Equities and the Economy

For a change, U.S. stocks were pretty quiet yesterday closing mixed. While the Dow and S&P had marginal losses, 23 points to 17,986 and 2 points 2,098, respectively, the Nasdaq had a decent day rising 18 points ending at 4,877. It could have been worse for the Dow was down 100 points in the afternoon. It’s quite possible investors were setting up their books up for the big report out today which is the Labor Department’s employment situation report for June. Speaking of employment, the ADP Research Institute yesterday reported that private-sector employers added 172,000 new jobs in June which was a bit more than consensus forecast of 159,000. Job growth remains healthy except in the energy and trade-sensitive manufacturing sectors (dollar strength is hurting). Small and mid-size companies continue to add strongly to payrolls.

Continuing the employment theme, the Labor Department yesterday released its weekly initial jobless claims report for last week noting claims fell 16,000 to 254,000. Wall Street was looking for a number closer to 270,000. This was a good, solid report.

The Labor Department just released the aforementioned June labor report, and it was a whopper, a good whopper. The U.S. economy added a huge 287,000 jobs in June crushing the 180,000 expected by economists. This was the biggest jump in payrolls in eight months. The headline unemployment rate actually increased from 4.7% in May to 4.9% because 414,000 people were considered to have “entered” the work force, i.e., looking for jobs. The key average hourly earnings data showed earnings increased at a 2.6% pace y-o-y which was a bit less than 2.7% expected. That being said, the Fed watches this number closely because wage inflation plays a huge role in overall inflation. Remember, the Fed’s target is 2% inflation.

In a strange bit, May’s anemic report showing the paltry addition of 38,000 jobs was actually revised lower by 11,000 jobs. However, April’s number was revised up 21,000 to 144,000.

Ok, so let’s get to the important thing. How’s the market reacting. Positively, for the Dow is up an very nice 163 points,

Oil

It was hated yesterday. Even though equities closed fairly flat to Wednesday traders sold oil hard yesterday with WTI falling $2.29, 4.8%, settling at $45.14 and Brent losing $2.40, 4.9%, closing at $46.40. Both oils closed at a 2 month lows. A combination of the return of Nigerian and Canadian production, concerns over global growth, especially China, and the continued strength of the U.S. dollar is making the bulls yoke very heavy. Yesterday the DOE added to that yoke with its weekly crude and products report showing aggregate inventories fell 4.2 million barrels last week which is in line with the 5 year average of 4.68 million barrels but materially less than the 12.6 million barrel draw the API reported Tuesday evening. What got bought up in oil futures Wednesday on the API data was sold Thursday on the DOE data.

Commodities priced in U.S. dollars are all getting hit. The average of the two broad commodity indexes fell a big 2.8% in the last day and is down 5.0% from a week ago.

This morning WTI is not getting any love from the equities market being down 9¢.

Courtesy of MDA Information Systems LLC

Natural Gas

It was bit of a strange day for natural gas yesterday. The weather forecast came in warmer overnight and the market was trading up a couple of cents before the EIA released its weekly storage report which came in at 39 Bcf and about 3 Bcf less than expectations which is bullish, and after rallying 5.5¢ higher on the data aggressive selling came in. Definitely not the price action one would expect. Natty finished 0.9¢ down on the day at $2.777.

Back to the storage, current supplies of natural gas in storage are 538 Bcf, 20%, above last year and 599 Bcf, 23%, above the 5 year average. Those numbers have been decreasing every week this summer. They need to. We’re still at record levels of storage for this time of the year due to the warm winter.

Natural gas fired electric generators are doing their part in reducing the surplus. Yesterday they burned 36.7 Bcf, a new daily record surpassing June 27th’s 36.1 Bcf.

This morning’s weather forecast continues to show above normal temperatures for the eastern half of the country, but it’s not helping the bulls for natty is up only a couple of pennies this morning.

Elsewhere

A new video game was released this week called Pokemon Go. You’re probably thinking “What’s the big deal? Another video game where people will sit on couches.” Well this game is different. Developed by Niantic, the game uses your phone but events and objects in the game have their own physical location in our physical world. In order to reach the Pokemon, you actually need to leave your home or office and travel to a specific place! You look at the world through your phone’s display, a simple viewfinder feed from your camera mixes the reality around you with 3D objects drawn on top. The label for this technology is “augmented reality.” In Pokemon GO you take the role of an up-and-coming Trainer and you catch as many different Pokemon as you can which are found in different geographical areas. Water type Pokemon are found near seas and rivers. This encourages the user to explore different commutes or hike regions in their town. You can also trade Pokemon between players.

The game is not without its glitches. On launch day the Northern Territory police station in Australia advised players not to enter the Darwin Police Station in order to catch a Sandshrew.

On a logistical note, the next Blog will be published on Monday July 18th. The author and his two teenage daughters will be on a very big boat next week enjoying their summer vacation together. This will be the author’s first time on such a vessel.