Thursday, Apr 05, 2018 MARKET NEWS Coal News The API2 Cal19 contract opened 50cents lower than Wednesday s close at $76.15/t in contrast with the weakness shown in the German Power Cal19 market which opened flat at 36.20/MWh. The two markets moved without correlation through the session with the German Power Baseload Cal19 market closing marginally lower falling 10cents on the day at 36.10/MWh. The Zhengzhou Commodity exchange was closed today as China celebrates the Qingming Festival and will reopen for trading AM on Monday. NEWC physical produce for May-18 delivery found support through yesterday s session fluctuating around the $94.00/t handle with May18 trading at +1.50 premium to the index on today s open indicating stability from Wednesday s levels. The Q218 API2 v NEWC spread closed 15cents higher at -$12.20 with the Cal19 API2 v NEWC spread closing 15cents lower at -$6.80. The API2 Cal19 market fluctuated in a $1.65 range closing 90cents higher at $77.05/t after setting intraday highs at $77.10/t trading on the close. Backwardation across the API2 curve came under pressure with the Q218 v Cal19 spread closing 10cents lower at $4.00 with the Cal19 v Cal20 spread closing 5cents higher at $3.45. Backwardation across the NEWC curve also came under pressure with the Q218 v Cal19 spread closing 40cents lower at $9.40 with the Apr-18 contract closing 60cent higher at $94.15/t. Pg. 1
Iron Ore News Market Comment DCE is closed today due to public holidays in China over the two working days till end of the week. Thus, limited activity was seen in the market with only outright price seen so far at Apr 62.50 bid for 5 kt. Port Inventory According to Custeel's survey of 42 ports in China, the total port inventory stood at 160.97 million tonnes on Wednesday, 4 Apr 2018, down 1.01 million tonnes day-on-day, while daily cargoes evacuation increased by 133,000 tonnes day-on-day to 2.66 million tonnes. Technical Report Commodity Currency Intraday Support and Resistance The AUDUSD has now started to range having created a bullish divergence on the intraday chart last week. Technically we remain bearish below its MA s but has moved into a neutral phase with support at 0.7643 and resistance at 0.7758. Pg. 2
Oil Market News Equities: Wall Street continued to post gains on Wednesday following Tuesday s gains. The Dow Jones index closed 0.96% higher and the S&P 500 is up 1.16%. Sentiment was lifted as the US negotiated a resolution to trade tensions after Beijing s response to the US, where it targeted key American imports. Many investors, however, view Donald Trump s tariff plan targeting China as part of his negotiation strategy rather than his final policy. China and America s trade with each other has grown substantially over the last 10 years and both countries are highly dependent on each from an economic perspective. If a trade war does escalate, both countries have a lot to lose. Shares in US exporters were volatile on Wednesday and while the broader US equity market recovered, industrial stocks still closed significantly lower. European equities meanwhile closed mainly in negative territory on Wednesday as investors shed tech and automotive companies in favour of consumer good stocks. Investors have been rattled by the possible consequences for businesses elsewhere in the world which supply goods or components used in products which the US and China export. Into the Asian session, the Nikkei has lifted in trade on Thursday following the recovery in the US on Wednesday. Markets in mainland China, Hong Kong and Taiwan are closed for the Tomb Sweeping Day holiday on Thursday. Bonds: Treasuries have continued to track the risk rebound with yields bouncing handily off their session lows and making new highs for the month across the curve. Moves remain modest, to the tune of 1-2bpts but notable that the 10yr yield re-took the 2.80% prior key support handle. Bear steepening remained the bias, but also again had only a modest impact on spreads with likes of 2v10 and 5v10 wider by less than 0.4bpts. The former nonetheless retook the 50bpt handle as well. By contrast, the 5y+ portion of Eurozone bonds were supported yesterday, generally flattening curves relative to their 2y yields. Most curves also reduced their spreads relative to Bunds, which would be consistent with a solid auction at the Spanish and French auctions today. The reception of the issuance will form evidence of underlying market sentiment today, as the market grapples with the prospect of ECB rate tightening but also a more stable and reflationary real environment at present. Spain is slated to auction off a duration heavy slate of 2021, 2027, 2028 and 2048 bonds today. France will offer 2028, 2034, 2039 and 2048 bonds too. Interesting to note how long end Gilts are starting to underperform with the 30y yield rising around 4bp on a month-to-date basis while the middle portion of the curve is holding a lot more steady. BoE buybacks could be having an affect here in that they would be supporting the middle portion of the curve. Currencies: FX market continued enjoying relative sedateness compared to the vol of equity peers. DXY was hit in kneejerk fashion intraday, but losses never really gained traction and index was right back knocking on interim resistance at 90.20. It is still comfortably embedded within the range of the past 4 months. EUR remains notably sluggish, continues to grow expensive to carry, but the huge contingent of EUR longs has remained embedded and been strong