Equities and the Economy:

• First Goldman, now IBM.
• Dow closes at lowest level since February 10th.

Tuesday it was Goldman Sachs’ disappointing earnings that sent the Dow lower. Yesterday it was IBM. The company reported weaker than expected sales in Q1 and investors punished the company pushing its stock price down 3.9%, its biggest one-day drop since June and closing at its lowest level since December. By the way, this is the 20th consecutive time IBM has reported lower earnings relative to the previous quarter. The fall in IBM’s share price was responsible for half of the 119 point drop in the Dow yesterday which closed at 20,404. The Dow now sits at its lowest level since February 10th. Also dragging stocks lower was the energy sector with oil prices getting hammered yesterday. The S&P fared a lot better than the Dow losing 4 points finishing at 2,338. Technology was the bright spot of the day with the Nasdaq actually closing 14 points up at 5,863.

The most important fundamental economic document released yesterday was the Fed’s Beige Book. It said the U.S. economy expanded at a modest-to-moderate pace between mid-February and the end of March while inflation remained in check saying “on balance, prices rose modestly.” Also stated was that employers are experiencing rising wage pressure, having more difficulty retaining workers and experiencing higher turnover rates, especially in construction and highly-skilled jobs. In a speech yesterday Vice Chairman Stanley Fischer, a voting FOMC member, expressed the global economy is growing and can withstand monetary tightening. Translation: more interest rate hikes.

This morning U.S. stocks are trying to bounce back being up 31 points.

Oil

• DOE reports big build in gasoline stocks.
• Oil prices have biggest one day loss in 6 weeks.

Yesterday the DOE released its regular weekly crude and products report and while crude inventories fell 1 million barrels last week and somewhat more than expectations, the gasoline inventory data is what caught traders attention rising 1.5 million barrels, much more than forecasts of a 2 million barrel decline. The bearish data brought out the selling and WTI closed down a big $1.97 at $50.44. Brent lost $1.96 settling at $52.93. Both oils suffered their largest one-day loss in 6 weeks. Prices have now fallen 7% in a week and are at 3 week lows. The bears also noticed the agency stated that U.S. oil production in the week of April 14th was 9.252 million bpd, its highest level since August 15, 2015. In terms of growth it may be only 3.5% higher y-o-y, but its 9.5% higher than this past October. If you annualize that growth it comes in at a huge 19.1%! If this rate of growth materializes for a year U.S. production will be 10.1 million bpd. I wonder what the Saudi’s are thinking?

Today the WTI May crude Nymex contract expires. It’s beginning the day very quietly down 6¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices consolidating.
• EIA storage report today.

Natural gas prices closed up 4.0¢ at $3.185 but really have consolidated around the $3.20 level where they’ve been trading for the last couple of weeks. Current weather conditions translate into very few HDD’s or CDD’s but there’s a ton of MW’s off line due to nuclear plant maintenance and non-weather related demand remains strong with feedgas into LNG hitting a new record high recently at 2.4 Bcf. And there’s the supply side of the equation where I’m seeing no growth in U.S. production despite the gas rig count up 80% from last May’s lows. Why? Numerous reasons, not the least of which is that shale gas well decline curves are in the 50% range for the first year of production. A lot of drilling has to be done to make that up.

Today the EIA releases its weekly natural gas storage report today. The market is looking for a 52 Bcf injection which compares to a 6 Bcf injection last year at this time and a 35 Bcf injection for the 5 year average. Traders are sitting back and drinking coffee for natty is down an insignificant 0.7¢ this morning.

Elsewhere

A bit more trivia from “Killing the Rising Sun” which I recently finished reading. Did you know that Japan is made up of 6,852 islands? And not one of them are named “Japan!” 430 of the islands are inhabited. The four largest and most populous are Honshu, Hokkaido, Shikoku and Kyushu. The capital city of Tokyo is located on Honshu’s eastern shores.