Buy the rumour Sell OPEC

The Day So Far…

Watching the journalists jostling for position at the OPEC meeting is always a sight to behold and why OPEC insist on publishing a tentative schedule is beyond me. None the less, as per usual there was no need to wait for the official closing speech this afternoon and just after 9am the ‘cat was let out the bag’ and OPEC confirmed a 9-month extension to the current production cuts. The reaction was somewhat inevitable and after squeezing up to $52/bbl level this morning, marking a near 18% gain since the 5th May, the confirmation of the deal acted as a moment to book profits on those long positions prompting a sharp drop in prices exacerbated by momentum based algo’s jumping on the activity. Once the OPEC circus leaves town my bias still sides with oil feeling the weight of the dual force of increasing US output and OPEC compliance issues in the medium-term and when the US come into market it will be interesting to see how they interpret the decision with the $50 handle a key level on the downside.

Elsewhere, the DAX has been throwing a party of its own this morning breaking down to fresh weekly lows in the morning only to have fully retraced a large portion of the move by the time of writing. For the new traders there are a few points to consider when the market moves in this fashion. First is the liquidity, and when trading a product like the DAX a lack of this today due to the Ascension Day holiday in Europe tends to lead to choppy price movement and movement can often be more pronounced than on a normal basis. The second key point is not to always look for a fundamental reason why the market dropped like it did. Sure, I would of course check if that were the case but if you are monitoring the news feeds and listening to the squawk box intently then you need to be flexible enough to follow the movement and be comfortable in the fact that the move is more flow based and adhering to key technical breaks rather than a specific news item. The final point is speed of execution, in that when the market moves quickly without a fundamental catalyst it is prudent to be more proactive in managing the trade with a swift exit or de-risking of the position, this will then help avoid getting caught in the snap back in prices that often occurs when a large number of orders have been cleared.

 

The Day Ahead…

Looking ahead the rest of the OPEC meeting is now null-and-void given we know the conclusion of their discussions already. However, I would still be interested to see how our friends across the pond digest the latest agreement with the possibility that more profit taking could be seen. Meanwhile, the data slate has US trade balance and weekly jobless numbers due, both of which I foresee having little value as to change the markets view that a June hike is all but a done deal. It is actually, speakers that maybe more interesting with Trump in Brussels meeting EU officials and attending the NATO summit, while Fed dove and voting member Leal Brainard speaks at 5pm London time.