Equities and the Economy

Good morning and happy Corn Fritters Day. After four up sessions U.S. equities gave up a smidgeon yesterday with the Dow off 4 points to 18,050, the S&P 500 down 2 to 2,107 and the Nasdaq closing 6 points lower at 5,099. All the indexes were nicely in the green early but fell to session lows when investors saw reports on TV of protests in Greece turning violent ahead of the vote by the Greek parliament on whether to accept the creditors bailout plan. Janet Yellen, Fed Chairperson, spoke before the House Financial Services Committee yesterday reiterating she expects interest rates to be raised “at some point this year.” In her prepared statement she offered an upbeat assessment of the state of the U.S. economy stating consumer spending has picked up (did she see the Retail Sales figures this week?!) and employment conditions have improved. There no mistaking she’s committed to raising rates and is communicating that loud and clear in attempt to soften the blow to the markets. Today she repeats her performance before the Senate Banking Committee.

Turning to domestic economic data, the Labor Department yesterday reported the producer price index rose 0.4% last month which was twice as high as economists’ forecasts. This will add fodder to the Fed’s argument on raising interest rates. Also yesterday the Fed reported that industrial production rose 0.3% in June which was marginally better than the Street’s expectation of 0.2%. So yesterday’s data reinforced the belief the economy is grinding slowly for the better.

Overnight Asian shares closed higher, up about .05%, which is sedate considering these indexes have been moving 3%-5% daily. European shares are materially higher on the heels of Greek lawmakers passing the bailout deal and ECB President Mario Draghi’s comment of his commitment to his QE program. Interestingly, Greek’s Prime Minister Alexis Tsipras had to muster, and got, a substantial number of votes from outside his left wing Syriza party for the left wing of his own party abandoned him.

Here in the U.S. we’re getting a boost from those other equity markets with Dow futures up 68.

Oil

The DOE released its weekly crude and products inventory report and sparing you the details, it came it at expectations. However, that wasn’t enough to keep the bears in their caves and they came out in force for oil prices got knackered yesterday with WTI falling $1.63 closing at $51.41 and Brent lost $1.46 to $57.05. This was WTI’s lowest close since April 9th. The information that fed the bears was a report, from Bloomberg that Saudi Arabia informed OPEC’s headquarters in Vienna it has increased production to record levels. The Kingdom stated it produced 10.564 million bpd in June which exceeded its previous record set way back in 1980. The dollar bounced back from weakness which certainly didn’t help the bulls for we all know by now that all things being equal, a stronger dollar translates into weaker prices for commodities priced in U.S. dollars.

This morning WTI is up 25¢ recouping some of its losses. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

Natty prices rose another 7.8¢ yesterday closing at $2.918 which is the highest level in almost 8 weeks. Although there’s no major heat waves across the U.S. there is a broad swath of above normal temperatures across the southern U.S. which is elevating demand for A/C and the weather pattern doesn’t look to be abating which will support prices. It’s Thursday and you know what that means. It’s EIA storage report day! The market is looking for an injection of 95 Bcf. Last year a massive 105 Bcf injection but the 5 year average is much lower at 71 Bcf. We’ll know at 9:30 CDT.

This morning is fairly sedate with natty down 2.3¢

Elsewhere

If you have or plan on driving to your vacation spot this summer you’ll have a few more Washingtons in your wallet than in previous years. Per the EIA, the average retail price for motor gasoline this summer is expected to be $2.67/gallon which is the lowest price, in real dollars, since 2009. Motor gasoline consumption is expected to increase 194,000 barrels/day, up 2.1% from last summer. The increase is reflecting higher real disposable income, substantially lower retail motor gasoline prices, higher employment and greater consumer confidence. Miles driven this summer are expected to be 2.2% higher than last summer, the greatest year-on-year increase in 11 years. The increase in highway travel is not solely due to a drop in gasoline prices. Real disposable income is projected to be 3.6% higher than the summer of 2014 and the largest year-on-year increase in 9 years. So go out and buy that big SUV, pack the kids and grandma in it and head to the Jersey shore! That brings back childhood memories, only it was in a station wagon.