ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Tuesday, August 16th, 2022. I'm Ash Bennington, joined today by Tony Greer, editor of The Morning Navigator. TG, it's great to have you back on this show. And it's great to be back with you.
TONY GREER: Is that the real Ash Benington? Slash, what's up my man? How have you been? Too long no see.
ASH BENNINGTON: Far too long. We're getting the band back together today.
TONY GREER: Hell yes. Hell yes. What's cooking?
ASH BENNINGTON: Well, it looks like a mix day in US equities. S&P 500 closing out the day pretty much at the 4300 level, 4305 on my screen, up about 0.20%. Call it mostly flat. Lots of stories we're looking at today. Tony, great to have you here to get your views. It feels like we picked up where we left off talking about energy.
New reporting out today on German nuclear energy generation, new reports suggesting that German government may not close the three remaining nuclear power plants that are still producing power. Recent estimates, Tony, suggests that nuclear power accounts for 11% of German energy consumption. And that's just in the remaining three plants, Tony.
TONY GREER: Well, that number certainly sounds like it's going to have to go up if they remain on the pace that they're on currently with firewood being the number one searched heating items this current moment in Germany, as they get ready for this winter. Yeah, it sounds like that all due to the fact that Nord Stream pipeline has got about 20% of the gas going through it now with Putin's hand on the spigot over there.
We're actually at a point where the US sends more liquid natural gas to Europe than they are putting through the pipeline, so a real mindbender there. So it's like, hey, are you guys getting natural gas out of the tube in the wall? No, we're importing it across the ocean in buckets. You know what I mean? So it's getting really, really hairy for them over there. It's no surprise that they finally reversed that decision and decided not to close the nuclear power plants. Because if you remember, they were about to shut those in too.
So they're getting towards maybe they're starting to see a little bit of writing on the wall. Maybe they're reading some of the Doomberg posts and interviews that we had six months and nine months ago and they're understanding what's going on now. But when they've got their natural gas trading the equivalent of nearly $70 per million btus, that is something with an equivalent gas price here of around $9.25. That's something that we got to keep an eye on, that is a crisis bubbling over at the moment.
ASH BENNINGTON: Yeah, well said. Doomberg is actually our tweet of the day. We're going to get to that a little bit later. But I wanted to stay on some of these stories right now, because there's so much happening right now around the energy complex, record energy prices across Europe right now, electricity is up 500% in the last year in Germany, trading out over 500 Euro per megawatt hour on European exchanges. Obviously, as you said, Tony, this is a story with geopolitical implications, clearly what's happening on the Nord Stream pipeline coming in from Russia.
And I just wanted to hit, while we're talking about this, on one other German story in the day here. ZEW, this is the economic sentiment number out of Germany today, the print was-- let's just call it what it is, it's ugly. It plummeted still lower, it's now at minus 55.3, this off of prior minus 53.8. This is an oscillator index, meaning it goes up and over the zero line for expansion contraction, or in this case, positive versus negative sentiment.
It was an all time or rather I should say a 2022 high as recently as January at positive 54.3. Obviously, massive deteriorations on some of the stories we've been discussing right here.
TONY GREER: Yeah, and they're spilling into the currency, Ash. The more this European energy story and specifically German energy story bubbles up, the more the Euro takes a dive toward that low around par and that's exactly what's happening now. It feels like the dollar as in the dollar index broadly speaking wants to curl over but we just had China cut rates in a surprise move on Monday and then we had, with this European energy crisis bubbling over there and the Euro takes another dive. So even with the dollar at the highs, the other currencies are not giving it a chance to back off. That's an interesting dynamic to me.
ASH BENNINGTON: Yeah, I see on my screen right now on Eurodollar 1.017, obviously as you say, there's not a pretty picture headed toward parity or so it seems.
TONY GREER: Yeah, I got a feeling we're going to see prints on the other side of parity once people start freezing in Europe.
ASH BENNINGTON: That's a grim prognosis, Tony. I wanted to touch on another story here dealing with oil markets. Finally, this is the story about Iran, it's Iranian oil deal in the offing rising speculation about a last-minute oil deal with Teheran, around this being negotiated by representatives of the European Union. In the event that this deal was successful, it would mean hundreds of thousands of barrels per day of additional supply on the market. Tony, are you following this story? If so, thoughts.
TONY GREER: Well, I guess that would help to loosen up the market for every story right now of supply coming online, there's a story of supply disruption or something of the like, Ash, so it's balancing out with oil giving up its $90 handle, I think that the weakness has been due to China coming out and despite the CDC doing a full 180 on almost all of their tyrannical COVID policies and saying that none of them are necessary and rolling them all back, China's coming out and staying we're sticking with zero COVID policies, heavy lockdown policies when necessary.
And I think that's what the energy and specifically the oil market reacted to today when it softly fell to a new low and I have to just add softly fell to a new low because there is no big spec long position in the oil market right now that could cause one of those, everybody out $10 selloffs, so we're probably not going to see something like that. But on incrementally negative economic news, economic general weakness around the world, we'll probably see an inch down to a new low and I don't know that spreads can get much more beat up than they are.
