Equities and the Economy:

• Investors remain cautious.
• Three major events tomorrow.

Yesterday was a second consecutive day of investors marginally shifting to safety and out of stocks. The Dow fell 48 points ending at 21,136, the S&P 500 dropped 7 points to 2,429 and the Nasdaq slid 21 points to 6,275. Those movements are really chatter but where I really see the shift to safety is in the bond market. When investors get cautions they sell stocks and buy bonds which drives bond yields lower. Well U.S. Treasury yields sank to new lows for the year yesterday. The move to safety is being driven by three major risk events, all of which happen tomorrow: ex-FBI Director James Comey’s testimony before the Senate Intelligence Committee (10 AM EDT), the ECB’s meeting on monetary policy and the election in the U.K. With this matrix of events I expect today to be a very quiet day for the stock market, and it’s definitely beginning the day that way with the Dow up 25 points.

It’s a good time to be looking for work in America. Yesterday the Labor Department released its JOLTS (job openings and labor turnover survey) for April stating there were 6.04 million jobs open in the U.S. Significance? This is the most ever dating back to the inception of this report in 2001! The labor market continues to tighten. Wage inflation is imminent. Additional labor market tightness came in the “quit rate” data which was 2.1% and only slightly lower than the 16 year high we saw in January. A high “quit rate” means workers are confident they can find another job relatively easily. I’m sure this labor market data has not escaped the Fed and being that wage inflation is one of, if not the, primary driver of inflation, they’ll feel more comfortable about raising interest rates at next week’s FOMC meeting.

Oil

• Prices get a technical bounce.
• Traders keeping an eye on Qatar.

Oil prices closed higher yesterday with WTI finishing up 79¢ at $48.19 and Brent adding 65¢ at $50.12. I’m calling this a “technical bounce.” Oil prices have gotten so beat up over the past 3 weeks and were losing downside momentum that some short term players came in and took some profits.

Yesterday late in the afternoon and as usual the API released its crude and products report showing crude inventories fell a huge 4.6 million barrels and way over traders’ expectations of 3.5 million barrels. A big however though here. Gasoline inventories increased by 4.1 million barrels with expectations of an increase of only 300,000 barrels. It’s apparent the refiners were hard at work, most likely preparing for the summer driving season. So overall the report was a “push.”

Traders are keeping one eye on the move by Saudi Arabia and 3 other Gulf countries cutting off diplomatic relations with Qatar. Reports are that Kuwait is mediating a resolution to the matter. Qatar is considered a minor OPEC crude producer but the risk here is that if Qatar begins cheating on its agreed upon production quota it will open the floodgates to cheating by other countries. The U.S. is treading a fine line here. Saudi Arabia is one of the U.S.’ biggest allies in the Middle East, but the U.S. has its largest concentration of military personnel in the Middle East at Qatar’s Al Udeid Air base which houses 11,000 U.S. personnel and has the one of the longest runways in the Persian Gulf.

This morning the bears are once again out with WTI down 49¢, probably on yesterday’s EIA report stating the agency expects U.S. production to increase to 10 million bpd next year. However, that’s really not new data.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices find support at $3.00.
• Weather forecast showing A/C load coming to the east.

After just getting bludgeoned over the past month falling 50¢, natural gas prices found a bid yesterday with the July contract closing up 6.0¢ at $3.042. Some moderately bullish news hit market. First, the weather forecast finally is showing some warm weather on the map with much above temperatures forecast for the east in the 6-10 day time frame, and second, U.S. production has backed off its highs. Add those two facts to an oversold market and you’ll get some buying.

The weather forecast this morning is a repeat of yesterday’s meaning confidence is gaining on the warm weather coming and natty is up 1.5¢.

Here’s an amazing fact. In Germany for one day this past April electricity prices for the entire day were negative priced. This means that suppliers had to pay the grid operator to take the power they generated. On April 30th 85% of the electricity in the country was generated by renewable sources with the remaining 15% provided by nuclear and coal, and you can’t shut down nuclear and many coal plants. The latter plant operators just had to suck it up for the day.

Germany has tripled its renewable energy capacity over the past 10 years and is hoping what happened on April 30th becomes the norm. The country has set a target of renewable generated electricity to be 35-40% of the generating mix by 2025 and 55-60% by 2035. By 2050 they want 80% coming from renewables.

Elsewhere

Many of the inventions we have today were invented as a by-product of another technology. Some even accidentally. Let’s take Dr. Percy Spencer. He was an engineer at the Raytheon Corporation in 1946. Dr. Spencer was running a test with a magnetron, which was a new vacuum tube. Vacuum tubes at the time were used in electronics such as radios, televisions and radar. After the test he noticed the chocolate bar he had in his pocket had melted. Dr. Spencer thought to himself, “Could the magnetron have in some way have caused this?” So intrigued was Dr. Spencer with what had occurred he launched a new experiment. He placed popcorn kernels near the tube and moved away. To his delight, the popcorn started crackling and popping all over his lab. You guessed it. Dr. Spencer’s chocolate melting accident led to the invention of the microwave oven.