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Asian stocks steady after gaining sports boost
Asian markets gained a reprieve this morning as Chinese money is pumped into equities.
Hong Kong’s Hang Seng Index rose 1.7% in Asian trading on Wednesday morning after being battered on Tuesday as China’s government announced yet another crackdown. This time, online gaming stocks are in the CCP’s sites, which state media has dubbed “spiritual opium”. Restrictions on this sector are expected.
However, some stocks that took the biggest hits yesterday have regained some footing as investors looked to bought during a wider sell-off. Tencent, which dropped 7% yesterday, had gained 6.3%, helping to reverse some of its losses. According to market observers, this was down to an influx of cash from mainland investors, rather than Hong Kong-based traders.
The company has committed to tighter controls to combat child online gaming addictions following the government’s rebuke. Still, not great for its owners who lost as much as $14bn in the recent drop.
Sports stocks are the new hope on Chinese markets. The CCP has announced a massive $775bn sports infrastructure investment plan in the run-up to the 2022 Winter Olympics. It has plans afoot to boost the percentage of Chinese citizens actively participating in sport and physical activity to 38.5% by 2025.
That includes construction of over 2,000 sports parks, fitness centres, and public sports stadiums. A group of sports-related government-backed SMEs is expected to be “cultivated” too.
On the announcement of these plans, sportswear manufacturers Li Ning Co. was up as high as 12% in Asian trading, while Anta Sports Products rose 10%.
Asian markets were also given a bit of a boost by increased Chinese services activity, helping to counteract a slowdown in manufacturing. The latest Caixin services PMI reading came in at 54.9 this morning – up from June’s reading of 50.3.
Turning to European markets, the FTSE100 has started the day on the front foot, rising 26.55 points to 7,137. At 15,666, the German DAX is up 94.65 points, while France’s CAC is also showing positive movements by rising 28.85 points to 6,760.
We’re due services PMI readings today for the EU and UK.
Ahead of tomorrow’s bumper Bank of England announcements, GBP/USD is making its way towards July highs again thanks to the softer dollar. At the time of writing, cable had reached 1.34914 as bulls take control.
Falling UK COVID-19 cases and the success of the nation’s vaccination programme are acting as the pound’s chief support. The EU backing off from threats over perceived legal action threats on the Northern Ireland protocols has also helped. Both the UK and EU are still in negotiations trying to find a solution to the tricky Northern Ireland question.
Gold has reacted positively to the weaker dollar too, helping reverse a three-day downward trend. It’s now heading back towards $1,820, but buyers still remain cautious.
Bitcoin continues to struggle. The crypto looked like it was pulling above $42,000 at the weekend, but as of Wednesday morning, BTC had slumped to around $37,778.
Oil has crawled back above the $70 level after dropping to $69 on WTI contracts yesterday. Rising global Delta variant cases has put pressure on demand recovery, and subsequently prices. Brent is trading at around $72.72, with WTI at $70.65. It’s an uncertain time for crude markets at the moment, although majors like BP, Chevron and ExxonMobil have recorded strong Q2 earnings off the back of strong oil prices in 2021. The next couple of weeks will be crucial for prices.
Global Delta cases puts pressure on oil despite US bull run
US oil looks like it’s in great shape, but pressure is being put on prices by rising Covid-19 Delta variant cases worldwide.
EIA storage data records another successive drawdown in its latest report. For the week ending July 23rd, crude inventories dropped by 4.1m on a week-by-week basis. That puts them roughly 7% below the five-year average for this time of year.
We can see US oil stocks continue to drop, which signposts strong demand recovery. Gasoline stocks, which dropped by 2.3m barrels, smashed estimates of a 916,000 drop, fitting this narrative.
The bullish signs for US oil continue. Stocks at the Cushing, Oklahoma hub were seen at 36.299m barrels on Tuesday 27th – down 360,917 from the previous week’s volumes.
Turning to oil prices, Brent and WTI pulled back slightly from their weekend levels to trade at $73.24 and $74.78 respectively on Monday afternoon.
The markets thought support could have come from the bullish state of US oil inventories, as well as developments in the Iran nuclear deal.
Traders were bracing for an Iranian crude glut, should the deal be successfully concluded soon, but it appears that a new deal may be off the cards completely. Good news for the tricky global supply balance.
