Oil producers and oil services still not safe enough

Posted on August 31, 2020August 31, 2020 by George Kessarios

Analyst Insights, Monday, 31st of August, 2020

As you can see from the first chart, the Baker Hughes Crude oil rigs count finally had on the uptick. Rigs pumping oil increased from 172 to 183 sequentially

However, if we look at the second chart, we still have a very long way to go in order to reach over 800 rigs in operation, as was the case back in 2019.

And with oil still under $50 a barrel, the question remains if many US oil producers and service providers will make it before they are forced to restructure. The answer is difficult to answer. For example, recently service provider FTS International (ticker: FTSI) voluntarily opted for Chapter 11 protection from creditors, even if its balance sheet had plenty of liquidity (or so we thought). Creditors will take over 90% of the company, leaving current common shareholders with about a 10% stake.

It seems that the reason for FTS’s downfall is the low prices. As long as they continue to be low, many companies might need restructuring, even if on the face of it their balance sheet seems ok.

The bottom line is, continue to avoid the oil and gas sector, especially the juniors, with the exception if you are absolutely confident that the balance sheet is strong enough, to continue to weather the low oil price storm.

US stock markets on best August run in 3 decades

Posted on August 31, 2020August 31, 2020 by Exclusive Capital Research Team

Market Brief, Monday, 31st of August, 2020

The major US indices extended their gains on Friday being boosted by big tech advances and dovish comments from Jackson Hole. The Nasdaq index extended its records highs breaking above the 12000 levels.

Asian equity markets followed suit with the ASX up 0.2% and the Nikkei up by 1.8%. The Australian index was subdued due to mixed results from the mining sector while the Nikkei was boosted by a better than expected Industrial production and hopes on political continuity with Abe loyalist Suga set to run for the Japanese elections.

The UK is said to walk away from Brexit talks on EU’s demand for the UK to align with EU state aid rules.

In the FX space, the dollar index was generally weaker with month-end flows playing a part and mention that the new stimulus bill was rejected by Pelosi. EURUSD held above the 1.19 level while GBPUSD saw a brief year high.

The energy space saw mild gains from both WTI and Brent with the latter trading above 46$ per barrel while WTI cemented its gains above 43$ per barrel.

Gold still more shine!

Posted on August 28, 2020 by Exclusive Capital Research Team

Commodity Update, Friday, 28th of August, 2020

Yesterday saw a gold drop from $1977.26 to a daily low of $1909. 89 during FED Powell’s speech outlining the FED’s flexible approach to accommodate periods of higher inflation within reason which some have interpreted to be around 2.5%. This new tactic will help the FED follow through with keeping interest rates on hold whilst at the same time help the FED reach its inflation target of 2%. Conversely extended periods of High inflation without subsequent rate hikes could hinder dollar value in the future. This sentiment appeared to follow through as Gold quickly recovered and now trading at around $1943.00 per ounce.

In focus will be the long-awaited agreement on a fiscal stimulus package particularly after poor jobless claims earlier in the week together with the US presidential elections could see the yellow metal finish the last quarter on a High!

The Jackson Hole confirms a new era for the US dollar

Posted on August 28, 2020 by Exclusive Capital Research Team

Market Brief, Friday, 28th of August, 2020

Fed Chairman Powell announced that Fed officials are formally adopting average inflation targeting (AIT) via an updated and unanimously approved Statement on Longer-Run Goals and Monetary Policy Strategy. This flexible approach to accommodate higher inflation levels without raising interest rates is likely to help the FED eventually reach its overdue inflation target of 2%.

The focus for the pound today will be with the Bank of England’s governor, Andrew Bailey, where negative interest rates could be a theme of discussion as Governor Bailey has already stated that negative rates are “part of our toolbox…but at the moment we don’t plan to use them” .

Currencies such as the pound are already highly stretched in terms of positioning therefore any prospect of negative interest rates coupled with unfruitful Brexit negotiations is likely to make way for a precarious landscape for the cable.

