Equities and the Economy

Good morning. U.S. equities ended last week on a sour note with the Dow losing 82 points ending at 18,133, the S&P 500 lost 6 to 2,105 and the Nasdaq ended down 24 to 4,964. OK, now for the good news. For the month February was outstanding! The Dow jumped 5.64% which is it best month since January 2013. The S&P rose 5.49%, its best month since October 2011. The Nasdaq ended up an eye popping 7.08%, a level last touched nearly 15 years ago! We needed performances like that in February for in January stocks had their biggest monthly losses in a year with the Dow losing 3.7% and the S&P falling 3.1%.

In economic news the Commerce Department said on Friday that Q4 GDP expanded at an annual rate of 2.2% which was down from the initial estimate of 2.6% but better than economists’ expectations of 2.0%. The National Association of Realtors reported its index of pending home sales rose 1.7% in January to 104.2. This is the highest level to which this index has risen since the late summer of ’13. That being said, it did come in less than The Street was expecting. Also good news, NAR’s index for December was revised for the better from -3.7% to -1.5%. Now I know it’s still negative but it’s a positive revision and you regular readers know the credence I put into revisions. The Chicago PMI tumbled to a 5 ½ year low of 45.8 indicating contraction probably the result of the harsh winter and West Coast port strikes.

This morning Asian stocks closed materially higher after the People’s Bank of China lowered interest rates over the weekend in an attempt to stimulate growth. Additionally, HSBC’s final reading for its China Manufacturing Purchasing Managers’ Index showed a rise to 50.7 from 49.7 in January hitting a 7 month high. The good performance is not translating in Europe for all the major indexes are trading in the red, especially Frances CAC 40. Locally, equities are looking to start the week on a good note with Dow futures up 68.

Oil

Oil’s behavior lately makes me think it should be in “One flew over the Cuckoo’s Nest.” Schizophrenic. One day up, the next day down. Directionless. On Friday both WTI and Brent closed higher with the former gaining $1.59 closing at $49.76 and the latter up a very material $2.53 (4.2%) settling at $62.58. Both were up higher earlier in the day but Baker Hughes’ weekly rig count report showing rigs falling “only” 33 rigs last pared the gains. This was the lowest weekly drop since the first week of the year.

Brent’s more pronounced gains last month have been fueled by disruptions to production and exports from Libya and Iraq. The Brent/WTI spread is now the widest since January 2014. Most of the spread’s move has been on falling WTI prices rather than rising Brent prices. There will be a lag, maybe about 6 months, between falling rig counts and production. This was evidenced by the fact that despite a materially lower rig count the EIA last week released data showing U.S. production rose to 9.29 million barrels per day which is the highest production rate on record and the 5th week in a row production has risen to new highs.

This morning WTI has been chopping around unchanged with it up 26¢ currently.

Courtesy of MDA Information Services LLC

Natural Gas

In a quiet day of trading short covering ahead of the weekend prevailed, which seems to be the trend lately, with the April contract rising 3.7¢ closing at $2.734. Pretty much chatter. This morning natty is flat to Friday (down $0.001) on an interesting new weather forecast. The biggest change is in the 11-15 day time frame showing some long, lone needed warmer temperatures coming to the Midwest and most of the east. I watch the noon update forecasts and this was hinted at last Thursday and Friday but the weather forecasters wanted confirmation before adopting, which they did this morning. The reason natty prices aren’t lower this morning, disappointing the bears, is because the 1-5 and 6-10 day forecasts shifted colder, especially the 1-5 day. We’re back below that $2.80 level which is where coal comes into play so I’m sure that’s being taken into consideration by traders. By the way, February came in as the coldest on record based upon gas weighted heating degree days. And we’re well below $3.00.

Elsewhere

Talk about divorces, here’s one for the record books. Harold Hamm, CEO of Continental Resources, told CNBC on Friday that he’s putting his divorce in the “rearview mirror.” Only after writing a nearly $1 billion check to his ex-wife, Arnall! I love his next comment, “That became a famous check. But it got the job done.” Ya think?! Have a good day.