As of Tuesday morning, however, oil had slid back further. WTI was now at around $71.80, with Brent averaging around $73.40.
It appears oil prices may still run into resistance via slowing manufacturing in key economies. Both China and the UK reported drops in factory output in July, for example.
The big issue here is the Delta variant of Covid-19. Rising cases in China, the US, and in fact the world at large, has the market worrying about the demand recovery implications. Should the world enter a new lockdown phase, travel and manufacturing will likely drop off again. If that is the case, oil demand may fall as well.
It’s a tricky situation. All we can do is hope more people are vaccinated and that those vaccines prove resistant to the Delta variant.
Elsewhere, OPEC+ increased output by 610,000bpd barrels per day in July, reaching its highest levels since April 2020. Saudi Arabia, predictably, led the cartel in terms of output spikes, increasing its outward flows by 460,000bpd.
Oversupply could lead to bearish sentiment, counteracting US oil’s bull run.
Natural gas trading
Natural gas dropped back from its recent highs on Monday but was still trading above the $4.00 mark.
Where next all depends on the weather. Natural Gas Weather forecasts mild demand, although markets will be looking for heatwaves in Europe and the US for strong cooling gas consumption to support prices.
Per Natural Gas Weather’s US outlook: “National demand will ease to lighter levels this week as weather systems sweep across the eastern ½ of the US w/showers, thunderstorms, and highs of only 70s to lower 80s. The West into Texas and the Plains will be very warm to hot with highs of upper 80s to 100s as strong upper high-pressure rules.
“Temperatures will increase across the South and East late next weekend with highs warming into the mid-80s to lower 90s. Overall, MODERATE national demand this week, then increasing to HIGH late next weekend.”
Looking at storage, the EIA reports working gas inventories totalled 2,714 Bcf on the week ending July 23rd. Stocks were 523 Bcf lower than this time last year.
US LNG production appears to be relatively strong at 91.5 Bcf per week, but lower than the 93 Bcf estimated required to keep pace with global demand. Feed gas at key US infrastructure is cutting close to 11 Bcf across the week.
Markets start Tuesday on a cautious footing
European markets are a bit subdued this morning but are still showing positive movements.
The FTSE100 is up 7 points at 7,088. The DAX follows, rising around 30 points to hit 15,554. France’s is showing good momentum at 6,718, an increase of around 50 points.
Markets will be reacting to big European earnings releases with BP, Standard Generale, Standard Chartered, and BMW due to report today.
BP, off the back of the stronger oil market 2021 is enjoying so far, is tipped to report strong earnings season this quarter. Preliminary reports suggest net profits of $2.8bn – a substantial reversal from the energy firm’s $6.8bn losses in Q1 2020. BP has announced a $1.4bn buyback programme on the back of its $2.4bn cash surplus. Dividends have been given a 4% boost. BP will now pay 5.46 cents per share going forward.
In Asian trading, however, yet another government crackdown on an industry it finds distasteful has caused a slump in Chinese online gaming stocks. Shares in Ten Cent, Netease, and Bilibili had fallen 7%, 7.96% and 6.28% respectively in mid-afternoon trading. Consequently, the Hong Kong Hang Sech tech index had pulled back 1.48%.
Chinese state media has dubbed online games as “opium” and could move to regulate the sector further. Watch this space.
The Reserve Bank of Australia surprised no one earlier today by keeping its base rate at 0.1%, even with rising COVID-19 delta variant case numbers hitting the nation. Governor Lowe seemed upbeat, saying the Australian economy is recovering faster than anticipated but did note the Delta variant has interrupted recovery. Aussie GDP growth is forecast to be lower in the next quarter.
Bond-buying will be trimmed down to AU$4bn in the first week before September.
The decision sent the Australian dollar to a daily high of $0.7408.
Looking at US pre-market activity, worries of slowing growth fed into a broad sell-off across the markets on Monday, leaving futures relatively strong on Tuesday. At the time of writing, the Dow Jones had pushed upwards 107.50, whereas the Nasdaq and S&P 500 had shown more modest, but still positive, movements.
