Equities and the Economy

It was a sedate day Friday with U.S. stocks beginning the day on a positive note trading higher but ending mixed held back by marginally lower oil prices but more so a stronger dollar. When the closing bell rang the Dow was off 57 to 16,640, the S&P 500 settled 4 points lower at 1,948 while the Nasdaq actually posted a gain of 8 to 4,590. All chatter. For the week the Dow posted a 1.5%, the S&P was up 1.6% and the Nasdaq 1.9%. We’ll take that. Although oil is not an equity it gets its place in this section for its correlation to equities of late is undeniable and must be acknowledged. WTI was up 11% for the week.

With respect to economic data, the big news Friday came from the Commerce Department noting personal consumption was up sharply, 1.3% on an annual basis, growing at its fastest rate in 8 months. The Fed’s preferred core inflation figures has finally starting coming around rising to 1.7% annually, the highest since late 2012, and closing in on the Fed’s 2% target. This follows on the heels of months of data showing strong employment. This fresh inflation data will increase the odds of the Fed raising interest rates this year. The University of Michigan released its consumer sentiment index for February stating it “fell” from 92.0 in January to 91.7. Come on. Those all look like “92” to me.

We’re beginning the week pretty much where we left off with the Dow down 2 which is actually pretty good considering the Asian markets got hammered closing down between 1% and 2.86% and the European markets trading flat recovering from a very bad start. As I mentioned last week, the S&P is up at resistance and we need to get through this level. My gut tells me that after the big surge we’ve had over the last two weeks we’re bivouacking preparing to push through this resistance.

By the way, over concerns regarding the economy there, the Chinese government has weakened the yuan for the 5th consecutive day. Keep an eye on this for it was the unexpected precipitous devaluation of the yuan in August that crushed the equities market at the end of that month.

Oil

Oil prices slipped Friday with WTI closing down 29¢ at $32.79 while Brent closed down 19¢ at $35.19. However, as aforementioned, WTI had a good week being up 11%. The oil rig continues to plummet with Baker Hughes releasing it weekly rig count report noting the number of rigs looking for oil fell for the 10th week in a row. Last week another 26 rigs were laid down with now only 413 rigs working, the lowest since December 2009. The precipitous drop in the rig count is finally starting to affect oil production. The EIA stated that U.S. production fell to 9.1 million bpd for the week ending February 19th. U.S. production, however, is being offset by Iran which stated today it steeply increased exports in January to 1.75 million bpd, with more to come. A word of caution to you bulls out there, at least in the short term. Data from InterContinental Exchange, one of the largest trading platforms, noted that traders have on the most long futures and options positions since record keeping began in 2011.

WTI prices have rebounded almost 33%, $9, over the past couple of weeks from their 13 year low just above $26.00 This morning WTI is up 30¢. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices on Friday ended little changed with the April contract closing up 0.6¢/MMBtu at $1.791. Moving quickly on to this morning, natty is down 7.6¢ on a very bearish weather forecast this morning. As you can see, not only is there no cold air anywhere in sight the next couple of weeks, the 6-15 day forecast is downright bearish with red all over the map east of the Rockies. Heck, Cincinnati is forecasted to hit a high of 75 degrees next Tuesday! That’s downright balmy! Winter’s over folks! Now we’re going to need to focus nuclear plant refueling and the summer forecast.

A client and friend took me to friendly task last week for not noting in my Blog that last week the U.S. exported its first LNG cargo ever. Cheniere Energy shipped its first cargo, 3.7 Bcf, from its Sabine Pass LNG terminal in Louisiana destined for South America. Cheniere stated it expects to ship 8-10 cargos over the next two months. In addition, exports from the second train, another 0.6 Bcf/d, are expected to commence in early Q2 of this year.

Elsewhere

China may be a communist nation, but that hasn’t stopped individual wealth accumulation. Evidence: Beijing is now the “Billionaire Capital of the World.” The Chinese capital has overtaken New York City, NY as the home to the most billionaires, at least according to a Shanghai firm that publishes a monthly magazine and releases yearly rankings and research about the world’s richest people and their spending habits. The firm states that Beijing has 100 billionaires to 95 in New York City. The study, which comes months after reports suggested that China now has more billionaires than the U.S., highlights how China’s elite are continuing to accrue vast wealth despite a wobbling stock market and cooling economy. Rupert Hoogewerf. The founder of Hurun, attributed China’s explosive wealth creation to Chinese market regulators allowing a flood of new initial public offerings after holding back new IPOs for several years. Hoogewerf said his wealth calculations were made suing stock prices after January 15th which means they took into account the Chinese market’s 40% tumble over the past half year. Had the calculations been made at the market’s peak last summer, the number of Chinese billionaires would have been nearly 150. Beijing took the title from New York after minting 32 new billionaires last year. Moscow came in 3rd with 66 billionaires, Hong Kong 4th with 64 and Shanghai 5th with 50.

Mao Tse-tung is turning in his grave!