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Europe: +44 (0) 207 198 1634 Good morning. Yesterday stocks retreated for the first time in seven days ending a run that took the indexes to new highs. However, and fortunately, the pullback was minor, even insignificant. The Dow lost 10 points closing at 16,937 and the S&P 500 closed flat at 1,963. The Nasdaq actually closed higher up 1 point to 4,369. Yesterday’s action does not qualify as a pullback. More like a “lunch break.” After the big run we’ve had over the last couple of months a week or two of consolidation isn’t anything out of the ordinary. So let’s move on.
The Asian markets all ended nicely higher primarily on comments from Japan’s Prime Minister Abe announcing his plan to lower the corporate tax rate there to below 30% in the coming years and pledging to reform the government pension investment fund. He wants a larger percentage of the fund invested in assets other than bonds. European markets are trading mixed but it’s really chatter trading on either side of unchanged. Which is the same thing that’s happening here in the U.S. with Dow futures down 17 but Nasdaq futures up 1. More chatter. I’d say we’re in the summer doldrums but as soon as I do we’ll get some market moving news or data. All I can say though is I’m taking the over on Dow 17,000!
Oil retreated somewhat yesterday with WTI falling 66¢ to $106.17 and Brent off 69¢ to $114.12. Oil prices have retreated somewhat from last week’s 9 month high of just under $108 on some profit taking at technical levels. That being said, oil prices, especially Brent, are definitely supported by events in Iraq affecting oil exports and reports that Libya’s Hariga oil port has again been blocked by protestors. Although Iraq’s production is radically less than it’s potential, the bulk of the country’s production and operations are in the south in Shia territory and have not been materially negatively impacted. Those facilities also happen to be located very closely to the Iranian border. No coincidence ISIS hasn’t moved in that direction.
With no direction from equities or U.S. dollar movements and no new news out of the Middle East, WTI is taking a breather being down 14¢. Still more chatter.
After hitting a high close of $4.762 last week natural gas has been retreating. Yesterday it fell another 8.5¢ closing at $4.446. Last week natty got a boost from the 11-15 weather forecast showing heat coming to the U.S. which is now in the 6-10 time frame but bookending that period is some very temperate weather weighing on the bulls. More so, the derivative traders are watching the cash market ever so closely and the bulls are not seeing any “love” in it. Now those bulls are not ready to give up the ghost with the 2 hottest months still to come but if you’re a futures trader you really only have one month left being the July contract is expiring this Thursday. After that you’re into September and a whole new trading paradigm. This morning natty is up 4.4¢ as the “magnet” of $4.50 prevails.
There was good news for the housing market yesterday. The National Association of Realtors reported that existing home sales surged 4.9% to an annual rate of 4.89 million units in May. So what does that mean? Well it was the largest monthly increase since August 2011! This is important data folks because existing home sales dwarf new home sales. Sales rose in all 4 regions and importantly were driven by the single-family home segment. Economists had been predicting a rise of only 2.2%. On a more sobering note, sales were still down 5.0% from May of 2013. The housing market has stalled of late with rising mortgage rates, tough credit requirements, home prices climbing and inventory falling with more and more first time buyers being priced out of the market. Last month first time buyers accounted for only 27% of the transactions hovering near their lowest level since the Realtors group started tracking this data point. A market share of 40% to 45% for first time buyers is considered ideal. The median home price increased 5.1% from a year ago which was the smallest increase since March 2012. The lower price increase is due to more inventory on the market this year than last, up 6%, and the highest level since August 2012. That being said, the market is still a tad tight with 5.7 months of inventory available. Six month’s sup-ply is considered a healthy balance. Have a good day.
