Equities and the Economy:

• S&P and Nasdaq break 7 session winning streak.
• Losses very minimal.

The S&P 500 and Nasdaq both closed lower yesterday breaking their seven consecutive session winning streak. The S&P closed down 3 points to 2,413 and the Nasdaq was off 7 points to 6,203. These losses are extremely minimal considering the recent run to the upside. The Dow fell for the second consecutive day losing 51 points finishing at 21,029. Overall it was a quiet day with trading light. Let’s move on.

The Commerce Department reported yesterday that consumer spending rose in April 0.4% and consumer incomes rose by the same amount. Both came in at Wall Street expectations. The Personal Consumption Expenditures price index rose 0.2% for the month and 1.7% on an annual basis. The Core PCE, which eliminates food and energy costs, rose 0.2% on the month and 1.5% for the 12 month period. Why am I spending so much time talking about the PCE? Because it is the Fed’s preferred measure of inflation. Of note, the 1.5% for the last 12 months is way below the Fed’s target of 2%. That being said, the market is pricing in a 90% probability the Fed will raise interest rates at its June meeting (13-14th). However, and very possibly because of this PCE data, the probability of a rate hike in September has decreased to 26% from 40% a month ago.

I always talk about housing because I know it is a big line item on so many folks’ balance sheet. Yesterday Case-Shiller reported its 20-city home price index showed growth of 5.9%. This was slightly better than expected but impressively this is the largest annual price gain since July 2014.

This morning stocks are working on taking back what they lost yesterday with the Dow up 31 points.

Oil

• Prices fall marginally.
• Libyan production up 160% from 2016.

Oil prices fell yesterday with WTI closing down 14¢ at $49.66 while Brent gave up 45¢ settling at $51.84. Oil prices fell 1.7% last week, but that was the first weekly decline in 3.

Goldman Sachs is getting more bearish on oil. It just lowered its forecast for the WTI price for 2017 to $52.92 from $54.80.

This morning oil prices are getting bludgeoned with WTI down a big $1.27. I think the bulls were hanging on for dear life and then the report on Libyan production came out showing production is expected to rise to 800,000 bpd this week which surprised everyone. Putting this in perspective, Libya produced an average of 300,000 bpd in 2016. 800,000 bpd is a 160% increase! Remember, Libya is exempt from the OPEC production agreement. Add that information to data showing U.S. production has risen 10% since the middle of last year and you get a heavy yoke for the bull to carry. We may have more downside. Technical support is $47.00ish. You can pooh-pooh technicals all you want, but take it from a natural gas traders of 25 years, they do come into play! They’re primarily used for initiating and exiting trades.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices get punished.
• Weather forecast cooler.

The matador slayed the bull yesterday. Yesterday the July Nymex contract spent its first day as the prompt month getting slaughtered falling a whopping 16.5¢ closing at $3.145. Two very significant factors were, and are, at work here. The first, which is transitory, is that the weather forecast yesterday morning came in a lot cooler for the next 2 weeks for the eastern U.S. than it had been before the holiday weekend. The second, and much more longer term in nature, is U.S. production has been creeping higher. I’ve mentioned it numerous times over the last 5 months that every trader has one eye on U.S. production. I look at it every day! Well for months U.S. dry production has been around 70.5Bcf/d but for the last 10 days it’s been averaging around 71.1 Bcf/d hitting a 2017 high of 71.9 Bcf/d on Saturday and Sunday. Now production has backed off from those highs but it shows what is possible.

This morning there’s no load showing for the eastern half of the nation into the middle of June and the bears remain in control with natty down 6.1¢. Technical support is at $3.02.

Elsewhere

We keep hearing about self-driving vehicles but it seems so far away. Well not if you live in Phoenix. A few of months ago Waymo, the autonomous car unit of Google-parent Alphabet Inc., began a limited public trial making hundreds of self-driving vehicles available to family and urban commuters there. Waymo has been accepting applications through its website for people who want to be part of the Early Rider program. Users can summon the vehicles with a special app any time of day or night. Waymo said the goal is to see how far people will go to replace their own transportation.

Alphabet has some serious competition. GM is preparing to add about 300 self-driving Chevrolet Bolts to its 50 car fleet later this year. And don’t forget about Uber. They’ve been working hard at it. An Uber test car was involved in an accident in March in Phoenix and even though it wasn’t the Uber car’s fault it is raising questions about autonomous decision making.

Before you freak out, the Waymo cars do have a person sitting at the wheel in case human intervention is required. Bottom line here is this stuff is coming on fast!