Equities and the Economy

Good morning and happy National Dance Like Chicken Day (and it’s not even Oktoberfest!).  U.S. Equities closed virtually unchanged yesterday from Tuesday losing early gains with the Dow off 8 to 18,060, the S&P 500 down 1 to 2,098 and the Nasdaq actually closed up 6 to 4,982. All the indexes were nicely in the green early in the day and then the Commerce Department reported that the closely watch retail sales data for April were flat to March with expectations of a 0.2% increase. Economists had expected retail sales to rebound after 3 months of declines. For the 12 month period sales increased 0.9%. Taking out autos and gasoline sales were up a scant 0.1% with the pre-report consensus a much healthier 0.5%. The only good news was March’s numbers were revised higher, but only marginally. The unemployment rate is dropping and the economy seems to be moving forward, albeit by inches and not feet, so what’s going on. We’re saving amigos. The American public is becoming a nations of savers as the national savings rate has risen to a Japanese-like” 5.7%, up from the mid 4% last year and up from negative savings rates only a few years ago. The Great Recession ended 6 years ago but memories are long and Americans are repairing their balance sheets.

Other economic news The Labor Department reported that although oil prices increased import good prices fell 0.3% in April with the cost of food and industrial supplies offsetting the increase in fuel costs.

After many days of clouds and many inches of rain its finally sunny in Houston this morning and it’s the same for stocks with Dow futures up a very nice 120 points. European equities are higher but not performing as well as U.S. stocks so what’s going on? What’s driving stocks higher is what I’ve been watching and talking about for a couple of weeks now: the bond market. The 10 year Treasury yield has recovered the bulk of its losses yesterday with the yield down 2 basis points to 2.26%. Remember, lower bond prices, i.e., higher yields, are bad for stocks.

Oil

Similar to equities oil had a ho-hum day with WTI closing down 25¢ at $60.50 and Brent off a nickel to $66.81. It’s interesting that oil didn’t rally yesterday for the U.S. dollar was markedly weaker (1.1%) having its worst day vs. the all-important euro since May 6th (by the way, when looking at Fx the euro is the most important of all currencies). The weakness was driven by the weak retail sales report. Also bullish was the DOE reporting in its weekly report yesterday that crude inventories were down last week 2.141 million barrels and aggregate inventories (including gasoline and products) were down a stunning 5.784 million barrels with expectations of “unchanged” and the 5 year average of a build in inventories of 1.17 million barrels. Hmmm. Quite bullish data and prices do not rise. Antennae up.

This morning is starting out very quietly with WTI up 27¢. Chatter.

Courtesy of MDA information Systems LLC

Natural Gas

Natural gas registered another up day closing 3.8¢ higher at $2.935. The front month contract has now advanced more than 21% or nearly 53¢ in less than 3 weeks and is trading at 6 week high. Above average temperatures combined with multiple nuclear plants being down is boosting gas demand. The weather pattern remains unchanged with above normal temperatures in the eastern third of the country for most of the next 2 weeks which will support natty prices.

It’s Thursday and you know what that means. EIA storage report day. The market is looking for a healthy injection of 119 Bcf which is materially greater than last year’s 101 Bcf injection and even more so the 5 year average of 82 BCF.

The big topic in the natural gas market right now is if and by how much the reduced rig count and will resulting decline in “punching holes in the ground” will affect production.

Elsewhere

I guess if you’re a dictator and want to make a statement you do what North Korean’s President Kim Jong-Un did. It was reported that last week that former Defense Minister, General Hyon Yong-Choi was executed. Apparently Kim had the general positioned in front of an audience of several hundred and executed by firing squad. Oh, did I mention that the “firing squad” was administered by an anti-aircraft weapon! The crime he was guilty of was heinous. Apparently he fell asleep during a speech by Mr. Kim. Further he failed to carry out orders given to him by Kim. This follows Mr. Kim arresting his uncle, Chong Sung-thaek, on the floor of the “legislature” a few months ago and being hastily shot a few days later. Point taken.  Have a good day.