Equities and the Economy

Good morning. It was Armageddon here in the U.S. yesterday. Although European stocks staged a rally after 4 consecutive losing days Asian shares, especially the crash that’s going on in China, and the Greek matter crushed U.S. stocks. The main indexes saw selling pressure all day and ended the day near their lows. The ending numbers were: Dow down 261 points (1.47%) at 17,515, the S&P 500 losing 35 (1.67%) to 2,047 and the Nasdaq closed 88 points lower (1.75%) at 4,910. The Dow hasn’t closed this low since February and the S&P since March. The S&P is now 4% off its May high. If that wasn’t bad enough, a “technical” glitch shut down the New York Stock Exchange for 3 ½ hours creating more uncertainty. If you were long the “fear index,” the VIX, your position’s value jumped 22.19% yesterday. CNN’s Fear & Greed Index is now all the way down to 8, Extreme Fear, a level we haven’t seen since Q3 2014.

The NYSE issued a report the halt in trading was not caused by a cyber-attack. The outage come shortly after United Airlines grounded all its planes at U.S. airports for an hour due to what it called a computer problem. Oh, and did you know that just minutes after trading was halted on the NYSE the Wall Street Journal’s homepage crashed. Instead of the regular homepage a 504 outage was displayed. Now in full disclosure there is a precedent for the Nasdaq experienced an outage in 2013 freezing for three hours. There appears to be good explanations for each of the aforementioned. For example the Wall Street Journal said it’s website was overwhelmed and crashed because of hits resulting from the NYSE shut down. Now I’m not a conspiracy theorist but three outages in a relatively small time frame when we haven’t heard of anything like this before tends to make a mind wander.

Regarding domestic economic news, the big report yesterday was the release of the FOMC’s minutes of its last meeting. It was pretty much as expected with only one of ten Fed officials who have a vote this year ready to hike rates in June and even that official was willing to wait another meeting or two. September is still the odds on month for the first rate hike but as every written and oral comment has been, the Fed is “data dependent.”

This morning global stocks are rebounding led by the Asian shares with China’s Shanghai closing 5.76% higher, their biggest daily gain in 6 years! This gain comes after losses in 8 of the last 10 sessions. That being said, the index has lost 30% in the last month wiping out $4 trillion in value. The Chinese government has recently been frantically implementing stimulus measures to abate the selloff but it’s unclear if the moves are enough to reverse the decline. Here’s something that would bother me if I was a Chinese investor. Many analysts have stated the S&P 500 P/E ratio is in the high range. The P/E ratio of the stocks in the Shanghai Composite are twice as high as the S&P. The reason I’m spending so much time talking about China is that I believe its performance, or lack thereof, lately is materially affecting the performance of U.S. stocks

This morning European stocks are higher for a second consecutive day and U.S. investors are feeling more confident with the Dow up a hefty 176 points. Let’s hope the close is just as strong for as I’ve frequently said, closes are more important than opens.

Oil

WTI is still trying to find a bottom falling another 68¢ yesterday settling at $54.65. For about 2 months WTI had waffled around $60 but the last week it’s fallen 10% to a 3 month low. Record OPEC and Russian output, 40 year high U.S. production and fears of lower global demand due to China’s economy slowing and a slower European economy resulting from Greece are pushing prices lower. Not helping the bulls at all yesterday was the DOE’s weekly crude and products report that was decidedly bearish. Saving you the individual data, in aggregate inventories of crude, products and gasoline increased 3.24 million barrels last week with the market expecting a decline of 2.1 million barrels.

This morning WTI’s sail is catching the same wind that global equities are bouncing a up $1.04.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas ground lower yesterday closing off 3.1¢ at $2.685. Short term traders are taking their cue from the cash market which has been weak this week due to the very mild weather across much of the U.S. Temperatures for the extended forecast looks pretty normal not helping the bulls. Not helping the bears is the fact that the lower natty prices go the more natural gas plants become competitive relative to coal increasing demand. Looking at the forest through the trees, in the broad sense we’re still straddling that $2.75 level.

Today is always exciting for natural gas traders for it’s EIA storage report day. The market is looking for an 85 Bcf injection for last week. This compares to last year’s 95 Bcf injection and the 5 year average of 75 Bcf. Traders must have their positions on going into the report for natty is dead this morning, up $0.006.

Elsewhere

Anyone who has ever witnessed the appearance of a president of the U.S. at a public event has no difficulty recognizing the musical tribute that announces his entrance. It’s called “Hail to the Chief” and it’s been around a very long time. The first public performance of the tune was in 1812 and then on July 4, 1828 it was associated for the first time with an appearance of the president but at that time it was not definitively linked to the president. That happened when Sara Polk made playing the song obligatory whenever her husband made his entrance at social events. Records indicate she did that because she had grown tired of folks ignoring her short, unkempt spouse. In 1954 the Department of Defense established as policy the playing of the song when the president entered.

The words to the song came from Sir Walter Scott’s epic poem “Lady of the Lake” and set to music in the 1800’s. Someone should have scrutinized the tune a little more closely for it is hardly meant to instill pride in the people and their leader. In fact, it’s quite to the contrary. The lilting melody that became “Hail to the Chief” was originally the story of the demise of a failed Scottish chieftain who had been betrayed and executed by the enemy. So the song we play to announce the coming of the leader of the land is really the sad account of the assassination of a political leader, hardly the stuff of which confidence in the well-being of the president is made.  Have a nice day.