They're just hanging in now on a monthly basis in backwardation territory. It feels like that's where inventory supply is going to keep them. So in my opinion, I think that the oil markets can stabilize somewhere around here.
ASH BENNINGTON: Tony, you mentioned oil, you mentioned losing the 90-handle. Let's talk oil prices right now. WTI September 22, this is front month crude CL-1 on the New York Merch, trading right now on my screen 86.50 or thereabout, off about 3.28% on the day. Let's bring it over to ICE Brent crude October 22 contracts trading at 92.21. So obviously, there's a spread here that reflects this geopolitical imbalance, this supply-side challenge. Tell us what you think about these prices in the spread right now between Brent and WTI.
TONY GREER: Well, we really had Brent driving the bull market just recently, Ash. Their front month spread went off the board at like $5, $6 backwardated and that's a one month spread. So that's completely blown out. That is evidence of a tightly, tightly supplied market when the front month goes off at that much of a premium. So since then, this China weakness story, the ensuing US economic weakness story has taken a little bit of that tightness out.
It has pushed the spreads, like I said here back in the US back to $0.30 to $0.50 per month in a range on the front month and they're hanging into that backwardation range after having been $3 and $4 backwardated. So while they are much less tight than they were, the inventory supply situation is still extremely tight and these calendar spreads are remaining in slight backwardation. Right now, crude has got a little bit of a technical problem on its hands, whereas the front month WTI contract broke below its 200-day moving average rallied back last week and retested again up at around $94, $95 and has now fallen to a new low.
So technically speaking, lower lows is something that the bears are probably going to try to pounce on and I wouldn't doubt if they're starting to build up a little bit of a short position here below the moving averages, Ash.
ASH BENNINGTON: Yeah, boy, we're old enough to remember the term super contango back about two years ago. And now, we're in backwardation.
TONY GREER: Right, the floating storage trade that everybody had on.
ASH BENNINGTON: Indeed, indeed. Listen since we can't get away from this, we're talking about Europe, we're talking about energy, I want to take a look at a clip, Will This Winter Be The Worst Of Times For Europe? This is out today on the Real Vision platform on Essential, Plus and Pro. Our own Andrea Steno Larsen talking with Wouter Jongbloed. Let's take a look at this.
WOUTER JONGBLOED: So I think a technical recession is very, very likely. Now, yes, it has to do with the ECB raising rates. Yes, it has to do with the fiscal status. Yes, it has to do with the general growth outlook of the world. Yes, it has to do with diminished export chances. Yes, it has to do with all of that. So let's stipulate first that the energy crisis is part of a larger whole and that that larger whole has very interesting dynamics itself.
Now, if we say all else equal, which may in itself already have pushed Europe into somewhat of a recession, all things equal, will this energy crisis help or hurt? It will hurt. Now, what will particularly hurt is that industrial production will likely have to go down. Even if the Germans work from home, even if we reinstate pandemic style work from home and keep your home at a cold level, wear a sweater type thing, industrial production cannot be saved totally.
There will be cuts, there will be price increases to such an extent that some of the nuts and bolts, some of the famous glassmakers in Germany might find it uncompetitive to produce their glass. So that means they can't export because they can't find buyers because it's just all too expensive. All of that means industrial production is likely to sag. And with sagging industrial production and even lesser exports, we are looking at a technical shrinkage.
ASH BENNINGTON: Well, obviously grim tidings from Wouter Jongbloed there. He's talking about deindustrialization, cuts in German industrial production over the energy crisis. He mentioned the optical industry, the glass industry, specifically as being something that could effectively be significantly impacted by this. This is a story about national competitiveness, really grim all over energy policy. Tony, thoughts?
TONY GREER: Well, their ESG score is going up and their cost of electricity is going up five and tenfold and that is pushing the cost of baseload power away from a lot of the major industries being able to function at an economically sound cost. So none of this is shocking me. And we've been talking about this and we've seen it coming since the ESG, and the Davos crowd started pressing their agenda the way they've been, Ash, nothing new under the sun here, man.
ASH BENNINGTON: We mentioned Doomberg earlier. Let's take a look at this Doomberg tweet here. I'm just going to read it while it comes up on the screen. All right, team huddle up, I have a brilliant idea. Let's shut down our nuclear power plants. There you see it. It's the cost of German baseload industrial, electrical production. This is in the form of megawatts per hour per Euro, obviously, you see it right there, hockey stick.
TONY GREER: Hockey stick, putting it out of reach, making their entire industrial operation economically unsound that is going to make them less competitive shut down industry. We're getting to the point, Ash, where we've got Hamlin's razor coming back into the conversation, where we have to wonder if energy policy is due to incompetence or malice. And that's probably a separate show from the Daily Briefing.
