Equities and the Economy

Good morning. On below average volume U.S. equities posted their 4th consecutive session of gains yesterday with the Dow closing up 76 points (0.42%) at 18,054, the S&P 500 adding 9 (0.45%) to 2,109 and the Nasdaq up 33 (0.66%) to 5,105. Yesterday’s Dow performance was enough to get the index back in the black for the year. With Greece not the headline yesterday folks went back to looking at more fundamental data with the major report being Retail Sales, which was quite disappointing. For the month of June sales fell 0.3% which is the weakest reading since February. Additionally, May’s sales were revised downward to 1.0%. Economists were forecasting a rise in sales of 0.2%. Coming on the heels of June’s disappointing employment report and sharp drop in small business confidence last month (which fell 4.2 points), the weak retail sales data suggest the economy might have lost some momentum at the end of Q2. This is after Q1’s GDP contracted 0.2%. Still, if Q2 final GDP comes in at 3.0%, that would be healthy. Now the ball is in the Fed’s court on when to raise interest rates. We’ll get some insight into this today when Fed Chair Janet Yellen delivers her semi-annual monetary policy report to Congress today and tomorrow.

The Greek parliament votes today on the deal it struck with its creditors. Trust, more specifically, lack thereof, has been a big issue in the negotiations and what Greek Prime Minister Alexis Tsipras said today, “My priority is to make sure the choice I made the other day, with a knife to my neck, is finalized.” [emphasis added by me] sure isn’t helping to build it. Interestingly, Tsipras added “Greece does not have the currency reserves to support a return to the drachma.”

This morning is beginning quietly with U.S. futures indexes trading on either side of unchanged. Asian stocks closed mixed with the volatile Chinese Shanghai the big loser closing down 3.03% despite a positive Q2 GDP report. European markets opened lower but have recovered and are all trading in the green albeit marginally.

Oil

Immediately after the announcement of the Iranian nuclear deal oil prices got hit hard but clawed back to close higher. WTI added 84¢ settling at $53.04 and Brent added 66¢ closing at $58.51. As I mentioned yesterday, the impact of this deal was already built into the market for prices had fallen 14% over the last couple of weeks. Prices got a little boost yesterday on Goldman Sach’s report that Iranian oil exports in 2016 will be 200-400,000 bpd, much less than the 600-1 million bpd previously believed. Also, helping oil prices was the dollar which slipped relative to the euro after the release of the weak retail sales data.

This morning WTI is giving up most of what it gained yesterday being down 58¢. It’s interesting that oil prices, as well as Chinese share prices, are not higher this morning because the Chinese government released data today stating that Q2 GDP was surprisingly strong at 7%, a level few economists expected. Quite frankly, I believe investors are questioning the credibility of the number. Data that goes into the GDP number don’t support this level of growth.

Courtesy of MDA Information Services LLC

Natural Gas

Natural gas prices came out of the block yesterday strong trading up about 7¢ but not only did we see resistance at that level in the August contract, selling came in for the calendar 2016 and 2017 strips. On the day natty ended down 2.4¢ at $2.840. This morning natty prices are, like yesterday morning, starting higher being up 6.0¢. Weather forecasts, which remain unchanged, are supporting prices. The U.S. power burn for Tuesday was revised up 1.6 Bcf/d to 35.6 Bcf/d which marks a new 2015 record for power burn despite population weighted temperatures dropping slightly from Monday. We’re not going to see prices come off until 1) we have multiple weeks of storage injections greater than the five year average, or 2) the autumn when temperatures abate, or both.

Elsewhere

Back in the early 19th century the only way to get around, besides riding a horse, was by stagecoach. I bet you didn’t know this but there were 10 commandments of stagecoach travel. I thought you’d find them interesting.

• Abstinence from liquor is preferred. If you must drink, however, share the bottle, and don’t overlook the driver.

• If ladies are present, gentlemen are urged to forgo smoking cigars and pipe, as the odor of same is repugnant. Chewing tobacco is permitted if you spit with the wind, not against it.

• Gentlemen passengers must refrain from the use of rough language in the presence of ladies and children. The rule does not apply to the driver, whose team [horses] may not be able to understand genteel language

• Robes are provided for your comfort during cold or wet weather. Hogging robes will not be tolerated. The offender will be obliged to ride outside with the driver.

• Snoring is disgusting. If you sleep, sleep quietly.

• Don’t use your fellow passenger’s shoulder for a pillow. He or she may not understand, and friction could result.

• Do not discharge firearms for pleasure or shoot at wild animals along the roadsides. The nose riles the horses.

• In the event of a runaway, don’t jump from the coach. It may leave you injured or at the mercy of the highwaymen and coyotes.

• Topics of discussion to be avoided have to do with religion, politics, and above all, stagecoach robbery and accidents.

• Gentlemen guilty of unchivalrous behavior toward lady passengers will be put off the stage. It is a long walk back to the station. A word to the wise is sufficient.

Some of those commandments still apply 200 years later! Have a good day.