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Good morning. It’s good to be back in the saddle. It’s times like these when I get to reflect on slightly longer time frames in the market. So what’s transpired over the last 13 calendar days and 9 trading sessions? On June 9th the Dow closed at 16,943 and the S&P 500 closed at 1,951. On Friday the Dow and S&P finished the week at 16,946, up 26 points and at 1.963, up 3, respectively, new highs. Both are record highs although the S&P has performed better than the Dow since I’ve been gone. But it wasn’t an easy road. On June 12th the Dow closed at 16,734, 200 points off its high and the S&P closed at 1,930, 33 points off its high. There’s been a lot of events going on to put pressure on equities, such as Iraq’s turmoil and rising oil prices, but the globe is awash with liquidity which has and is flowing into stocks and the bears have been wrong and left behind with dips being bought and stocks continually hitting new highs. The bears will be right someday, but they aren’t now. 17,000 here we come!
This week is beginning fairly quietly with the Dow down 28 although the S&P is only down 1. U.S. stocks are being pulled lower by European shares which are quite weak today with all three major indexes trading red on a report today showing euro zone business activity growth slowing. The Asian markets closed mixed with the most important economic data being an improvement in China’s manufacturing PMI which broke above 50 to 50.8 and above expectations of 49.7. Remember a reading above 50 indicates expansion.
The day before I began my sojourn WTI close at $104.41 and Brent settled at $109.99. On Friday WTI closed up 83¢ at $107.26 and Brent at $114.81, down 25¢. So oil has moved materially higher and we all know it’s being driven by events in Iraq and that country’s inability to export its oil. While I was gone WTI and Brent traded over $105 and $115, respectively, well over their 2014 highs and close to taking out the 2013 highs. The Brent/WTI Note spread has moved out from $5.58 to $7.55 which makes complete sense with any reductions in Middle East supply affecting the price of Brent more than WTI, especially with the U.S.’ growing production. That spread was under $5 in April.
Over the weekend Boko Haram, the Nigerian radical Islamist terrorist group that kidnapped 200 school girls a few months ago, continued its terrorist activities over the weekend killing several dozen non-Muslim villagers in Borno state which is the most north eastern province in that country. Nigeria’s oil production is located in the south and so far the group has not ventured there. That area is MEND’s “territory” and it appears Boko Haram wants to avoid messing with them. By the way, the nation’s capital, Abuja, is between the two areas in the middle of the country. I mention activities there because we must remember that Nigeria produces a very high quality oil, Bonny Light, which is highly desired by refiners. This morning WTI is retreating a little being down 40¢.
Natural gas is the only market to be down since the last Morning Energy Report. The July contract closed at $4.645 on June 9th and on Friday it settled at $4.31, down 5.3¢. That being said, natty closed at $4.762 on June 12th so it’s been up then down since then. We’re back to the $4.50ish level which seems like a big magnet for price. There’s still a lot of fear in the natural gas market with the brunt of the summer still ahead of us and storage levels so low (and not going to make it back to the 5 year average by October 31st).
This morning the weather forecast is fairly benign with a burst of heat coming into the Midwest in the 6-10 day time frame elevating CDD’s during that period. However, after that the eastern 2/3rds of the country is pretty normal which takes us into July. The west has a hot spot but that’s in Nevada and Utah whose combined population is about that of Wisconsin. As we said in the trading business this is “no count” when it comes to trading natural gas. This morning natty is down 4.6¢. Time sure does fly. The July contract expires this Thursday. Seems like it was just yesterday when it became the prompt month. Have a good day.
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