Equities and the Economy

Good morning and happy National Anisette Day. Ok. Let’s just get it out of the way first. Greece. With the Greek referendum scheduled for Sunday and despite overtures from the Greeks, the Brussels Group has ceased negotiations until after the referendum. It makes total sense. If the Greeks vote “Yes” then negotiations will resume with a high probability the talks will be with a new Greek government because Greek Prime Minister Alexis Tsipras, who is very publically telling the Greeks to vote “No,” will have lost the confidence of citizens meaning elections will be called. If the vote is “No” Greece will effectively leave the EU, drop the euro and bring back the drachma.

U.S. stocks closed nicely higher yesterday with the Dow up 138 points (0.79%) to 17,758, the S&P 500 adding 14 (0.67%) to 2,077 and the Nasdaq ending 26 higher (0.52%) and again back over 5,000 at 5,013. It was domestic economic data that supported the market yesterday. The ADP Research Institute reported that private sector employers added 237,000 new jobs in June coming in above Wall Street’s estimate of 218,000. Impressively, this was the strongest number since last December. Quoting ADP “The U.S. job machine remains in high gear.” Adding to that good economic news the Institute of Supply Management yesterday reported that its Manufacturing Index rose from 52.8 in May to 53.5 in June. Not only was this an improvement but importantly, the index remains above 50 indicting growth. Finally, the Commerce Department reported construction spending in May rose 0.8% in May and above consensus of 0.5%.

Let’s get to today’s data for literally the world has been waiting for the Labor Department’s Employment situation report for June which due to the holiday is being released a day early. The report was just released and it was one step forward, one step back. The economy created 223,000 new jobs in June which came in at expectations of 225,000. Hourly wages, which the Fed closely watches, remained flat to May. The negatives were 1) the April and May job gains were reduced by a combined 60,000 and 2) although the unemployment rate dropped to 5.3%, the lowest level since April 2008, the decline resulted from more than 400,000 people leaving the work force. That “participation rate” fell to the lowest level since 1977.

So how are the markets performing because that is where rhetoric translates into money. The answer: pretty much ho-hum. The Dow is up 60.

Oil

Oil bulls ended up in the slaughter house yesterday as WTI fell $2.51 closing at $56.95 and Brent lost $1.58 settling at $62.01. This is WTI’s lowest close in 10 weeks. Two factors slayed the bulls. First, the DOE released its weekly crude and products report showing an aggregate rise in inventories of 1.4 million barrels when the market was expecting a decline of 3.0 million barrels. This was the first increase in inventories in nearly two months catching everyone off guard. Second, the DOE report came on the heels of Bloomberg’s report the day before showing OPEC production is at record levels.

This morning WTI is trying to take back some of the ground it lost yesterday being up 59¢, mostly as the result of higher global equities.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices fell yesterday with the August contract falling 4.9¢ settling at $2.783. If you’re looking for a reason for the decline look to the weather forecast which is bearish for the 6-15 day time frame. That being said, we remain anchored around $2.80 and the prompt month is up 4.6¢ this morning putting us back on the other side of $2.80 from yesterday.

Today the EIA releases its always much anticipated weekly storage report with numerous estimates tightly centered on the expectation of a 70 Bcf injection. This compares to last year’s large 102 Bcf injection and the five year average of 75 Bcf.

June was a hot month! How hot? Based on population weighted cooling degree days it was the 6th hottest on record! It was 14.3% hotter than the 30 year normal, 3.4% hotter than the 10 year normal and 4.9% hotter than last June. In fact, if you look at just the period of June 7 through the 26 it was the hottest in 66 years!

Elsewhere

Being Saturday is Independence Day I thought I would convey a story about a World War II veteran. When that war was raging William Patrick, a 35 year old immigrant, walked into the draft office to join the U.S. Navy. He told the recruiting officer that although he had a brother serving in the German army, he wanted to fight against Adolf Hitler. He had decided in 1938 to flee Nazi Germany and come to America. By 1944, he was so revolted by the atrocities of the German leader he was moved to join the Allies in their fight.

William Patrick’s incredible story began when he was born in Liverpool, England to a German father and an English mother. The marriage didn’t last long and after the divorce his father moved back to Germany, married again, and began another family. When William was 18 he went to Germany to live with his father and his new family, which include Heinz, a younger brother.

William had a variety of jobs but when the storm clouds began to gather over Europe he set out for America while Heinz joined the German army. Once safely in America, William wrote an article for Look magazine in which he severely took Adolf Hitler to task. The tirade against the Nazis attracted the attention of William Randolph Hearst who immediately put the young dissenter on the lecture circuit.

William railed against the Nazis until he had no words left and then in 1944 joined the Navy which would mean he would be fighting his own family. Not only would he and his brother be fighting on opposite sides in WWII, William would be doing his best to defeat his own uncle. You see, William Patrick was not your average German defector. William’s father was Alois Hitler, and his uncle was Adolf Hitler. William Patrick Hitler, the disillusioned nephew of the German dictator, found a way to oppose the sadistic kinsman by joining forces dedicated to his destruction.

Remember, it’s not oil, gold, platinum, uranium or rare earths that are your most precious commodity. It is time. Spend it with a loved one this holiday weekend.