Equities and the Economy:

• Investors risk appetite increases after risk-off holiday weekend.
• U.S. stocks bounce back.

After three sessions of losses putting the indexes at two month lows on Thursday U.S. equities rallied hefty yesterday with investors putting back on the risk they’d taken off before the holiday weekend. The Dow rose a nice 184 points, 0.9%, closing at 20,637, the S&P 500 added 20 points, also 0.9%, finishing at 2,349 and the Nasdaq posted a gain of 52 points, 0.89%, to 5,857. An important caveat on yesterday’s price action; trading volume was the lowest for a single session so far this year. You want big volume on an up-move because large volume confirms the move. Price moves up on low volume could be, well, chatter. From a longer term perspective, equities have been struggling lately after the big post-election move. As I’ve mentioned previously, P/E valuations are historically high and investors want to see company earnings confirm the valuations. Earnings season got underway in earnest last Thursday and will continue for a couple more weeks so let’s hope they don’t disappoint.

Turning to the economic news, the National Association of Homebuilders reported its NAHB/Wells Fargo index of builder sentiment fell from 71 in March to 68 in April. While this was disappointing, the index was at an 11 year high in March and it’s still well over 50 indicating growth so there’s nothing to worry about here. March retail sales were released last Friday and while the homebuilder’s index decline can be rationalized, this data point cannot. March sales posted their worst two-month stretch in two years and consumer prices fell for the first time in over a year. The only positive thing that one may take from this is that we might see the Fed less aggressive in raising interest rates. However, this is but one data point for the Fed.

This morning stocks are giving back some of yesterday’s gains with the Dow down 83 points. You can thank Goldman Sachs. They reported earnings and “disappointed.” The stock is down 3.08% this morning and is responsible for more than 40 points of this morning’s Dow decline.

Oil

• Oil prices post small loss.
• Prices hitting resistance.

Oil prices posted a small loss yesterday with both WTI and Brent falling 53¢ with the former closing at $52.65 and the latter at $55.36. After hitting lows at $47/bbl in mid to late March prices rebounded but have run into strong resistance in the $53-$55 range which were the high prices back in December, January and February. The market could never break through that level and hence has become strong technical resistance.

Yesterday afternoon the EIA released data forecasting May production from the 7 major U.S. shale plays expecting an increase to a 2 year high at 5.2 million bpd. The agency also forecasted rig productivity of 662 bpd in the Permian Basin. Just 8 years ago that number was 100 bpd. Now that’s productivity folks!

This morning WTI is down 22¢. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices slip yesterday.
• Down 7% in less than 2 weeks.

Natural gas prices finished lower yesterday with the May contract closing down 6.4¢ at $3.163. The May contract has now fallen 25¢, 7%, in less than 2 weeks. What’s happened here is that natural gas prices during bid week (the last 5 work days of each month) were at levels that encouraged electric generators to buy coal for the month instead of natural gas. This left some natural gas in the post April 1st daily market to be looking for a home which pushed cash prices down which dragged the May futures lower. The coal/natural gas balance is a “fine line” in the electric generation market and generators switch back and forth in a heartbeat. Putting it another way, the electric generation market is the “swing” natural gas market and balances the natural gas market.

In the same EIA report mentioned above, the agency forecasts production in the 7 major shale basins to increase by 501 million cf/d to 50.1 Bcf/d in May. The increase marks the 4th consecutive month of higher production levels. The biggest increases are in the Permian Basin and Haynesville (east Texas/Western Louisiana).

Natty is down 2.6¢ as I write. Chatter.

Elsewhere

Many, many times the U.S. is number 1 in so many categories, and that is awesome. However, in this particular situation it’s not. According to the Organization for Economic Cooperation and Development (OECD) as of the end of 2014, the last year data was compiled, a whopping 27% of all children in the U.S. lived with just one parent. In 2nd place is Belgium with 24%, the UK comes in at 22% the France at 21%, Portugal at 20%, Ireland with 18%, Germany and Spain 15%, Netherlands 13%, Italy 12% and then Greece with 8%. This needs to be fixed. I don’t know how, but it does.

Speaking of the OECD, do you really know what it is? It’s a very influential organization. The United States is a member. Headquartered in Paris, the OECD is an international organization of thirty four countries. Member countries of OECD all have a democratic system of government. They also accept the principle of a free economy. A country has a free economy when its government does not control the economic activities of its citizens and companies.
The OECD started in 1948 as the Organization for European Economic Co-operation (OEEC). The Second World War had just ended three years before in 1945. Some countries of Europe came together to form OEEC to help each other re-build their industry and other things destroyed in the Second World War. Later on, some non-European countries also joined this organization. In 1960, OEEC changed its name and it became OECD: the Organization for Economic Co-operation and Development.