Equities and the economy

After two spectacular days U.S. stocks bivouacked with the Dow closing down 23 points at 17,828, the S&P 500 closing flat to Tuesday at 2,090 and the Nasdaq ending at 4,090, up 7 points. All the definition of “chatter.” Considering the big move we had I call this a victory. Even after the big gains this week the S&P 500 is only trading near 16.5 times expected earnings which is considered fair value.

Moving on to the fundamental economic data, it was almost all positive. First, the Labor Department released its weekly initial jobless claims noting they fell by 10,000 from the week before to 268,000 which is a one month low implying the labor market remains robust. Second, the National Association of Realtors reported that its index of pending home sales rose 5.1% in April to 116.3. This was way above expectations and truly a surprisingly good number. Sales are up 4.6% from the same period a year ago. The increase was primarily to gains in the south and west where pending sales in April are their at their highest level since, are you ready, February 2006! The housing market rocks on! Finally, the Commerce Department reported durable goods orders rose 3.4% in April which beat expectations. However, 66% of that gain came from the airplane component which distorts the headline number. Orders for nondefense capital goods, a proxy for business investment plans, were disappointing though falling 0.8% in April, the 3rd consecutive monthly decline.

This morning the global equity market is very, very sedate. The Asian markets closed on either side of unchanged, the European markets are trading the same right now and Dow futures are up 22. It’s a long holiday weekend here in the U.S. but it looks like the world is joining in with the weekend already under way.

Oil

Equity investors weren’t the only folks to take the day off. Oil traders did as well. WTI closed almost flat to Wednesday, down 8¢, closing at $49.48 and backing off the $50, a level not seen in 6 months. Brent settled 15¢ lower at $49.59. More chatter. It looks like oil field workers are moving back into the Fort McMurray region of western Canada to restart the oil sands operations. The fires have shut in 1 million bpd. This could exert some downward pressure on prices. Russia’s production is going great guns with the country reporting output hit a record high this month. OPEC is having their bi-annual meeting next week which will underwhelm. No production agreement will be reached. I’d be surprised if it’s given more than a mention. In fact the opposite will probably be discussed being Saudi Arabia, the most important OPEC country, announced this week it ramped up production to satisfy demand from its Asian customers.

This morning WTI has breached the $49 level trading down 55¢.

Courtesy of MDA Information Systems LLC

Natural Gas

The June natural gas Nymex contract expired on a whimper yesterday closing down 2.9¢ at $1.963. The bears were helped by the EIA’s weekly storage report which stated 71 Bcf was injected last week which was above expectations of a 66 Bcf injection. U.S. inventories are currently 37% above both last year and the 5 year average. All the bearishness is in the front part of the curve. The calendar strips closed higher yesterday. The curve is telling you something folks.

The weather forecast is little changed overnight and not going to help the bulls, and you folks in the Midwest and northeast are not going to like it for the 11-15 day forecast is very cool with the weather being more like early April than early June.

The July contract kicks off its first day in the prompt month position and is up 0.7¢. More chatter.

Elsewhere

Are you driving somewhere for the holiday weekend? If you are, you will be enjoying the lowest gasoline price for this holiday weekend in 6 years. Now you’re saying “Gasoline prices have gone up lately!” And you would be correct, but for this weekend prices are the lowest since 2009. More than 38 million Americans are expected to travel this weekend, the second highest on record next to 2005. Of that figure, 33.9 million, or 89%, will drive, which is up 2.1% compared to a year ago. The last time prices were this low for a Memorial Day was in 2009, when prices averaged $2.10 per gallon, per AAA. This year the Association notes the average price is $2.24/gallon. Last year the average price was $2.74 per gallon. And with this year’s lower price and the improving economy, AAA expects gasoline demand this year to break the record set in 2007.

Hoping you have a wonderful weekend. Please take a minute this weekend and reflect on who we’re honoring and why.