OIL OPTIONS: Near Term Put Volatility Strengthens But Skew Narrows for Dec23
Brent second month put premium has increased as the short term demand concerns have driven crude lower. The Brent call-put skew is down to around -4.0% from -3% at the start of the week and -1.8% on 16 Dec. The WTI second month call-put spread has similarly moved down to approximately -5%.
- Brent longer term call-put skew is however closing with optimism for a demand recovery later this year and potential further Russian supply disruption providing support. The Brent Dec23 skew is in to -4.8% from a low of -5.9% at the start of the month. The WTI Dec23 skew is also ticking higher up to -6.1%
- Crude ATM implied volatility has rallied in recent days after falling lower in the second half of December. Brent ATM vol is up to around 45.3% and WTI up to 46.7%.
- Total aggregate ICE Brent call open interest is currently 1.295m and put aggregate open interest is 778k contracts.
- The call open positions across all contracts out to Dec 2024 are mostly spread between 90$/bbl and 125$/bbl but with a significant volume also sitting at 150$/bbl. The downside cover is spread from 80$/bbl down to 50$/bbl.
Source: MNI / Bloomberg
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EQUITIES: Recent Pullback in Equity Futures Looks Corrective
EUROSTOXX 50 futures trend conditions remain bullish and S/T pullbacks are considered corrective - for now. Recent high prints mark an extension of the uptrend that started in early October and confirms a continuation of the price sequence of higher highs and higher lows. The recent break of 3810.00, Aug 17 high, also strengthens the case for bulls. The focus is on 4049.50, Feb 23 high (cont). Initial firm to watch support is 3840, Nov 17 low. S&P E-Minis remain in an uptrend and short-term pull backs are considered corrective - for now. Gains last week resulted in a break of resistance at 4050.75, the Nov 15 high. This confirms a resumption of the uptrend and marks an extension of the price sequence of higher highs and higher lows. Sights are on 4146.63, a Fibonacci retracement. On the downside, key short-term support has been defined at 3912.50, the Nov 17 low.
- Japan's NIKKEI closed higher by 65.47 pts or +0.24% at 27885.87 and the TOPIX ended 2.32 pts higher or +0.12% at 1950.22.
- Elsewhere, in China the SHANGHAI closed higher by 0.719 pts or +0.02% at 3212.533 and the HANG SENG ended 77.11 pts lower or -0.4% at 19441.18.
- Across Europe, Germany's DAX trades lower by 21.53 pts or -0.15% at 14424.81, FTSE 100 lower by 17.86 pts or -0.24% at 7550.24, CAC 40 down 16.5 pts or -0.25% at 6680.46 and Euro Stoxx 50 down 8.48 pts or -0.21% at 3948.05.
- Dow Jones mini up 58 pts or +0.17% at 34046, S&P 500 mini up 8.25 pts or +0.21% at 4011.75, NASDAQ mini up 30.5 pts or +0.26% at 11836.5.
GERMANY: Constitutional Court Dismisses Challenge To NextGenEU Funds
As was widely expected, the German Constitutional Court has dismissed two cases regarding the Bundestag's approval of EUR750bn in COVID-19 recovery funding deemed 'Next Generation EU'.
- The Court often has cases brought to it regarding EU funding and programmes. The petitioners - former Alternative for Germany head Bernd Lucke and former BDI head Heinrich Weiss - sought to have the court strike down NextGenEU due to its permitting of the EU taking on joint debt to fund the programme.
- The decision could see the EU prove more willing to take on joint debt in the future knowing that the Constitutional Court - notorious for striking down EU spending measures - has set the precedent that it is in line with Germany's Basic Law.
MNI: UK NOV CONSTRUCTION PMI 50.4 (FCST 52.0); OCT 53.2
- MNI: UK NOV CONSTRUCTION PMI 50.4 (FCST 52.0); OCT 53.2