Yesterday evening, US House Speaker Pelosi, after talks with White House chief of staff Meadows, announced that the White House continues to disregard the needs of the American people on coronavirus relief. Speaker Pelosi stated, ‘Democrats are willing “to meet in the middle” from a 3 trillion dollar to a $2.2 trillion-dollar fiscal stimulus package. In contrast, the White House wants a deal closer to $1 trillion. He went on to add, ‘we are willing to resume negotiations once republicans start to take this process seriously’

A prolonged agreement could potentially threaten a US economic recovery.

Gold is holding in longer-term bullish territory, but temporary strength in the greenback has flushed out short term speculative gold positions. The Jackson Hole symposium confirmed a lower for longer stance by the Fed, allowing gold to potentially benefit from lower yields.

And finally, West Texas Intermediate charted an inconclusive session on Wednesday, closing the day with marginal gains and amidst rising open interest. That said, further gains should not be ruled out, always with the immediate target at the $44.00 mark per barrel.

What the COT report is telling us about EURUSD

Posted on August 27, 2020August 27, 2020 by George Kessarios

Analyst Insights, Thursday, 27th of August, 2020

There are two categories of investors that I avoid going against. The first is strategic short sellers and the second the “non-commercial” speculative currency futures traders or the nice folks mentioned in the COT report.

The reason is, both categories of investors do their homework. Insofar as currency speculators, they have a very deep understanding of what drives currencies and are usually right.

As per the most recent COT report dated August 21, net long EURO positions are the highest they have been in over a decade.

Does this signal a crowded-trade, and should we take this data as a contrarian indicator? I doubt it. This category of investors do their homework and are usually right. And when I see a record number of contracts long EURO, the most likely outcome is that the EUR’s climb vs the dollar should continue.

Yes, they could be wrong and they might be forced to reverse course, however until they do, I for one do not dare go against this very sophisticated group of investors. The next COT report is on Friday, August 28 so we should get the additional color as to their sentiment on the EURO, which might provide insight for the direction of the Euro near term.

Sterling into further uncertainty, while Gold and WTI crude are under bearish pressures

Posted on August 25, 2020August 25, 2020 by Exclusive Capital Research Team

Market Brief, Tuesday, 25th of August, 2020

Global indexes posted substantial gains, with the rally attributed to encouraging news coming from the US that the food and drug administration has approved convalescent plasma to treat severe coronavirus cases. EUR/USD and GBP/USD posted modest intraday gains but closed the day with losses, not far from last week’s lows.

The US dollar remains under pressure with unemployment benefits expiring and manufacturing activity in the NY and Philadelphia slowing down. Considering that the Fed has no plans to raise interest rates for the next year, the market will focus its attention this week to Federal Reserve Chairman Powell’s speech and the announcement of a potential inflation target. Revisions to Q2 GDP will also be on the agenda along with personal income and spending.

EUR/USD which yesterday rejected 1.1850 level will be back in focus today with the German IFO report and revisions to their Q2 GDP scheduled for release. While investor sentiment improved, PMIs were weaker, a sign that the Eurozone economy is also losing momentum. This suggests that tomorrow’s German IFO report could decline which may turn EUR/USD’s pullback into a deeper correction. Furthermore, COVID -19 infections in Europe are currently on the rise and the concern of a second wave could underpin the EURO even more.

The British government is struggling to control COVID-19 – and how to reopen schools. Prime Minister Boris Johnson has reportedly taken over education policy after a messy week around exam scores suggesting confidence is lowering in overall government policy.

Another precipice the UK could figuratively fall off is Brexit. Another round of talks has ended without progress. The mutual announcements are sent sterling down on Friday and continue weighing on it. The transition period expires at year-end and talks could come down to the wire. Overall, GBP/USD has failed to benefit from the dollar’s weakness and may fall once the greenback stabilizes.

Gold fell modestly on Monday after being unable to hold onto gains and following recovery of the US dollar during the American session. The ounce peaked at $1,962, but it quickly turned to the downside.

WTI Failures above $40 and break below support open risk back to test the prior resistance set in April of this year some $10 lower from today.