Equities and the Economy

Happy Let’s Laugh Day, which is globally celebrated day. The FOMC concluded their two day meeting and with great anticipation and the world parsed very word of the post-meeting communique. And there was no “patience.” So you would have thought equities would have gotten pounded because the lack of “patience” means the Fed would be leaning toward raising interest rates sooner than later. But aha! Not too upset investors those sly central bankers added cautionary language setting up for a first rate hike in September as opposed to market expectations of June. Specifically, they said they are looking for “further” improvement in the economy and labor market which have not yet met whatever criteria is necessary to warrant a rate hike. As Janet put it in her press conference “Just because we removed the word patient form the statement doesn’t mean we are going to be impatient.” An awesomely wonderful use of semi-repetition. Well investors pounced on the language like wolves on fresh meat. The Dow was down 150 points immediately prior to release of the communique and then rocketed higher closing up 227 points (1.27%) back over 18,000 at 18,076. The intraday swing was 400 points. Youza!

This morning the market was higher when I came in but is retreating with the Dow down 92. The Asian markets closed mixed with Japan’s Nikkei off from record levels. European markets are barely unchanged from Wednesday’s close.

Oil

Similar to equities, oil was trading considerably lower prior to the Fed’s post-meeting communique but did an abrupt about-face following equities higher with WTI gaining $1.20 closing at $44.66 and Brent adding a hefty $2.40 settling at $55.91. But what I believe really helped WTI was that on the interpretation the Fed would be delaying a rate hike the U.S. dollar got hammered vs. just about every currency in the world, i.e., Yen, Euro, Canadian dollar, Australian dollar, New Zealand dollar, the British Sterling. Even the Russian ruble. For example, when the euro hit its peak yesterday of $1.1025 to the euro WTI was up $1.50 and then proceeded to retreat almost mimicking the movement back down by the euro. Of note, even as crude rallied yesterday the term structures remained weak. Given the swiftness and violence with which prices rose, the front month should have gained materially to the back months. It didn’t for WTI although Brent’s contango did narrow a bit. The story here? Horizontal drilling and fracking are alive and well here in the U.S. and production is healthy despite a rapidly declining rig count. That being said, my 35 years in the energy markets has taught me there’s usually about a 6 month lag between rig count and prices.

This morning WTI is giving up all yesterday’s gain, and more, being down $1.46 with yesterday’s “bottom pickers” getting run over as fundamentals return to the market. By the way, there’s a saying in trading that goes “Bottom pickers get stinky fingers!” Yesterday the DOE reported that on an aggregated basis 5.5 million barrels of crude and products moved into storage last week with 9.6 million barrels of crude going into storage (there was a draw of 4.5 million barrels of gasoline). Now although the amount of crude going into storage is large, the market was somewhat ready for it being the API number Tuesday evening was a build of 10.5 million barrels. For reference, the 5 year average for last week is a withdrawal of 2.74 million barrels.

The matador this morning was the Kuwaiti oil minister who said today in Kuwait City that “Within OPEC we don’t have any other choice than keeping the ceiling of production as it is because we don’t want to lose our share in the market.” He went on to say “If there is any type of arrangement with (countries) outside of OPEC, we will be very happy.” Fat chance that is going to happen.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas rose 6.5¢ yesterday closing at $2.920 which is the first time we’ve been above $2.90 since late February. The weather forecast remains static bringing some above normal HDD’s but as we get deeper into spring average HDD’s continue to decrease somewhat muting this effect. Today is EIA storage report day and the market is expecting a withdrawal of 50 Bcf. Last year we saw a withdrawal if 96 Bcf with the 5 year average of 45 Bcf. Traders are squaring their books ahead of “the number” (9:30 CDT) and cutting some of the length they’ve accumulated on the run-up over the last 3 days with the April contract down 8.3¢.

Elsewhere

The next time you’re in a hotel and you’re about to get into the shower you might want to look around. Apparently the EPA has been in the shower with you! The EPA wants hotels to monitor the amount of time guests spend in the shower. They’ve calculated the average hotel shower lasts 8 minutes and uses 18 gallons of water. They would like to reduce that time by at least a minute. Filed under “Water Conservation”, the agency will spend $15,000 to create a wireless tracking device gauging water consumption with the goal of the project to “change the behavior of Americans when they stay at hotels”. Fox & Friends is going to feat on this one! Have a good day.