Equities and the Economy:

• U.S. stocks closed for 2nd consecutive session at record highs.
• May jobs report disappointing.

The Labor Department released its jobs report for May and it was in large contrast to the ADP report. Earlier in the week ADP’s report showed the U.S. added a whopping 253,000 private sector jobs in May, Labors’ report, just 138,000, well shy of economists’ forecasts of 185,000. Additionally, the prior two months were revised lower by 66,000 jobs. The low number is surprising and confusing for it doesn’t really correlate with virtually all the other data on the labor market we’re seeing. Despite the somewhat bearish data the all three major indexes closed higher and at record levels for a second consecutive session. The Dow rose 62 points to 21,206, the S&P 500 gained 9 to 2,439 and the Nasdaq added 59 points finishing at 6,306. It was a really good week for stocks. The Dow rose 0.69%, the S&P 0.95% and the Nasdaq a big 1.5%.

Returning to the employment report, the headline number, the unemployment rate, fell to 4.3%, a 16 year low. Average hourly earnings, a very key inflation statistic, rose 0.2% in May which followed a similar gain in April. A very strong argument could be made that the labor pool is at a level where U.S. economic growth will put some very real upward pressure on labor rates. Despite the weak jobs report it is widely expected the Fed will raise interest rates by ¼% at their meeting next week. That being said, this latest report has materially reduced the odds of more than one additional hike beyond June.

This morning the Dow is down 2. Complete chatter.

Oil

• Oil prices fall to 3 week low.
• Rig count up for 20th consecutive week.

Oil prices remain under pressure with WTI closing down 70¢ on Friday at $47.66. Brent fell 68¢ closing at $49.95. Prices on Friday closed at more than 3 week lows with last week’s prices logging their largest weekly loss in a month. Data from Baker Hughes’ rig count report continues to add to the bull’s yoke. On Friday the oil services company reported that for the 20th consecutive week the rig count rose. Eleven oil rigs were added while the natural gas rig count fell by 3. Texas led all states with an increase of 5 rigs. It doesn’t take a rocket scientist to conclude more rigs mean more production. Analysts estimate that the rise in U.S. production is currently offsetting about half the OPEC and friends production cuts.

There were a couple of important oil related events over the weekend. First, Said Arabia announced it is raising its price to Asian customers for July delivered oil by 60¢/bbl. While this was widely expected, it was 10¢ greater than traders were forecasting. When the Saudi’s raise or lower prices so do many other OPEC nations, and in this case Iran, Kuwait and Iraq will immediately do so as well. This price increase affects more than 12 million bpd of oil headed to Asia.

The second event is that Saudi Arabia, Egypt, UAE and Bahrain have severed ties with Qatar accusing the country of supporting terrorism with its support of the Muslim Brotherhood. While the move is unlikely to have a material impact on the physical market, it does increase tensions in the region and increased political tensions usually translate into higher prices. Overnight oil prices popped on the news, but traders are ok with it with WTI down 50¢.

Another bearish point is that the U.S. dollar is trading at a post-election low vs. a basket of foreign currencies with the close on Friday the lowest since October. A weaker greenback is supportive of commodities priced in U.S. dollars.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices end little changed.
• U.S. production creeping higher.

Natural gas prices ended little changed on Friday with the July Nymex contract closing down 0.9¢ at $2.999. That being said, front month prices have dropped about 45¢, 14%, in less than 4 weeks to a 2 month low. A month ago longer term weather forecasts were showing both June and July to have temperatures above normal and that has yet to materialize in the shorter term June forecast. Also, U.S. dry production has crept up from 70.5 Bcf/d to a y-t-d high of 71.9 Bcf/d and is holding consistently above 71.2 Bcf/d. On the bullish side, storage levels are 13% below last year and the lower prices go, the more electricity generators will buy gas over coal. Temperatures and production are the key points to watch.

Per the EIA, last year the U.S. electric-power sector consumed the lowest amount of coal since 1984, all due to low natural gas prices. Remember, the 2015-2016 winter was the warmest in 30 years and we exited that winter with record amounts of natural gas in storage. Hence, we needed to inject less to prepare for the 2016-2017 winter. The only thing that could happen was for prices to drop to levels for electric generators to burn gas fueled generation rather than coal. This year is different. While the 2016-2017 winter was not quite normal based upon weighted HDD’s, it was colder than the previous winter and more natural gas was burned for space heating. Consequently, natural gas prices are higher this year than last and coal use in electric generation is up about 20% from last year.

This morning traders tried to push prices lower. When I came in natty was down 4.7¢ but has rebounded to being down ½¢.

Elsewhere

Unfortunately once again we hear about bad things going on around the world such as terrorist attacks in the U.K. and events in Syria. Not to discount these terrible disheartening events, people at the global level are much better off than they were 50 years ago. Relying on data from the World Bank from 2014, the most recent data.

• In 1960, there were 120 infant deaths per 1,000 live births. In 1990 that went down to 60 and in 2014 it was 30. Infant mortality has fallen 75% in merely 5 decades!

• In 1960, 180 children per 1,000 died before the age of 5. In 1990 that fell to 90 and was down to 50 by 2014. That’s a decline of 72% over 50 years.

• How about life expectancy at birth all around the world? A child born in 1960 had an average life expectancy of 52 years. That rose to 65 by 1990 and children born in 2014 can expect to live to 71. That’s a 37% increase in 5 decades.

• Or consider infectious diseases such as tuberculosis. The World Bank’s data only goes back to 1990 on this but even then on average around 147 people out of populations of 100,000 died from this dreaded disease. In 2014, that dropped to 122, a decline of 17%.

I expect this data is even more positive in 2017.