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Europe: +44 (0) 207 198 1634 Good morning. It’s as if the summer doldrums have set into stocks. In irons for you sailors. Yes the Dow and S&P 500 are closing at new highs but ever so barely; like by one point which happened Monday. Yesterday the S&P closed literally unchanged from Monday at 1,973. The Dow fell 21 points after gaining 26 on Monday ending at 16,722 and the Nasdaq, which fell 5 on Monday, lost 3 yesterday to 4,234. Yawn. All that being said, I’m not seeing “reversals” on the charts which is encouraging. And hopefully won’t see any.
Yesterday one bit of economic data was released and that came from the Commerce Department showing Factory Orders rose in April for the 3rd month in row being up 0.7% which was a bit better than economists were predicting which was 0.5%. However, and isn’t there always a “however,” orders for nondefense capital goods excluding aircraft, which is a proxy for business investment, fell 1.2%.
Beginning today and continuing through Friday there will be three very big reports and events. Today ADP released its nonfarm payrolls report for May and it ain’t very good. The payroll company announced employers in the private sector added 179,000 jobs in May down from 215,000 in April. Dow futures are taking this negative report in stride being down only 26 points. Why? Because economists were pretty much forecasting this number (technically 210,000). Looking at this from a little longer perspective things look better. May’s hiring was up from 163,000 from May 2013 and the 3 month moving average is 198,000/month, up from 153,000 a year earlier. So why is this report so important? Because it is a prelude to THE report which is released Friday which is the Labor Department’s May jobs report and over time there has been very good correlation between the two reports (although month-to-month the reports can vary materially).
The other 2 events are the ECB’s policy meeting tomorrow and the aforementioned government’s labor report on Friday. Regarding the ECB, although it doesn’t get the attention here in the states as it does in Europe, it’s actions are very closely monitored by those in the financial markets because the ECB’s actions affect the U.S. markets. The market has baked in a move to a more accommodative monetary policy by the ECB and if one is not announced it will disappoint.
Like equities energy took the day off with WTI up 19¢ and Brent down a penny to $102.66 and $108.82, respectively. There was not much new affecting the oil markets (no changes in Libya, Iraq or Ukraine) to move prices. The API released its crude and products report after the bell yesterday showing an aggregated drop in inventories of 0.8 million barrels which was almost exactly what was expected. This morning WTI is pushing higher being up 72¢ on word that foreign oil companies are withdrawing workers due to escalation violence around Benghazi. Where have I heard that town’s name before?!
Even natural gas did nothing yesterday closing up 1.7¢ to $4.629 which of note is a 4 week high. Only two things are going to drive natty prices the next 3 months: weather forecasts, and the associated cash market, and the storage report with the latter important for it implies natural gas production. This morning you can see this week’s heat gives way to cooler temperatures everywhere but California and the 11-15 forecast is only a little warmer but the heat is not going to put too much upward pressure on population weighted cooling degree days. This morning natty continues to chop around waiting for tomorrow’s storage being down 1.1¢.
That cup of java you’re drinking is getting more expensive. J.M Smucker Co. yesterday became the first major roaster to raise coffee prices announcing an increase of 9% for brands you know well: Folgers and Dunkin’ Donuts. The price increase is the first in 3 years. Smucker is one of the biggest sellers of coffee in the U.S. and has a history of being a price leader with Maxwell House and Kraft Foods following suit. In late April coffee futures hit their highest price in more than 2 years on forecasts of drought in top grower Brazil. Brazil produces half the world’s’ Arabica coffee beans which is the variety used by Starbucks and others. Retail prices tend to lag wholesale prices which is the case right now for as of yesterday futures are down 20% from their April highs, officially entering a bear market. Personally, coffee is an inelastic market. Name one person, including yourself, whose changed their coffee drinking habits because of the price of that cup of java? Have a good day.
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