ASH BENNINGTON: Well, for the most part, I think Hamlin comes down on the side of ignorance rather than malice. But while we're talking about this, it's interesting, we just saw on that last chart, that hockey stick, that was the 500% increase in pricing that we were talking about the top of the show, you saw it visually. Talking about seeing something visually, I also wanted to put up the German business sentiment chart again so you can see just how low this has fallen. When you see it visually, it really is a gut punch.
TONY GREER: Dirtnap?
ASH BENNINGTON: Yeah. Tony, Against this backdrop, we've been having all of these conversations about the news cycle about some of the broader structural trends. We were talking a little bit off camera about the rotation. Tell us what you're seeing there and how you think about it at the big picture level.
TONY GREER: Yeah, big picture, Ash, we're in this S&P battleground right now, where we pointed out there was a clear extremely large short spec position in equity futures that we had a good feeling was mirrored in individual stocks and all over the place. And we're still seeing a continuation of the short covering rally. Today, the S&P short covering rally put it right into 200-day moving average resistance. I would imagine that if we get through there, the last of the shorts will be running for cover.
And that's where I think that a short covering rally might peter out and I don't know what magnitude it gets to. I just don't think that we're in the bottom of the ninth inning of it yet, if that's fair. I still think that we're in maybe top at the seventh or bottom of the seventh, but I don't think we're at the end of it. With breakevens and yields in a range the way they've been, looking like they want to pop higher with the inflation theme, that's the way that I'm expecting the markets to come together.
But let's just pay attention to what's actually happening. And today, we've got the tape hanging in there with positive news from the retail sector. Walmart was a less worse sob story and the stock rallied big. AutoZone made a new highs. The retailers, consumer discretionary, consumer staples were the stocks that led the markets today. We had energy and metals and mining in pretty positive territory early today, they gave some back. And then on the downside, we have basically everything technology and oil services stocks.
So everything's topsy turvy here. With the S&P at its 200-day moving average, we'll see what happens. If enough bears and shorts have gotten out of their short positions, maybe this is a good level for it to fail. And if they haven't, then we'll probably go in a little bit higher, Ash. That's how I'm looking at it right now.
ASH BENNINGTON: It's really interesting, Tony, you tell this tale about it being on a bubble with the 200-day moving average. What are the signs you're going to be looking for to see which direction that's going to break?
TONY GREER: Well, either we're going to stutter around here quite a bit and consolidate and you'll see some up days and down days and up days and down days while the market decides what it's going to do from this level. But that remains to be seen. It's been very interesting for me to see the markets come in lower and we've had quite a few red to green days here, which proves how short the market is.
As soon as traders that are short see markets in the red, they say, okay, here's an exit strategy for me, get out now of that short position. So we've seen that, we've heard of a lot of large retail flows from the Goldman Sachs desk coming into the markets, so that's worth providing some tailwinds there. And I guess within the whole story, we're in the middle of the bit-- right now, we're at the point where the bears in the S&P are getting stretched to the point that they almost can't take it anymore.
And the bulls are probably celebrating a nice little bounce. The S&P is now 20% off of the lows, and then some after being rescued from being 20% from the highs entering bear market territory. So this is a real battleground right now to see how we're going to shake out at the end of the year. It's been unbelievable to watch some of the tech sectors catch up from terribly negative years in the last couple of weeks and all the natural resources sectors give back huge gains from earlier on in the year. So it's a real back and forth to see how we're going to shake out. And I'm really excited to be in front of the screens for it.
ASH BENNINGTON: I wonder if that's the German energy minister at your door?
TONY GREER: Definitely not. I can see who it is.
ASH BENNINGTON: Tony, tons of questions coming in fast and thick right now. Do you want to touch on some of the other points that you were making? I don't want to cut you off here, but we've got lots of questions coming in. Anything else you want to hit on first?
TONY GREER: Yeah, there's it's worth noting today that while oil took a nosedive several percent and carved a new low, energy stocks ended the day in positive territory, still at the high for the move. It might be a situation where the equity players are not really buying this little dip in the oil market.
And lastly, it's interesting that XME, industrial metals and mining prices are pushing the highs of their move right now as we get a surprise move at zinc on a smelter shutdown at of Trafigura. So there's some stuff cooking in the commodity complex, I just want to make some viewers aware of that. Let's go to some questions, Ash.
ASH BENNINGTON: I'm too busy Googling Trafigura.
TONY GREER: They're a very large, one of the planet's biggest commodity merchants. In the scale with Glencore, they are a very serious physical commodity merchant.
ASH BENNINGTON: And is this an Asia-based operation?
TONY GREER: Yes, Trafigura is based-- I don't want to say the wrong thing there.
ASH BENNINGTON: It looks like Singapore.
TONY GREER: Singapore. Exactly.
ASH BENNINGTON: Interesting. So first question comes to us from John Menage. This is from Twitter. Great to have questions coming in from Twitter. Great to have TG Tuesday Dynamic Duo back. Thanks, John. It's great to be back. A couple of questions here actually around European energy. Let me just hit some highlights for you.
What is the update on European LNG storage? Will they get the required levels for winter? This has been an