Equities and the Economy:

• U.S. equities close marginally lower.
• Market looking for a ¼% hike in interest rates today.

U.S. stocks closed marginally lower yesterday dragged down by the Asian markets and energy stocks with crude oil prices closing lower on considerably below average volume due to winter storm Stella.  The Dow closed down 44 points at 20,837, the S&P 500 lost 8 to 2,365 and the Nasdaq posted a 19 point loss finishing at 5,857.  Let’s call yesterday’s price action chatter ahead of the conclusion today of the FOMC’s two day meeting.  It’s not a question of whether there will be an interest rate increase for everyone is expecting the Fed to raise interest rates a ¼% today.  What investors are really looking for is guidance from the Fed on how many more interest rate hikes are likely this year, i.e., how aggressive they will be raise interest rates.  As I’ve said often, higher interest rates are anathema for stocks for they make assets like bonds more attractive “stealing” money from the stock market.

The only significant economic report yesterday was the Labor Department’s Producer Price Index which showed core PPI rose 0.3% in February and 1.8% on an annualized basis.  This is marginally below the Fed’s target of 2% but it won’t stop the Fed from raising interest rates today.  They’re seeing too much wage pressure in the labor market as well as other positive economic data not to raise rates.  This morning the Dow is up 48 points as investors wait to hear from Janet Yellen.

Oil

• Oil prices remain on the defensive.
• Prices bouncing today on surprise API report.

Oil prices had another tough day yesterday with WTI closing down 68¢ at $47.72 and Brent falling 43¢ settling at $50.92.  Yesterday’s closing prices are at levels seen before OPEC announced the production cut agreement November 30^th.  So OPEC cuts production to balance the market and about 3.5 months later prices are back to where they were before the cut meaning OPEC producers have less revenue coming in and are giving up market share to non-OPEC countries, i.e., the U.S.  Saudi Arabia can’t like that!

This morning WTI is bouncing 67¢ on the bullish API report released last evening showing a surprise drop of 500,000 bbl. in inventories last week.  We’re also seeing some short covering.  Oil prices fell for 5 consecutive sessions and a correction is due.  The API report was the catalyst for traders who were short to take some profits.  While the API report was bullish Saudi Arabia’s report on its February production was mildly bearish stating it increased production in the month by 263,000 bpd adding that it all went to storage and was nothing other than normal operational factors.  February’s production of 10.011 million bpd, however, is still well below its production cut quota of 10.058 million bpd.

Oil prices may be rallying this morning but the contango in the price curve is widening.  Supplies are growing and oil is more aggressively bidding for storage.

Courtesy of MDA Information Systems, LLC

Natural Gas

• Prices retreat on profit taking
• Cold temperatures to remain into 3^rd week of March.

After many sessions with prices rising natural gas prices retreated with the April contract falling 10.5¢ settling at $2.938.  A lot of length has come into this market over the past couple of weeks and when cash prices yesterday didn’t rise relative to Monday some traders decided to take profits.  The snow in the northeast won’t be melting for a week or longer for temperatures are going to remain well below normal for the 1-10 day period which will support prices.  Quite amazing is that per the Weather Channel average March temperatures for the first two weeks of the month are colder than in the first two weeks of February.  Many longer term weather forecasts released in Q4 2016 called for a late winter.  Those forecasts looked way off last month.  Looks like they got it right!

With this morning’s forecast showing the cold to stick around longer than originally forecast the bulls have come out taking natty 5.2¢ higher this morning.

Elsewhere

For the first time in history Americans drink more bottled-water than soda.  According to data from industry tracker Beverage Marketing Corp. bottled-water consumption hit 39.2 gallons per capita last year while carbonated soft drinks fell to 38.5 gallons and for the first time ever knocking soda out of the top spot.  From a revenue perspective soda is still number one racking in $29.5 billion compared to $21.3 for bottled-water.  Soda consumption has been declining since 2003 while bottled water consumption has grown for the last two decades.  More than a quarter of the bottled water revenue last year was shared by soda giants Coca-Cola Co. and PepsiCo PEP which sell Dasani and Aquafina, respectively.  In the four decades since the launch of Perrier water in the U.S. consumption of bottled water is up 2,700%.  Some 45% of bottled water brands source their water from municipal water supply, i.e. tap water, however, the producers of bottle water put the tap water through a purity filtering system.

Have a good day and beware the Ides of March.