Equities and the Economy:

• U.S. stocks continue to meander.
• European equities hitting record highs.

U.S. stocks ended little changed yesterday with the Dow closing down 6 at 20,951, the S&P 500 finishing up a single digit at 2,390 and the Nasdaq rising 3 points ending at 6,075. Yesterday may have been chatter here in the states but European equities are on fire. France’s CAC 40 hit a high not seen since January 2008 and Germany’s DAX closed at a record high. Similar to what’s going on here, the eurozone economy is doing much better and corporate earnings are coming in good.

The major report yesterday was the weekly jobless claims report from the Labor Department noting claims fell last week more than expected, 19,000, to a seasonally adjusted 238,000. This is the lowest level in 17 years. Claims have been below 300,000, the threshold associated with a healthy labor market, for 113 consecutive weeks. This is the longest stretch since 1970, and the labor market was a lot smaller at that time. Separately, the same department reported worker productivity fell 0.6% in Q1, down from +1.8% in Q4 2016. This was a major disappointment. Labor costs rose 3.0%, up from Q4’s 1.3%.

This brings us to today and the closely followed Labor Department’s employment report for April, which was just released. And it is a good one. The U.S. economy added 211,000 jobs for the month taking the unemployment rate to 4.4%, down from 4,5%, and the lowest since May 2007, shortly before the onset of the Great Recession. Interest rate hike here we come! I’ll go into the details of the report on Monday.

The second, and final, round of the French presidential election is on Sunday. Centrist (which would be leftish here in the U.S.!) Emmanuel Macron is expected to beat hard right Marine Le Pen.

Investors don’t seem impressed with the employment report. The Dow is down 40. The S&P is flat.

Oil

• Bloodbath yesterday.
• WTI price plunges to near 6 month low.

It was carnage in the oil patch yesterday as oil prices purged. WTI got crushed losing $2.30, closing at $45.52 and Brent got walloped even more falling $2.41 settling at $48.38. Both benchmark’s lost 4.8%. Prices are near 6 month lows, but even more importantly, at prices last seen before the OPEC November 30th meeting in Vienna when the production cut agreement was announced. Following that agreement prices rose as high at $54.45 WTI and Brent hit $56.81. Prices are down 15% from those peaks. U.S. production continues to rise; highest in a year and a half and up 10% since last summer. Also, Libya is poised to increase production. Reports are that two of the largest factions in the country are making progress in reaching a deal to resolve the nation’s political and economic crisis. A unified Libya could potentially produce 1.5 million bpd, up from the current 700k bpd. Remember, Libya is exempt from the production cut agreement.

OPEC is between a rock and a very hard place. A production cut extension for Q3 and Q4 at current levels is not enough. At current cut levels global supplies are not decreasing, or not decreasing enough. Cuts need to be greater. But many of the OPEC members have social entitlement programs that need to be funded. Even if OPEC does do something to increase prices the U.S. producer will simply do what he’s been doing for the last 18 months, increase production. It comes down to stuff I learned in graduate school. The marginal producer of a commodity establishes the price, and OPEC is no longer the global marginal producer of oil. The U.S. producer is.

Intraday yesterday we got very close to the $45.25 support level and that seems to be holding. WTI is up 86¢ currently.

Courtesy of MDA Information Systems LLC

Natural Gas

• EIA storage report moderately bearish.
• June contract settles lower.

The EIA released its regular weekly natural gas storage report yesterday stating 67 Bcf was injected last week, This was above expectations of 59 Bcf which fed the bears a few berries who pushed the June Nymex contract 4.2¢ lower to $3.186. That being said, there really hasn’t been much price action lately with natty trading around $3.20 the last couple of weeks. Of note, the 2019 through 2022 calendar strips closed flat to higher.

Returning to storage, current inventory levels are 359 Bcf, 13.7%, below last year at this time and 303 Bcf, 15.5%, above the 5 year average.

The bulls are back in town this morning. Natty is up 3.7¢.

Elsewhere

Tomorrow Berkshire Hathaway has its annual shareholder meeting at its usual location, Omaha Nebraska. This shareholder meeting has become so popular its streamed live around the world. As we all know, the “Oracle of Omaha,” Warren Buffett (no relation to Jimmy) is Berkshire Hathaway’s CEO. It was on September 4th, 1991 when America met Warrant Buffett. That was the day he appeared before members of Congress, and apologized. Buffett was not apologizing for himself but on behalf of some of the employees at Salomon Brothers, of which he was chairman and CEO at the time, for rigging Treasury bill auction bids. He stated, “The past actions of Salomon is causing our 8,000 employees and their families to bear a stain. Virtually all of these employees are hardworking, able and honest.” He then went on to say what are considered his most famous words ever spoken. “If [the employees of Salomon Brothers] follow this test, they need not fear my other message to them. Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”

Happy Cinco de Mayo and have a great weekend!