A drop in Treasury Yields was recorded. The 10-year treasury note benchmark dropped 1.15%, mainly driven by PMI data showing US factory output slowing in July.
On Wall Street, Alibaba and Activision Blizzard are the key large caps reporting today. It’s been a successful earnings season this quarter so far for S&P 500 listed firms. According to Factset, 88% of S&P 500 companies recorded positive earnings in Q2 – the highest percentage since tracking began in 2008.
Check our US earnings season calendar for more information on which companies are still to report.
Oil prices on key benchmarks pulled back this morning, possibly in response to the rising number of Delta variant cases worldwide, and a slowdown in Chinese, US, and UK manufacturing in July. WTI is currently trading at around $71.55, whereas Brent is lower at $73.18.
European stocks to open higher on rebounding risk sentiment
Key European indices are set to open August positively as risk sentiment lightens after last week’s poor close for the markets.
The FTSE100 starts on the front foot, tracking over 70 points higher this morning. The DAX jumps up 112.27 points, while the CAC40 is up by 55.08.
It’s good to see the markets in a broadly confident mood this morning. Asian equities, which performed stolidly last week following a spate of new Chinese regulatory crackdowns, also begin August with strong positive movements. The Hong Kong Hang Seng, for instance, has taken big strides to reach 26,195 at the time of writing – up 270.
Elsewhere, a number of confident earnings reports from global large caps is helping power positive stock market sentiment.
HSBC, for example, reported at the start of Asian trading it had grown profits fourfold this quarter, reaching $5.1bn. Europe’s largest lender’s H1 profits are up 150% year-on-year, totalling $10.8bn. Total revenues, however, are down from $13.1bn in Q1 to $12.6bn. Even so, a very strong quarter for HSBC has been seen.
Rolls-Royce and Taylor-Wimpey are amongst the European firms reporting quarterly earnings today. On Wall Street, technology provider Arista Networks kicks off another busy earnings week later on, while Uber, scandal-rocked Activision Blizzard, GM, and Virgin Galactic all due to share quarterly figures later this week.
Check our US earnings season calendar for more information.
The USD continues its bearish form, with the Dollar Index dropping to the 92 level, after dipping below that. This is the greenback’s worse performance since May and hasn’t been helped by the Fed’s dovish stance on rate hikes.
The weaker dollar has been fairly good news GBP/USD, however. The pairing has climbed to fresh daily tops of 1.3925, helping reclaim territory that slide away on Friday. The pound has been supported by falling Delta variant COVID-19 case numbers in the UK, as well as the softer dollar.
UK PMI data is due this morning although the markets may be anticipating a slowdown in both services and manufacturing output. Labour shortages and higher input costs, similar to those in the US market, may have stymied July’s growth.
Crude oil, both WTI and Brent, drop away from gains made over the weekend. WTI futures are currently trading at around $73.11, while Brent is hovering around the $74.60 area.
Bitcoin has cleared $40,000 this morning, but it did so several times in the last week before falling away again and staying in the $39,000 range. The world’s most popular cryptocurrency has had a tough time sustaining incremental gains last month, so it’ll be interesting to watch BTC price action as August progresses.
European stocks pull back while dollar feels weak
European equities edged lower on opening this morning as investors respond to the flurry of earnings season reports from across the week.
A range of European-listed large caps are reporting today. Renault, Air France-KLM, BNP Paribas and IAG are some of the headliners today. It’s also a fairly busy day for US earnings too, with the likes of Proctor & Gamble, Chevron and ExxonMobil sharing their latest quarterly financials.
It will be interesting to see how Chevron and ExxonMobil perform. Oil prices have strengthened across 2021, despite recent dips due to OPEC+ wrangling, so this may have fed into resurgent revenues for the oil supermajors.
In terms of European earnings, BNP Paribas has shared headline profits of €2.9bn – a 26% annual rise – this quarter. Renault has also shared some insights already, noting €345bn in first half profits for 2021. It’s a major reversal for the French automaker, which posted a €7.3bn loss during the same period in 2020 after the Covid-19 caused mass factory shutdowns.
Looking at indices, we can see drops on the key European bourses. The FTSE 100 was down 73 points at the start of Friday at 7,005.2. Germany’s DAX is about 117 points lower, at 15,492, and the French CAC40 dropped 28 points at 6,605.
