Michael Reinking:
Good morning. I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and you are listening to the Market Storylines podcast on the inside the ICE House Podcast feed. Before we begin, I want to take a moment to thank my friend Jay Woods of Freedom Capital Markets for filling in for me on last week's episode. It was great throwing in my AirPods and listening to him talk about the week that was.
Michael Reinking:
Today, in just a few minutes, we'll hear from another special guest, Trabue Bland. Trabue is the senior vice president Future Exchange at ICE and oversees all of ICE's derivatives exchanges globally. He'll join us shortly to discuss the futures markets and the latest themes. But before we hear from Trabue as we record on Thursday afternoon, here are this week's Market Storylines.
Michael Reinking:
And actually, we're going to rewind the clock just a bit to discuss one of the big storylines that Jay had teed up last week, Fed Chair Powell's speech at the Jackson Hole Economic Symposium. Two years ago, Chair Powell rocked financial markets in a very blunt speech that brought me back to my childhood in the 1980s and reminded me of an interview with Clubber Lang played by Mr. T, the antagonist in Rocky III.
Speaker 2:
What's your prediction for the fight then?
Clubber Lang:
Prediction?
Speaker 2:
Yes, prediction.
Clubber Lang:
Pain.
Michael Reinking:
So back in 2022, the chairman, like Clubber Lang, predicted that the inflation fight would likely bring pain to households and businesses. While much of this year's speech was focused on why the economy hasn't felt much of that predicted pain, despite the progress made in its inflation fight. It wasn't a full fledged victory lap in declaring that the fight was over. But he made it clear that with the progress made on the price stability side of its dual mandate and signs that the economy and labor market are cooling, that the time had come for the long awaited policy pivot.
Michael Reinking:
While he clearly told us directionally where rates were headed, there was some more ambiguity as to the final destination and speed with which we would get there. However, he did pretty clearly set up the framework or reaction function under which the Fed will operate going forward by saying that the Fed does not welcome any further cooling in labor market conditions. The word patience, which has been a mainstay is vernacular during the higher for longer era was also noticeably missing. Historically, the institution likes to move gradually in a measured way. What this tells us going forward, the labor market data will be the determinant factor in the pace of cuts, which will make the BLS employment report on the first Friday of every month a very important trading day.
Michael Reinking:
The big focal point this week has been on the late cycle tech earnings and broadly the numbers have been very solid. There was no bigger focus than NVIDIA earnings out on Wednesday night, and it was another beat and raise quarter for the company highlighting continued strong demand for its current generation Hopper chips, while downplaying the delays in its next-Gen Blackwell chips with production beginning in Q4.
Michael Reinking:
It was hard to poke holes in the numbers, but after multiple years of beat and raise quarters, those beats and growth rates are starting to moderate from parabolic to merely eye-popping. That being said, mid-morning the stock is down modestly, but keep in mind it was up over 150% year-to-date coming into the print.
Michael Reinking:
The current environment is fraught with geopolitical risks across multiple theaters from the Middle East to Asia and the conflict in Eastern Europe. These conflicts have the potential to create dislocations in global commodity markets, which was on full display at the start of the Russia and Ukraine war, which brings us to today's special guest, Trabue Bland, to help educate us on the evolution of natural gas markets and ICE's TTF natural gas futures contracts.
Trabue Bland:
Thanks, Michael. So this week in the energy markets, it's been very interesting. The one I'd like to talk about is TTF. TTF is a title transfer facility which basically prices European natural gas and serves as a good benchmark for global natural gas. Last Friday, it fell 7% and is currently under 40 euros. This is a good proxy of where the market feels about European and global natural gas.
Trabue Bland:
Right now, EU natural gas storage facilities are 90% full. This is especially noteworthy given that Norway, an energy exporter to the rest of Europe, heads into the scheduled pipeline maintenance season. What we are seeing is that our total global natural gas futures hit a record open interest, which is a sign of health of a futures market of over 22 million contracts on August 26. The previous record was in June. This means that generally firms and traders are very, very interested in what's happening in the natural gas markets.
Trabue Bland:
One interesting thing we saw is the first 2033 TTF trade that happened this week. That means that European gas traders are actually seeing long-term stability in the way that the European market is working. Shifting to that and in part tied to TTF in the U.S, we've seen at Henry Hub, which is the key benchmark for U.S natural gas and also the key benchmark for exported U.S Natural Gas, is heading into expiry. Prices have stayed well below $2 in MMBTU indicating that the natural gas market in the United States is currently oversupplied. This is a good sign for the U.S economy and cheaper energy prices as the U.S starts seeing cooler temperatures. Back to you, Michael.
Michael Reinking:
Great insights. Thanks for that Trabue. For the latest ice insights on natural gas, make sure to check out Trabue's White paper, the Globalization of Natural Gas Gains Momentum.
Michael Reinking:
Before we sign off, a couple of things to look out for going forward. Friday is the final trading day of the month of August, and we also have PCE, which is the Fed's preferred gauge of inflation. I wouldn't expect many surprises given we've already gotten CPI and PPI, which feed into that report. Now, keep in mind US markets are closed Monday for the holiday, but I'd expect attendance and volumes to start to pick up as people return from vacation. It will be a busy week of economic data focused on the growth side of the equation with the ISM surveys and the labor market data with all eyes on the BLS employment report on Friday.
Michael Reinking:
In addition, we'll continue to have some late cycle tech and retail earnings, and there are going to be numerous sell-side investor conferences, so investors will be looking for updates from corporate management teams.
Michael Reinking:
Once again, I want to thank Trabue Bland for joining us on this week's episode. Remember to tune in every Friday to the Market Storylines podcast on the Inside the ICE House feed, and rate, review and subscribe wherever you get your podcasts. Thank you for listening. I'm Michael Reinking. Enjoy the holiday weekend and I'll talk to you again next week.
Narrator:
The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of legal clarity.