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Europe: +44 (0) 207 198 1634 Good morning. On a quiet economic data day U.S. stocks closed out a 4th month in a row of gains as the S&P 500 inched up on Friday to close at another record high adding 4 points and closing at 1,924. The Dow also rose tacking on 18 points ending at 16,718. The Nasdaq lagged though falling 5 points to 4,243. For the week the S&P gained 1.2%, the Dow rose 0.7% and the Nasdaq added 1.4%. For the month the S&P rose 2.12%, the Dow 0.8% and the Nasdaq was up 3.1%. One place where the risk on/risk off relationship is “normal” is gold. Prices of the shiny stuff logged their lowest settlement in 4 months, $1,246/oz., marking a 5th straight session loss and suffering its worst monthly decline this year. Gold lost 3.5% last week and 3.9% for the month, its biggest weekly and monthly losses of the year. For you traders out there $1,200/oz. is big support.
This morning the Dow is starting out flat, up 5. On the positive side the a Chinese released a report today showing factory activity in the country expanded at its fastest pace in 5 months. The Purchasing Manager Index there rose to 50.8 in May from April’s 50.4 and beat expectations. The key thing is that it’s over 50 which reflects growth. Unfortunately, offsetting that report was a euro zone manufacturing report showing growth there slowed. The PMI for the euro zone slipped to a 6 month low in 52.2 in May from April’s 53.4 as strong numbers from Germany failed to offset a contraction in France. Fortunately the number is still above 50 which is the 11th consecutive month above that number. The ECB is having a big meeting this week, June 5th, and it is expected it will deliver a package of measures to spur growth and drive up inflation which has held steady at 0.7% and well within the ECB’s “danger zone” of below 1% and well below its target of 2%. Very unfortunately for the ECB they have one enormous problem. They cannot undertake the same expansive policy our Fed has taken for Europe hasn’t a federal securities market to buy from and from which to expand the monetary aggregates. The Fed can buy Treasuries but there is no “pan-European” treasuries to buy. This is like a carpenter with his tool belt lacking a hammer.
Natural gas ended the week quietly down 1.7¢ settling at $4.542. Cash weighed on the futures but one must take Friday’s cash price action with a grain of salt because weekend natty prices are always lower than weekday, at least in the summer. This morning cash prices are marginally higher, 3.1¢, with some short term above normal temperatures but demand will be moribund in the 6-10 day time frame and not much more in the 11-15. Above normal temperatures in the first half of June in Ontario and Quebec are not going to get any trader excited. We still have that ying-yang thing working with way below storage levels offset by rising production. The EIA released its March (the latest) Monthly Production report for the lower 48 states showing production increased 1.6%, 1.6 Bcf/d, to 76.68 Bcf/d, a record breaker. In January natural gas consumption also reached a record high. Prices are going to be highly sensitive to the weather for gas MUST get into the ground and we’re not yet into the “heat” of summer and yet production continues to increase. That’s what makes a market my friends!
WTI dropped 87¢ on Friday closing at $102.71 and Brent fell 56¢ to $109.41. As I said last week, the charts are waxing bullishly showing a pennant formation with $105 ceiling and a little over $101 rising floor. This formation should resolve itself within in the next 6 weeks. Inventories around Cushing, OK, the Nymex contract delivery point, have fallen for 16 of the last 17 weeks and are lower than any time since late 2008. On the other hand, inventories of crude in the Gulf Coast have risen nearly to their highest levels on record. And we’re near $103/bbl. Impressive. This morning WTI is down an immaterial 30¢.
As you regular readers know I like reporting on the housing market because for many, many folks it is the largest single item on their personal balance sheets. Well homeowners are at it again and I’m talking about taking equity out of their homes. Home equity lines of credit, or Helcos, and home equity loans jumped 8% in Q1 from a year earlier. The $13 billion was the most for the start of a year since 2009. Now that’s still far behind the peak of $113 billion during Q3 2006 but it is evidence that the tight credit conditions that have defined mortgage lending in recent years has loosened. Bottom line, the driver behind the rise in loans is increased customer demand which is an effect of higher consumer confidence and improving home values. Unlike last time though, lenders seem to be offering Helocs and home equity loans only to borrowers with good credit in locations where home values have risen. Whew! I like that last sentence. Have a good day.
