Equities and the Economy

Good morning and happy National Be a Millionaire Day. U.S. stocks waffled all day yesterday between small gains and small losses. Although both the Dow and S&P 500 hit new intraday record highs only the Dow closed in the green adding 13 points to 18,312 setting a second consecutive record closing high. The S&P finished down 1 at 2,128 ending its streak of record daily high closes at three. The Nasdaq fell 8 points ending at 5,070. Obviously there was no conviction in the market. Trading volume this week has been thinner than usual with Monday’s session being the second lowest this year.

There was some important economic news with the Commerce Department surprising everyone reporting that housing starts rose by a very sharp 20.2% in April vs. March to a seasonally adjusted annual rate of 1.135 million which is the fastest rate since late 2007 and far above forecasts. Housing starts surged in the Northeast, Midwest and West while actually slipped in the South. Builder confidence is coming from a lack of inventory. There are just 4.6 months of inventory in the market and a 6 months supply is considered balanced. Also reported was that housing permits were up 10.1%. Bottom line, home builders are confident and housing is strong.

Asian bourses closed mixed and the European ones are doing the same. U.S. equity index futures were green when I came in but currently the Dow is down 23. Chatter. Investors are sitting on the sidelines waiting for the release of the minutes of the Fed’s last meeting (2 PM EDT) looking for clues on the timing of the first interest rate hike. Other than the Fed’s minutes there’s no other major economic reports slated to be released today.

Oil

The June WTI Nymex contract expired very, very weak yesterday falling a material $2.17, (3.7%), settling at $57.26. As I mentioned in yesterday’s report, WTI has been rallying solidly since its low in March helped a lot along the way by a falling U.S. dollar. This week however the dollar has been rallying hard and yesterday hit a 2 month high against the Japanese Yen and a 3 week high vs. the euro. Call it the one-two punch of an ECB official earlier this week stating the central bank would slightly accelerate its bond buying purchases in May and June due to the seasonal lack of liquidity in July and particularly August. I’m not sure if you are familiar with the vacation pattern of the Europeans but basically they take off the entire month of August resulting in less liquidity. The Greeks, however, do not follow this vacation schedule. They take the whole year off! The second punch was the aforementioned housing data which suggested that maybe, just maybe, the U.S. economy will enjoy a better spring than winter. For the record, Brent closed down 54¢ at $66.27.

This morning Texas Tea is getting a bounce being up 86¢ on the heels of the weekly API report that was released yesterday evening. The API stated that U.S. crude stocks decreased by 5.2 million bbls last which was well above the forecast of a1.1 million bbls decline. Oil stockpiles at Cushing, OK, the Nymex WTI delivery point, dropped 217,000 bbls. Additionally, gasoline inventories came in lower than expectations.

Courtesy of MDA Information Systems LLC

Natural Gas

The June Nymex natural gas contract closed 6.2¢ lower at $2.948. From a technical viewpoint we had a text book reversal yesterday. Yesterday’s high of $3.105 was a new high and above Monday’s high of $3.048 and yesterday’s close was below Monday’s low of $2.978. A reversal is an indicator of a trend reversal (hence the name “reversal”) and a pure technical trader would short natty expecting prices to trade lower. And he would be wrong. At least for today for natty is up 4.2¢ as I write. Physical traders are expecting healthy gas burns due to the forecast of above normal temperatures in the 6-15 day time frame and are reluctant to be short. Additionally there’s pipeline maintenance, which occurs every spring and summer, limiting natural gas receipts into various interstate pipelines. Tomorrow is always the most exciting day with the EIA reporting on storage levels.

Elsewhere

I’ll be the first to tell you but I’m sure you’ll hear more about this over the next 5 weeks. We’ve got Leap Second this year, specifically on June 30th at 23:59:60. That’s when one second will be added to the clock to account for the discrepancy between the Earth’s rotation and the atomic clock. There have been 25 instances since 1972 of extra seconds being added with the last on June 30, 2012. This seemingly insignificant change does not come without heartburn to some folks. The last time this happened Qantas, LinkedIn and Yelp reported issues with their website and Amazon has announced it plans to “implement alternative solutions to avoid the ‘:60’ leap second.” For those of you who can remember, Y2K déjà vu?