Conversely, the NASDAQ was at 14,778, showing a small 15.8 jump. The Dow Jones was up 153 points too at 35,083. The S&P 500 continues the positive trend for US indices, up by 18.51 to reach 4,419.
Asian markets were performing lower, especially Hong Kong’s Hang Seng, which had dropped nearly 1.56% at 24,905 at the time of writing. Shares in Asia are possibly on course for their worst month since May 2020 as trading volatility steps up.
Turning to the dollar, the Dollar Index, which weighs the greenback against six other major currencies, looks like it’s on track for more dismal performance following a dovish Fed outlook. It is currently rated at 91.88, after reaching a low of 91.85 – the lowest level seen since June 29th.
The Fed committed to boosting its monthly Treasury securities purchases by $80bn at its meeting on Wednesday July 28th. An accommodative approach to the economy, despite hot inflation and disappointing Q2 GDP performance, appears to be Chairman Jerome Powell and the Fed’s direction.
US GDP grew at 6.5% in the quarter ending June, falling way below the Dow Jones estimated 8.4%. A combination of higher consumer prices, high commodities prices, and falling manufacturing and services output contributed to the worse-than-expected second quarter growth rate.
WTI oil contracts started this morning at $73.48. Brent has dipped just below $75 at $74.99 but could be on course to crack that threshold by the end of the day. At week’s end, oil should have gained around 2%, with higher demand in the US and tighter supplies cited as supports.
Bitcoin had cleared $40,000 earlier in the week, but as of today had fallen back to $39,677 at its lowest. The world’s most popular cryptocurrency has had a bit of a torrid July and looks like it’s struggling to establish a breakout.
Oil prices stabilise but supply issues send mixed signals
Oil prices are back above $70, but is this sustainable? The trader community appears split over oil’s course. Elsewhere, natural gas keeps its rally going, enjoying its time in the sun.
There appears to be a growing split in the oil trading community.
On one hand sits those who believe the OPEC+ engineered supply deficits will help foster high prices as demand recovers. On the other there are those traders who feel demand is being erased before it can reach its peak, thanks to growing Covid-19 cases and low vaccination rates worldwide.
How will this factor into oil prices? It’s hard to say at this stage. Current prices seem to sit around the fact traders have priced in the worst case scenario.
As of Tuesday, WTI futures were trading for around $71.6.
Brent contracts were exchanging hands for roughly $73.45.
Apart from rising cases in key importers, other factors at play here could put pressure on oil prices.
Supply squeezes maybe a recurring theme until the pandemic is over, even with OPEC & allies tapering up production by 400,000 bpd each month from now until April 2022.
One is China’s clampdown on import quota abuse. Authorities in the world’s largest crude importer are planning a crackdown on the misuse of import quotas. This may create a 20-year low in inbound Chinese oil shipments.
Looking to EIA storage data, inventories increased by 2.1 million barrels in the review period up to July 16th. At 439.7 million barrels, U.S. crude oil inventories are about 7% below the five year average for this time of year.
But there is positive news. Rig counts also continue to rise. Baker Hughes reports the total US oil & gas rig count has increased for the fourth consecutive week, indicating strong future output.
As of week-ending July 23rd, 491 rigs were active in US production areas – the highest level since April 2020. Seven oil rigs were added to counts, although gas rigs stayed static.
Natural gas trading
Natural gas started the week strongly, breaching the $4.00 level, and continuing gains made across last week.
Intense heat in key US geographies is helping power the rally as short-term cooling gas demand intensifies. European weather patterns, however, are trending towards cooler temperatures, which may lower demand here across the rest of the week.
As per Natural Gas Weather: “National demand will be strong this week as hot upper high pressure rules most of the US w/highs of 90s to 100s, including 95-100°F Texas.
“A stronger weather system w/showers and cooler air will push across the Great Lakes and Northeast late in the week and next weekend w/highs of 70s and 80s to ease national demand.”
While US oil rig counts have increased, according to Baker Hughes, gas rig counts have stayed static. As of week-ending July 23rd, 104 gas rigs were operating in key US gas production geographies.
