Front month WTI Futures plunges to negative $37 as storage costs rocket

It was a move of epic proportions in the front month WTI Crude futures, the significance of which is not really known of yet, but was incredible to watch.

In what was a relatively normal day in the stocks, spreads, held steady for S&P/Nasdaq and S&P/Dow, but in the Energy space, WTI futures which saw the expiry of the front month continued to trade under pressure. 

May WTI futures were already down 40% on the day in the morning, continued lower as positions had to be either rolled over, or closed out, or otherwise risk taking delivery. It appeared that traders were waiting for the May-June spread to narrow as the roll was a massive $7 over the past few days, but this did not pan out, and so due to lack of liquidity, and the number of contracts that had to be traded out we saw sharp decline in futures, to the point where they went below zero, and to a low of -$37 and change before rebound to trade just above $1. So in theory this meant if the futures closed around the low, you would take delivery of 1K barrels of oil as well as be paid $37K for the privilege. 

Due to the massive over supply and the lack of storage options, with the storage costs at all time highs, being left holding till expiry was the last thing anyone wanted to do, to the point it went to this extreme to get out.

Longer term, it is a real tell of the current environment. We have what would have been classified as a very low risk probability of a pandemic which has paralyzed demand, on top of which a supply war between Saudi Arabia and Russia, which has flooded the market with supply, to the point where they cannot give it away for free.

The June/July spread currently is around -$5.50, remaining in contango, infact much of the front part of the curve is in contango representing the fear of supressed demand and huge storage costs.

I wouldn't be surprised if we drop to below $10/bbl again, although I cant see the price action to be as outlandish as it was today.

Stock markets surge as the Covid cases in Europe start to flatten

US markets rallied over 7% across the board with strong gains in Europe, as Spain and Italy showed slowing growth of Covid-19 spread, whilst New York, the epicenter of the Virus in the US is also leveling.

Over the weekend the the rhetoric from the Surgeon General in the US painted a bleak picture, warning that the US will face one of the worst weeks of the Virus outbreak, while on the other hand positive numbers out of New York suggested the tide is turning. Eitherway the markets surged, and in some respects was entirely expected, going against the bleak weekend warnings, as the momentum continued to build through the day, as the short term bottom seems to be in place.

The ES/YM spread was interesting, as relative ES strength in the morning gave a good opportunity to short the spread, which then saw a nice turnaround coming into the close, as relative strength in Boeing which ended up almost 20% helped the YM outperform, and so a nice 100 tick reversal from the high in the spread.

On the energy front, Crude Oil dropped over 7% as the proposed OPEC+ meeting was delayed due to 'Technical' reasons, putting into doubt the projected oil production cuts, which saw Crude rise sharply last week.

Front month crude calendars, went offered as you would expect, with May-Jun Calendar approaching end of March lows, while Jun20Jul20 calendar appraoches the 50% fib level from the Mar 29th-April 2nd move. The Jun/Jul/Aug 1 month butterly trades back at recent lows, whilst the Jul/Aug/Sep butterfly has consolidated in the -0.40 to -0.30 range.

In general today saw most assets rise, with Gold and Silver up sharply, along with Stocks. Over the past couple of weeks has seen opposing action following a big up move, so it will be interesting to see if that pattern holds tomorrow.

Crude Oil spikes in potential production cut

It was quite the move for Crude Oil futures as a tweet from President Trump suggested potential coorperation on a production cut, as Crude futures were continuing to slide. Crude futures jumped as much as 45% before fading half the move with the crude calendars spiking on the news before fading much of the move.

 The front month calendar moved 160 ticks, and while crude futures have managed to hold on to some of its gains the front month spreads have seen retraced most of it.

Equities have had good two sided action, as we came into the US session with strong gains, a weaker IJC number saw a strong sell off before the oil comments pushed it back up again. We now trading roughly mid range as the markets chop.
The Dow-ES spread has remained steady, whilst the Nasdaq is underperforming. Overall spread action has been steady as the volatility spikes have died down, but the magnitude of the moves are still present.
Markets look weak still, and after the run up last week, seems like we going to probe lower, as businesses continue to layoff workers, and creidt lines continue to be drawn.