hands in the market so expect there only to be fireworks should the EUR-USD range low of recent months around 1.22 be revisited. The Asian session has seen the AUD come under pressure despite a rebound in Asian equities, at the time of writing the pair was pivoting around the 0.7700 big figure with the bias favouring the offered side of the equation. That said, buyers are said to be lurking towards the 0.7650 level and this may be a tough nut to crack. Credit markets: IG primary cooled with 2 deals pricing for just over $2bn. Book coverage was also much more tame at just 2.3x compared to 5x for the prior session. New issue concession spiked to 15bpts. Total for the week now just over $12.5bn with forecast for $20-25bn. IG USD pipeline: NWB (1.5yr; 0.3bn), BNG (4yr; 0.5bn), Ausgrid (5-10yr), BOC Aviation, Bank of China, Marubeni (5yr), Westwood, Hanwha Life, KazMunaiGas, Sharjah Bank (5yr), Transurban Queensland (10yr), Megaworld, Damac Real Estate, Dollar Tree, Salesforce (2yr), Compass Holdings (8yr; 0.4bn), Noor Pg. 3
Bank (5yr), Mannai Corp, Poland, South Africa (3.0bn), Turkcell (10yr), Star Energy (15yr), Santander, Turkiye Finans (0.5bn), STLC (5yr), SK Telecom, Envision Energy, Assurant (5,10,30yr), JSW Steel, Sprint (4.0bn), Russia (4.0bn), Thai Oil, GTT Communications, Thomson Reuters (5.5bn), United Overseas Bank, Angola (2.0bn), Oman. Energy: Fundamental news flow overnight came in the form of a repeat of the previous day s API data with the official EIA data showing a draw on US crude stocks. The drop was unexpected but came as result of US refineries hiking output. Crude inventories fell by 4.6mn bbls last week which was massively off the expected increase of 246 000 bbls. Refinery runs rose by 141 000 bpd and refinery utilisation rates rose by 0.7%. The major driver of this increase has been the restart of units post the seasonal maintenance work ahead of the high demand summer driving months which are coming up shortly. This news provided support to the oil markets but some of the data out also managed to provide the cap the US Production juggernaut continues to ramp up hitting a new high of 10.46mn bod from 10.433mn bpd the previous week. On the macro front, trade war remains the focal point with the China-US relations in the spotlight. There were indications from administration officials that talks with China on trade are on-going and the proposed blanket tariffs may not go into effect. This followed China firing its own reciprocal tariff salvo, although its tariffs are equivalent to 4 months of its imports vs US s equivalent 1.5 months, showing that this time they meant business with their response. Looking at the day ahead, the major external drivers will be the FX markets and news of a geopolitical nature. As it stands in the Asian session, oil on both front month contracts is bid up around 0.50% on the day with Brent quoted at $68.34/bbl and WTI quoted at $63.66/bbl. This is expected to hold as the EU session gets underway. Oil prices fell again at Asian trading close on Wednesday as the market expects another weekly build in U.S crude inventories, while the prospect of a growing trade war between the U.S and China also weighs. China, the world s largest importer of raw materials, have imposed a list of duties on U.S imports as retaliation to the Trump administration s initial plan to levy tariffs on $50 billion of its goods. The escalation of trade tensions between the two biggest economies could impact global growth and therefore put pressure on the oil prices as well as equities market. In addition to this, weighing crude futures down further has been the expectation that U.S crude stocks will rise for a second straight week. The market will now wait for official U.S government data set to be released later on Wednesday. June ICE Brent futures was $0.67 lower at $67.52/bbl, while the rest of the 43-month forward contracts traded between -$0.58 and -$0.05. Front month May WTI futures was down $0.51 at $62.95/bbl, with the other 44-month forward contracts trading between -$0.48 and -$0.03. The June Dubai EFS dipped $0.15 at $3.62/bbl, while the July Dubai EFS slid $0.13 at $3.64/bbl. The Cal '18 Brent/Dubai lost $0.04 at $2.8/bbl as the Cal '19 contract declined $0.01 at $3.73/bbl. Benchmark 180-cst FO was $1.25 higher for April contracts at $375/mt; Cal '18 gained $0.86 to $370.19/mt while the Cal '19 traded $2.29 higher at $336.02/mt. April 180-Dubai cracks were up $$0.71 at -$5.57/bbl, the Cal '18 contract increased $0.58 at -$4.79/bbl while the Cal '19 strengthened $0.59 at -$5.86/bbl. The 3.5% Rotterdam Barges April crack rose $0.81 at -$11.96/bbl; the Cal '18 contract advanced $0.56 at -$11.18/bbl and the Cal '19 was up $0.56 at -$14.50/bbl. The front month April ICE LGO futures contract posted losses of $4.25 at $609.25/mt, while the Cal '18 traded $4.08 lower at $598.28/mt and the Cal '19 contract shaved off $3.71 at $581.33/mt. The April GO EFS differential (10ppm) widened $0.15 at -$5.87/mt while the May contract was down $0.52 at -$7.42/mt. The April Singapore GO 10ppm Pg. 4
contract slid $0.59 at $80.99/bbl and the Cal '18 contract dipped $0.66 at $79.30/bbl; Cal '19 was $0.66 lower at $76.69/bbl. The April CFR-naphtha contracts declined $8.00 at $580.00/mt; Cal '18 was down $8.31 at $564.97/mt and the Cal '19 contract declined $8.25 at $527.65/mt. April CFR naphtha-brent cracks were $0.35 lower at -$2.34/bbl; Cal '18 dipped $0.53 at -$2.37/bbl while the Cal '19 declined $0.72 at -$3.23/bbl. Pg. 5