

Where did it all start?

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

USA

Amazon

  • EPS $27.75 v estimates of $3.65
  • Rev $137.41 vs137.55 est
  • Amazon to increase US prime membership to $139 per year
  • Rev guidance $112 to $117B below the estimate of $120.11.
  • AWS moved up 40% vs 35% estimate
  • The ISM Non-Manufacturing Index for January decreased to 59.9% (consensus 60.0%) from an upwardly revised 62.3% (from 60.0%) in December. The dividing line between expansion and contraction is 50.0%. The January reading marks the 20th straight month of growth for the services sector, albeit at a slightly slower pace.
  • Initial jobless claims for the week ending January 29 decreased by 23,000 to 238,000 (consensus 245,000) while continuing claims for the week ending January 22 decreased by 44,000 to 1.628 million.
  • Q4 nonfarm business sector labor productivity increased 6.6% (consensus 2.7%) with output increasing 9.2% and hours worked increasing 2.4%. Unit labor costs increased 0.3% as hourly compensation increased 6.9% versus the 6.6% increase in productivity.
  • Factory orders for manufactured goods decreased 0.4% m/m in December (consensus -0.4%) following an upwardly revised 1.8% increase (from 1.6%) in November. Shipments of manufactured goods jumped 0.4% after increasing 0.7% in November.
  • The final IHS Markit Services PMI for January increased to 51.2 from 50.9 in the preliminary reading.

Around The Barrel – U.S. Crude Oil SPR Stocks Fell to Lowest Since October 2002 with Oil Price at Seven Year High – TRADERS COMMUNITY

Busy time in oil, OPEC+ has agreed to increase oil output by 400,000 BPD from March as expected. The oil majors’ earnings season has begun, kicked off by Chevron and Exxon and we got to see their production and capital expenditure plans. WTI Oil futures trade near 7-year highs with global tensions despite derisking in stock markets as the Macro world unravels with Omicron, Ukraine, Kazakhstan and the Middle East. EIA reported US Crude last Week crude drew -1047Kbbl (incl -1173kbbl draw at Cushing). Gasoline stocks grew +2119kbbl. Utilization fell 1.00% to 86.7%. Production fell -100 to 11,500 kbpd. EIA estimate for US oil demand running at all-time high, above the 2019 pre-pandemic seasonal levels

American Private Businesses in January 2022 Cut Jobs First Time Since December 2020 – TRADERS COMMUNITY

ADP reported that in January private businesses in the United States unexpectedly cut 301K jobs, versus a consensus of a job gain of 207K. The report showed the first job loss since December of 2020 and the biggest since April 2020. Business sentiment has been hurt by the spread of the omicron coronavirus variant, rising interest rates and concerns about the US Administration’s handling of the economy.

Europe

  • Eurozone’s December PPI 2.9% m/m (expected 2.8%; last 1.8%); 26.2% yr/yr (expected 26.1%; last 23.7%). January Services PMI 51.1 (expected 51.2; last 53.1)
  • Germany’s January Services PMI 52.2, as expected (last 48.7)
  • U.K.’s January Services PMI 54.1 (expected 53.3; last 53.6)
  • France’s January Services PMI 53.1, as expected (last 57.0)
  • Italy’s January Services PMI 48.5 (expected 50.0; last 53.0)
  • Spain’s January Services PMI 46.6 (expected 51.5; last 55.8)
  • There is growing speculation that British Prime Minister Johnson will be replaced, even though MPs don’t currently have enough signatures to trigger a confidence vote.
  • British energy regulator increased the cap on bills to consumers by 54%. The price hikes will be partially offset by subsidies from the government.
  • The Bank of England voted 5-4 to raise its bank rate by 25 bps to 0.50%.
  • The European Central Bank is expected to leave its interest rate corridor intact and President Lagarde is expected to repeat during her press conference that a rate hike in 2022 is unlikely.

Asia

  • Japan’s January Services PMI 47.6 (last 52.1)
  • South Korea’s January Nikkei Manufacturing PMI 52.8 (last 51.9)
  • India’s January Nikkei Services PMI 51.5 (expected 53.0; last 55.5)
  • Australia’s December AIG Construction Index 45.9 (last 57.0), December Building Approvals 8.2% m/m (expected -1.0%; last 2.6%), and December trade surplus AUD8.356 bln (expected surplus of AUD10.600 bln; last surplus of AUD9.42 bln). December Imports 5% m/m (last 6%) and Exports 1% m/m (last 2%). January Services PMI 46.6 (last 55.1)
  • South Korea’s finance minister cautioned that the decline in housing prices is expected to accelerate due to planned rate hikes and tighter lending rules.
  • Bank of Japan Deputy Governor Wakatabe said that a rate cut is possible if downside risks intensify.
  • Japan’s Services PMI contracted for the first time in four months in the January reading.

Looking ahead:

  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 245,000; prior 260,000), Continuing Claims (prior 1.675 mln), preliminary Q4 Productivity (Briefing.com consensus 2.7%; prior -5.2%), and preliminary Q4 Unit Labor Costs (prior 9.6%)
  • 9:45 ET: Final January IHS Markit Services PMI (prior 50.9)
  • 10:00 ET: December Factory Orders (Briefing.com consensus -0.2%; prior 1.6%) and January ISM Non-Manufacturing Index (Briefing.com consensus 60.0%; prior 62.0%)
  • 10:30 ET: Weekly natural gas inventories (prior -219 bcf)

Earnings we are watching before tomorrow’s open:

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!