US working gas in storage was 2,678 Bcf as of Friday, July 16, 2021, according to EIA estimates. This represents a net increase of 49 Bcf from the previous week. Stocks were 532 Bcf less than last year at this time and 176 Bcf below the five-year average of 2,854 Bcf. At 2,678 Bcf, total working gas is within the five-year historical range.
Oil retreats following OPEC+ decision as Covid fears mount
Following a month of strong gains, oil price action has retreated.
OPEC & allies finally reached on the 18th last week after nearly two weeks of back and forth. OPEC+ will ramp up production 400,000 bpd every month from August onwards. These increases will stay in place until December 2022.
In practical terms, this should mean lower prices. We’ve seen oil push to new heights during the OPEC+ tussle. Tight supplies were supporting prices. In anticipation of the taps opening up, however, WTI and Brent contracts have dropped back to expected levels.
At the time of writing, oil prices had below the $70 mark for two of the three major benchmarks. WTI is currently trading for $67.15 – the same levels seen towards the end of May.
Brent is trading for around $69.40.
This is partly due to the OPEC decision, but also the very real threat of the global Covid-19 pandemic.
Despite economies like the UK cheering about freedom and lowering restrictions to almost pre-pandemic levels, the virus is still very much a threat. The delta variant, in particular, continues to push infections back to levels not seen since last summer.
This had fed into a growing sense of unease, which may explain the soft price action and retreat we’ve seen in oil prices over the past couple of days. Travel restrictions in Asia, for example, have blunted optimism around jet fuel recovery this year.
On the other hand, US oil stocks continue to fall at a rapid rate. The EIA’s crude oil inventory report for week ending July 9th showed a 7.9m barrel week-on-week fall. Oil inventories are now 8% below the five-year average for this time of year.
While US consumption appears to be healthy, it will be interesting to see how it contrasts with global volumes, particularly if more shutdowns occur.
Some are still feeling bullish. Goldman Sachs, for instance, has reiterated its belief an $80 for Brent will happen in 2021. Brent crude did almost reach that level during the recent rally, but it remains to be seen if oil can make such gains again before the end of the year.
Natural gas trading
Natural gas prices started the week on a bullish footing with prices floating around the $3.70 level.
According to EIA research, US gas consumption was up last week, driven by an uptick in power generation. For the week ended July 9th, total gas consumption was up 2.1% with a higher 3.4% week-on-week increase in natural gas consumed for power.
Despite this, more gas is being held in US inventories. The EIA report states working gas in storage rose 55 Bcf compared with the previous week for a total of 2,629 Bcf. Year-on-year, stocks are lower overall, standing at 543 Bcf less than last year and 189 Bcf below the five-year average of 2,818 Bcf.
A moderate demand outlook for the rest of the week into next week is forecast by Natural Gas Weather. Two weather systems, one bringing showers and cooler temperatures across Central, Southern and Eastern seaboard states, and another bringing hot temperatures in the Northwest, are creating a conflicting demand picture.
Stocks bounce after sell-off, stagflation worries persist
In a word, stagflation. That’s how I’d sum up what this market angst is all about. Or at least, the spectre of stagflation. Simply put, growth is already decelerating and downside risks to the growth outlook are darkening due to rising cases, Delta and other emerging variants, as well as worries about potentially lower vaccine efficacy. At the same time, inflation is shooting higher. Supply side constraints (supply chain tightness, availability of labour/parts) are a problem central bankers cannot solve.
As I detailed on August 12th 2020, the Fed was always going to struggle to get a grip on inflation as it let the economy run hot – AIT was developed before the vaccines had their effect and the Fed has been slow to respond. (US inflation hot, stocks keep higher as bonds slip). “The Fed should and could be relaxed about headline inflation running above 2% for a time, instead prioritising the employment level, but it also means inflation expectations can start to become unanchored as they did in the 1970s […] In a nutshell, if inflation expectations lose their anchors, then we are faced with a stagflationary environment like nothing we have seen for 50 years. High inflation, low growth for years to come is the unwanted child of a global pandemic meeting massive government intervention. And, expounding further on Aug 13th: “The risk is that inflation expectations can start to become unanchored as they did in the 1970s when the Fed had lost credibility, this led to a period of stagflation and was only tamed by Volcker’s aggressive hiking cycle.”
