Equities and the Economy

Good morning and happy National Twilight Zone Day. Last week was like the Twilight Zone with stocks with the volatility off the charts. Early in the week stocks got crushed only to come roaring back on Friday on the heels of the Labor Department’s Employment Situation Report rallying hugely with the Dow popping a big 267 points (1.49%) to 18,191, the S&P 500 jumping 28 points (1.34%) to 2,116 and the Nasdaq up 58 (1.18%) and once yet again over 5,000 to 5,004. Since mid-February the Dow has been waffling on either side of 18,000, the S&P 2,100 and the Nasdaq 4,950. So basically we’ve gone nowhere over the last 3 months.

The aforementioned employment report was a “Goldilocks” report for investors. Not too hot. Not too cold. April’s increase of 223,000 nonfarm payrolls hit the bulls eye. The number wasn’t so low (like ADP’s last Wednesday) as to indicate a slowing economy but not too high to cause the Fed to raise interest rates prematurely. Wall Street expects the first Fed rate hike could be in September but futures are pointing to December. Central bankers are closely watching the average hourly earnings data which rose only 0.1% last month and less than the expected 0.2% which may give them pause in raising rates being they’re on high alert for wage inflation. By the way, the report also noted the unemployment rate fell to 0.1% to 5.4%, the lowest since May 2008. There was some disappointing news in the report and that was March’s job additions were slashed to 85,000 from 126,000 which means March’s job growth was the smallest in almost 3 years.

For the week the Dow gained 0.9%, the S&P was up 0.4% and the Nasdaq flat.

This morning U.S. stock indexes are flat to Friday’s close with Dow futures down 2. Overnight the major Asian markets all closed in the green with China’s Shanghai making a big move closing up 3.04% which in Dow terms is a stunning 553 points! Yesterday the Chinese government cut interest rates for the third time in 6 months to stoke a sputtering economy headed for its worst year in a quarter of a century. The world’s second largest economy has “cooled” to 7%, a level not seen since the global financial crisis in 2008/2009. It’s ironic. China thinks 7% is bad. We’re trying to get to 3%.

Oil

Equities rallied on Friday but the momentum did not carry to the oil market which was very quiet with WTI climbing 45¢ closing at $59.39 and Brent falling 15¢ settling at $65.39. The boat that was so heavily listing to the long side early last week has righted itself and is comfortably cruising along, until we get new news and then the listing will begin again. Such is the vagaries of all markets which although participants point to being driven by fundamentals and technicals are heavily influenced by human behavior, especially at the tops and bottoms.

Baker Hughes reported on Friday the number or rigs drilling for oil and gas fell for the 22nd consecutive week this time by 11 to 894, the lowest since June 12, 2009.

This morning the quiet continues with WTI down 23¢. Chatter.

Natural Gas

Natural gas popped 14.6¢ higher on Friday closing at $2.880. Temperatures were a little elevated with the cash market supporting natty with increased consumption in the electric generation sector. Natural gas burns in the electric generation sector have been at record levels this year due to low natural gas prices and new EPA regulations like the Mercury and Air Toxins Standards (MATS) which just went into effect April 15, 2015.

Courtesy of MDA Information Systems LLC

The weather forecast continues to show some above normal temperatures for the eastern third of the U.S. which will make for extremely pleasant conditions in the region and keeping natty burns steady. This morning the June Nymex contract was down 3.2¢. Everyone is waiting to see if the reduced rig count, which is impacting oil prices, will spill over and impact natural gas prices.

Elsewhere

If you happen to be driving on a lonely highway in Nevada and pull up beside a big-rig and see the driver with his hands off the wheel working an iPad don’t be shocked. Freightliner has been given a license to test its autonomously driving tractor-trailer truck in the state. The company already has two trucks and will now begin testing them on public highways there. Now don’t panic. There will always be a licensed driver in the driver’s seat but the vehicle is designed and built to drive itself on limited access interstates. The human driver takes control when the truck is in the city and suburbs. Trucks first then cars? Have a good day.