Equities and the Economy:

• Dow and S&P post first weekly loss in nearly a month.
• Lack of volatility persists.

On Friday the Dow closed down 23 points finishing at 20,897 and the S&P 500 slipped 4 to 2,391. However, the Nasdaq, which has been el fuego for the last few weeks, squeaked out a gain of 5 points to end at 6,121. For the week the Dow was off 0.5% and the S&P fell 0.4% posting their first weekly losses in nearly a month. The Nasdaq continued its winning ways marking a 0.3% gain, its 4th consecutive weekly gain, albeit the smallest of the streak. Of note, the market has been inordinately involatile of late. The S&P’s subdued action on Friday marked the 13th straight session that the large-cap index moved less than 0.5%, the longest since September 1995.

Turning to the economic data, on Friday the Labor Department reported its Consumer Price Index rose 0.2% for April and for 12 months it increased 2.2%. While this index is not the Fed’s preferred inflation index it is a good surrogate and the fact it’s above the Fed’s 2.0% target it’s more fodder for them the raise interest rates next month, especially since they didn’t at this month’s meeting.

The Commerce Department released Retail Sales for April and they were disappointing. Wall Street was looking for a rise of 0.6% and it came in at 0.3%, excluding auto sales and gasoline. The economy is growing, but a little more faintly than wished.

This morning investors globally are in a risk-on mood. Both the European markets and U.S. are trading higher. The Dow is up 76.

Oil

• Oil prices post first weekly gain in a month.
• OPEC and Russians agree to extend cuts to March 2018.

Oil prices closed virtually unchanged on Friday with WTI closing up a penny at $47.84 and Brent up 7¢ at $50.84. Although the price action Friday was just chatter last week it was the first week in a month oil prices rose (3.5%). The focus is on OPEC, which meets May 25th, and the discussion on an extension of production cuts with the current agreement expiring June 30th. Unexpectedly to me, in fact amazing, is the compliance by OPEC and Russia to the current agreement. A monthly report released Thursday by OPEC showed the cartel’s output for April averaged 31.73 million bpd. This means OPEC has cut more than the agreed upon 1.2 million bpd. Saudi Arabia is bearing the burden cutting more than they agreed.

Baker Hughes released its regular rig count report Friday afternoon, and the count continues to rise. Last week the oil rig count rose by 9 to 712. This was the 17th consecutive week the oil rig count has risen. It’s been up every week this year save one. Putting this in perspective, almost exactly one year ago this week the oil rig count was 318. You can do the math.

The big news this morning is the joint announcement by the Saudis and Russians that they’ve agreed to extend the production cuts not just to the end of this year but through Q1 2018. Saudi Arabia said they expect the other OPEC members to also agree. Remember, OPEC is the largest exporter of oil in the world and Russia is the world’s largest producer. Together they control 20 million bpd, or 20% of the world’s daily global demand. On the talk of extending the production cuts it’s Pamplona this morning with WTI up $1.70. I can see the U.S. producer doing cartwheels!

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices continue to grind higher.
• Prices are up 90¢ in less than 3 months.

After early morning weakness due to a rise in daily production the bulls once again emerged pushing the June Nymex contract up 4.8¢ on the day closing at $3.424. Natty prices have now risen more than 90¢, 36%, in less than 3 months. We’re right up against resistance and with the 11-15 day weather forecast coming in cooler to normal and production this morning up a tad I’m seeing some profit taking coming in and natty is down 7.5¢.

Elsewhere

If Elon Musk can pull this off the implications are overwhelming! His company, Tesla Inc., announced this week that it’s taking its first orders for its highly anticipated solar powered roofs for homes, which per its blog claims are “more affordable than conventional roofs.” The solar roof is comprised of shingles which can be either textured or smooth glass tiles, with Tuscan and slate models coming next year. Solar City, also run by Musk, will begin installations in California next month. Integrated with homes also equipped with energy storage (batteries) and occupied by drivers of electric vehicles, Tesla’s solar roofs are part of Musk’s “master plan.”

It remains to be seen whether actual orders justify the excitement. Musk isn’t the first company to produce solar tiles and those companies have gone out of business leaving the homeowner with a roof that doesn’t leak, but it also doesn’t produce electricity. Particular challenges include the tile’s performance. The tiles get hot which reduces the performance of the photovoltaics often leading to failure. Wiring is another big issue. It takes a lot of time to wire all the small tiles compared to larger conventional solar panels. Also, if something goes wrong with even a few of the tiles it’s almost impossible to replace them.

Still, the possibility of this working is mind boggling. And I’m not going to bet against Elon Musk.