Are we going to see another Volcker? I doubt it very much, I doubt central bankers have the bottle or mandate even (full employment, remember) to engineer a recession to get everything back on an even keel.
Stocks slumped at the start of the week and bonds rallied, sending the US 10yr benchmark to its lowest since February at 1.17%. The S&P 500 declined 1.6%, whilst the Dow Jones industrial average was more than 2% lower for the session, though both closed off the lows of the day. It was the worst single day for the Dow since October, as the major cyclical plays – energy and financials – led the losers. The S&P 500 briefly traded below its 50-day SMA but managed to close above this level, and managed to just hold onto our horizontal support drawn across the May-Jun peaks. The Vix spiked to 25.
As previously noted here, the whole story of the bull run since the vaccine news/Biden win in Nov is littered with ~5% type pullbacks to that 50-day line, before the uptrend is resumed. Could it be different now? Perhaps, but it would be betting against form to suggest so. We’re only about 3% off the recent all-time high and this pullback may not be over until at least that becomes a ~6% drop to about the 4150 area. Cyclicals have been selling off for a while now and the market was being propped up by an ever-narrower base of mega cap tech/growth.
European indices endured a brutal session, with all the major bourses registering declines of more than 2% for the day. The FTSE 100 tumbled through its 100-day moving average, hitting a three-month low. In early trade, stock markets in Europe staged a fightback, but I’d flag the risk that this a) a deceased feline and in any event b) is a market in a summer funk that can cut you up in both directions. UBS boosted sentiment with a net profit of $2bn for the quarter, up 63%. EasyJet shares rose as it signalled it would fly 60% of Q4 2019 capacity in the final quarter.
The FTSE rolled over after failing to sustain the 78.6% retracement above 7,200. Starting to look a tad oversold and we should anticipate a retest of 7,000 but further weakness cannot be ruled out a bears can look to a possible retreat to the 61.8%/23.6% at 6,650, close to the 200-day SMA.
It’s another story of moving averages in FX, with cable dropping below its 200-day line. It’s not traded under the 100-day and 200-day SMAs since Jun 2020. Not a heap of support below and a swift move back to 1.350 cannot be ruled out.
Finally, Bitcoin futures: as I said yesterday the price action was dreadful and shouting out for another leg lower, duly delivered as risk took a beating yesterday (great hedge…). Price action now under $30k and eyeing the Jun low.
OPEC+ deadlock unresolved – what does this mean for the oil trade?
OPEC & allies are yet to reconvene its July meeting as supply pressures mount on the cartel. Will we see the deadlock broken soon?
A week on from OPEC and allies breaking up production tapering talks, the deadlock doesn’t look like it’s going to be shifted soon. The window for higher output in August is closing. This comes despite clamour from the cartel’s various members to take advantage of strong oil prices.
Saudi Arabia and the UAE remain at loggerheads over production volume increases. However, both have locked August supply volumes in with their respective customers.
An upcoming Islamic holiday, coupled with fixed August sales, means reconvening OPEC+ if an accord is reached is unlikely to happen until the end of July or even early August. As it stands, output will remain the same in August as it was in the previous months – assuming OPEC members and allies don’t just go rogue and start pumping more to take advantage of high oil prices.
And there’s the rub. Part of the reason why oil prices are so strong is OPEC & allies finding common ground and tapering production gradually instead of flooding markets with crude.
At the time of writing, oil prices for WTI and Brent had peeled away from highs seen last week but are still performing strongly. WTI futures contracts are at the $74.39 level.
Brent crude is currently trading for $75.45.
August will likely be a story of tighter global supply meeting high worldwide demand. The Biden White House has advised OPEC+ to find a way through and begin its proposed 400,000 bpd production increase.
This comes as EIA data for week ended July 2nd saw one of the highest drops in US crude inventory stockpiles since 2019.
Crude inventories fell by 6.9 million barrels to 445.5 million barrels in the review period, reaching their lowest levels since February 2020. This beat analyst expectations, which forecast a 4m barrel drop.
Gasoline demand surged to a one-week record, but the four-week average of gasoline supplied was at 9.5 million bpd, the highest since October 2019. That helped lower gasoline stocks by 6.1m barrels.
