Equities and the Economy

Good morning. Before I get into discussing equities and the economy I want to discuss the Fed. I have been writing about the Fed, its actions and the implications of its actions since the inception of my Morning Energy Report seven years ago. I was doing research over the weekend and came across a short video clip discussing The Fed titled “The Federal Reserve explained”.  I highly recommend you take the few minutes to view the video by clicking here.

On Friday U.S. stocks broke a four day losing streak closing slightly higher. The Dow rose 34 points to 17,713, the S&P 500 added 5 to 2,061 and the Nasdaq finished 28 points up to 4,891. Friday’s gain however couldn’t overcome stocks worst weekly performance since the end of January. For the week the Dow was down 2.3%, the S&P lost 2.2% and the Nasdaq finished 2.7% lower.

The most important event on Friday was Janet Yellen’s speech in San Francisco stating for the very first time that the Fed would stay on hold if there were further weakening in key inflation indicators but then added it wouldn’t take an increase in inflation or wages to prompt the Fed to raise interest rates.

This morning is beginning very, very well with Dow futures up a huge 226 points. We can thank this morning’s jump at least in part to China’s Central Bank for over the weekend the bank stated growth has fallen too much giving it room to act. You know what that means? QE. On the news the Shanghai index closed up a big 2.59%. The news from the central bankers of the world’s second largest economy brought in the bulls in Europe where all the major indexes are up materially.

Oil

After rising during the week on the conflict in Yemen oil tumbled on Friday with WTI falling $2.56 (5.6%) closing at $48.87 and Brent down $2.78 (4.7%) to $56.41. The fear premium had been bid up all week and on Friday traders concluded that the conflict was, at least for now, unlikely to disrupt Middle East oil shipments.. Even with the loss oil prices posted their second straight weekly gain with last week’s gain the biggest in more than a month.

All attention this week will be on the U.S.- Iranian “nuclear” talks in Geneva. The deadline is tomorrow but we all know how deadlines work in politics. The rumor is there may be some sort of agreement with sanctions against Iran reduced or wholly rescinded. Tehran is anxious to recover the market share lost under the sanctions which has restricted its crude exports to 1 million bpd form the 2.5 million bpd in 2012.

Equities may be jumping the morning but oil is not following being down 53¢.

Courtesy of MDA Information Systems LLC

Natural Gas

The April natural gas Nymex contract expired on a weak note on Friday losing 8.2¢ closing at $2.590, a six week low. You end-users with floating natural gas or heat rate supply agreements will like that (although we still have a couple of more days to set the physical indexes at the numerous trading hubs throughout the U.S.). Traders’ focus has shifted from HDD’s to CDD’s as well as keeping an eye on the usual metrics such as coal-to-gas switching, exports and of course, production.

After a cool weekend spring will be coming to the upper Midwest and northeast with CDD’s rapidly falling with the forecast for Cincinnati to hit 72 and Philadelphia 67 on Thursday. However, the cash market is holding in there which is supporting futures with the now prompt May contract up 1.4¢ at $2.653.

Elsewhere

I thought you folks in Texas might be interested in the following. In 2014, more than 10% of the electricity consumed on ERCOT was generated by wind. Wind’s share of the generation mix has risen from 6.2% in 2009 (18.8 million MWhs) to 10.6% (36.1 MWhs) last year. Wind’s contribution to ERCOT generation is not evenly distributed throughout the year. Peak wind season occurs in March through June and those 4 months account for about 40% of annual wind generation. Wind generation then rapidly drops off during the summer, July through September. Have a nice day.