Risk-Off markets: Oil down 6.33% on demand worries
When markets make daily all-time highs, there is always the worry that the structure underneath is not able to support these lofty prints. This is why when the market turns it does so with ferocity as it looks for value.
The good news is that the Italian 40 index ended the London session flat today, the bad news is every other bourse and index on my watch list was red. The DAX ended up down 2.62%, the FTSE100 ended negative 2.25% and the US indices were trading at least -1.10% to -2.30% down. Coronavirus is a good economic weakener, and the fear is the companies that are reporting their earnings will suffer from a lack of growth into the next quarter.
United States President Joe Biden has come out today saying that most price increases that happened over the past few months were expected. He obviously agrees with his Fed Chair and Treasury in that the price increases are only temporary, adding that 60% of all price increases were induced by transitory effects. The US dollar came under a bit of pressure as bonds broke through resistance pushing yields a lot lower. The US dollar index is still trading higher in the channel and the most obvious target still remains the swing high from late March 2021.
The demand for the highest quality collateral is real, as we saw in the reverse repo markets last month. Traders are willing to take the Treasuries regardless of negative real rates amid the troubles due to COVID-19 and the Delta variant.
British Prime Minister addressed the nation today as England canceled coronavirus-related restrictions and asked for a cautious reopening on this “Freedom Day”.
From today, there are no legal requirements for citizens to wear protective masks in closed venues, mass events such as concerts can be held again, socializing limits have been removed, while nightclubs are able to start working. From August 16th, 2021, the country is expected to switch to a testing-only system, similar to the one Mr. Johnson and Sunak were due to trial before their epic U-turn.
The GBPUSD traded to the double bottom that formed between March and April this year, with a sweep of those lows, there is an opportunity for traders looking to get long to have taken the stops of retail traders that would have left their liquidity at this level. If the longs that entered today are wrong, they will no doubt battle to get back to break even, which is when the shorts will pile in.
The worry for people in the UK now is that 60% of the hospital admissions with COVID have actually had 2 vaccine doses. But Dr. Fauci in the USA is saying that if vaccinates you have a 93%-94% chance of protection. I guess if you don’t die, the double dose is worth it.
Prices of oil collapsed today as demand worries and possible oversupply concerns weighed on traders’ minds. Last week OPEC agreed to return 2 million barrels per day (BPD) to the global market by the end of the current year and to gradually remove all further cuts by the fall of 2022. The IEA came out and said that the OPEC+ deal will go a long way to filling the 2021 supply gap.