Perhaps in response to the OPEC tussle, or because the conditions are brightening for domestic oil producers, the US rig count has increased for the second week running this week.
According to Baker Hughes, the number of operational US rigs is at its highest level since April 2020 with 378 currently operating.
Natural gas trading
Natural gas started the week on a strong footing, with prices staying above the $3.70 level.
Hotter weather this week into next is expected to cater to heightened cooling demand, as per Natural Gas Weather.
NGA says: “National demand will increase this week as upper high pressure builds back across the East with highs of upper-80s to 90s, while still hot to very hot over the West into Texas and the Plains with highs of 90s to 110s. A weather system with areas of showers will stall over the South Great Lakes and East-Central US with highs of 70s to lower 80s for locally lighter demand.
“National demand will ease late next weekend as weather systems over the Great Lakes and East cool highs into the 70s and 80s, although still hot over the West, Texas, and Great Plains. Overall, national demand will be high this week.”
Broadening the view, the EIA is predicting a decline in natural gas consumption throughout the US in 2021. According to recent research by the energy body, US natural gas consumption averaged 83.3 Bcf per day in 2020 – down 2.2% from 2019. The drop was partly driven by a fall in natural gas used to generate electricity, which was a result “demand destruction” the EIA says.
The energy authority believes consumption will have fallen 1.1% overall by year-end 2021 but will rise by 0.7% across 2022.
Working gas in storage was 2,574 Bcf as of Friday, July 2nd, according to EIA estimates. This represents a net weekly increase of 16 Bcf. Stocks were 551 Bcf less than last year at this time and 190 Bcf below the five-year average of 2,764 Bcf.
Baker Hughes reports the gas rig count has increased. 101 US natural gas rigs are now currently operating in key production areas.
European stocks slide in wake of Fed minutes
European stock markets continue to trip the ranges – sliding sharply this morning following yesterday’s jump. The FTSE 100 dropped 1.3% in early trade to the 7,050 level, whilst the Euro Stoxx 50 declined 1.7% to test 4,000. Asian shares were broadly weaker overnight, with a steep fall in South Korea registered as daily Covid cases there surged. Bonds are still bid as weaker hands get washed out with the 10yr Treasury note yielding 1.28%, a new 5-month low in the wake of the Fed meeting minutes – it’s either sending a warning signal or it’s just a flush before the move higher. US stock markets were mildly higher yesterday, with futures pointing to a drop at the open. Apple shares hit a fresh record, whilst meme stock favourites such as GME, WISH and AMC fell sharply. In London, money transfer app Wise got off to a solid start as shares rallied on the first day of trade. Shares in troubled Chinese ride hailing app Didi fell another 5% as it faces a lawsuit from US shareholders.
Minutes from the FOMC’s meeting in June showed pretty much what we knew; policymakers are moving but with a degree of caution. “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated” but it is “their intention to provide notice in advance of an announcement to reduce the pace”. Meanwhile China is back in the game – the State Council issued a statement saying it would seek “to increase financial support to the real economy” by using “monetary policy tools such as RRR cuts”.
Deliveroo reported a better-than-expected rise in revenues in the second quarter but cautioned it would not lead to better profits. Gross transaction value (GTV) rose 76% year-on-year to £1.7bn. For the full year, the company raised its GTV growth estimate to 50-60% from 30-40%. However, gross margins are seen in the lower range of what was previously communicated, with management citing investment and lower average order spend. Looks to me like it should be making more money if GTV growth is a full 20 percentage points higher than expected. Poses serious questions about the model if it cannot at least deliver margins in the upper range of expectations on such impressive sales growth.
Oil prices slipped as the gulf between OPEC and the UAE showed no signs of closing. The UAE signalled it could open the spigots to pump at will. The fear is the supply deal could unravel, heaping more crude on the market. WTI (Aug) held at $73 the first time but cracked on the second attempt and quickly declined and found support at $71. Another test at this level can be expected.
Finally, it was great to see Wembley almost full last night with tens of thousands of fans. No masks, plenty of singing, social distancing forgotten. So why can’t my kids have a school sports day? The inequities of opening up are legion, almost as much as the inequality of lockdown. We can only pray the mask-wearing Covid Stasi are silenced for good and we can get on with our lives.