It was a sell everything day.. cash is king

Its been four days this week and we have had two 2K+ down days as well as one 1K+ up and down day. The volatility and velocity in the stock market is something quite unpresidented, and today, we had the crypto currencies joing the sell off, with Bitcoin trading a further 25% lower trading at around $4600. Its an asset fire sale, with the European Banking index down over 15%, major European Indices down over 10%, US Indices also sharply lower.
Overnight futures currently sharply lower once again as selling pressure continues.
The volatility has been good for the day trader, key to be flat by the end. The DOW/ES spread has held relatively well as the broad based sell off trading between 3600 and 3850 pretty much the whole session, key was keeeping small but trading often as the volailtiy allowed for multiple entries and exits.
During these times keeping small is key, its how I survived 2008/09, and its how i look to get through this. Spreads in general have worked well. containing the volatility, as well as provvide more short term opportunities.
Keep an eye out for the Itraxx crossover levels, as 5 year CDS spreads on many nations are pushing to multi month highs. If interbank lending freezes, we could see Eurodollars, Euribor and Short Sterling yields rise sharply, whilst Governemnt bonds will see the flight to safety blowing out those spreads.
As we wait for the coordinated fiscal response, whether it will calm the markets remains to be seen, but as the VIX rises above 70, at levels not seen over 10 years, the fear continues to mount.

US 10 year yield continues to decline, consolidated below 1%

As US bond yields continue to plummet, US bond yield spreads have widened as markets continue to factor in more rate cuts from the FED, following on from the 50bp 'Emergency cut', during the week. 

With Eurodollar spreads sitting at lows for many weeks, the only play was long there, and so the rise in spreads has been nice as we now approach the upper end of the recent range, looking for shorting opportunities around these levels for Dec21/Mar22 through to Dec 22.

The DOW/S&P spread has been a good play of late, has not been as skewed by the tech names like the Nasdaq. The spred ranged in a 100 point range, inside the larger range, and scalping 25 ticks at a time, around 4040 long and 4170-4200 short has been my play today, which has worked so far as the spread has remained fairly steady on this broad based sell off.

In this tricky environment, keeping it small, and quick to cut the break out.

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

As most must know trading Short Sterling is a bit of a bore, and has been for a while. Having managed to get out of my 2 month hold before, the dip lower a couple weeks back gave me the opportunity to go long again. I'm mainly weighted to Jun18Sep18 long 4s, and it seems like I'm waiting an eternity to get out. Yesterday's FED minutes showed that the door has been left open for a possible June rate hike, which had dropped Gilts to two week lows, with Equities under pressure as a result. On top of this stronger retail sales figures added weight to the steepening argument. Yet the continued down turn in stock pushed gilts higher and hence flattened the curve a bit and now we back at square one.
EUR/USD trades back below 112, dropping over 400 pips from month highs, short of the century up there. Hind site is a wonderful thing of course. Dollar strength put Crude on the back foot, Brent and WTI down over a buck.
Walmart had blowout earnings, beating handily on the top and bottom line, guided Q2 well, helping the stock to trade 9% higher having traded at 5 month lows prior to the jump. Despite this the Dow is down in line with ES and Nasdaq. Traditional retailers in general have struggled in the quarter, with the likes of Amazon continuing to rule the roost with the retail sector. The retail ETF trading at 4 month lows.
Stock in general look to be turning, rallies are being sold off, a sell off seems to be looming, with June eyeing a potential rate rise in the US and the Brexit vote in the UK will likely bring much needed volatility.

Short Sterling Spreads Rebound

Its been a while since I did my last post, with markets much tougher to trade as a STIR spread trader. Often the lack of movement has meant you have no option but to hold positions for multiple days or weeks till you take a profit.
I currently amassed a long Short Sterling position, which isn't surprising given the big bout of flattening that first started end of January. The Spread has come off a relatively large amount, falling to a low at the beginning of Feb. It was an unprecedented move, with the curve which has been dead for the past few months dropping like an out right, with Mar17Mar18 spread dropping from the 30s to 9 on Feb 9th. Since then it has rallied a little to a high of 25 but on Friday dropped to a low print of 10.
Ive been long the spread in some form for the past 2 months, jobbing in and out, to where I'm finally break even, and hopefully a move back higher by a few ticks in the 12 month will get me a good out.
Todays inflation data is a push the right way to help dispel some of the rate cut calls from the BoE, but whilst the economy is still sluggish looks like accommodative policy will be here for the foreseeable future.
The problem arises that technological advances are making things more efficient and hence lowers costs, which in term keeps prices lower. This inevitably puts a cap on inflation, so will we really get that inflation these central banks are looking for. I doubt it, either way for the time being its sell any rally in STIR spreads.