US: +1 (877) 51 POWER 
Europe: +44 (0) 207 198 1634 Good morning. After a very brief reprieve yesterday of not setting a new record, and that was because it closed unchanged, the S&P 500 once again set another record high, and again by the barest of margins closing up 3 points to 1,927. Not the most convincing movement, eh? And on light volume ahead of the ECB meeting today and the U.S. government’s May employment report tomorrow. Speaking of the former, it was just announced that the ECB did indeed move “more accomodatively” (did I just create a new word?!) by lowering its main lending rate to 0.15%, a new low, from 0.25%, held since November, and lowered its rate on emergency overnight loans by 35 basis points to 0.40%. The ECB also dropped the rate on bank deposits parked overnight with the central bank to minus 0.1%. Yes, you read that right. Commercial banks will be charged for parking their money at the ECB. Although this is not the first time in history a negative interest rate has been imposed it is unprecedented for a central bank of its size. Inflation figures in Europe weakened to 0.5% in May, the lowest in more than 4 years and materially below the ECB’s target of 2%. Remember, inflation causes central bankers to lose sleep. Deflation causes them nightmares! The ECB’s move may also contribute to a softer euro boosting exports and lowering unemployment rates which have been, with few exceptions, at shockingly high levels putting continued downward pressure on wage rates.
Asian markets, which closed before the ECB’s announcement, closed mixed but European markets are all trading higher moving from “red” to “green” after the announcement. Here in the U.S. futures of all three indexes are higher with the Dow up 51 points.
Although oil closed flat yesterday to Tuesday, WTI down 2¢ to $102.64 and Brent down 42¢ to $108.40, the intraday price action was horrible for the bulls. Yesterday morning there was a price spike followed by seemingly relentless selling ending the day very close to the low of the day. Although not a classic reversal, for the previous day’s low was not taken out, the charts now look horrible for the bulls taking out a smaller, short term support line. Overnight both WTI and Brent tried to bounce but are falling once again with WTI down 91¢ as I write. You may pooh-pooh the technicals but every trader respects them. You should too. Adding to the bulls yoke is the U.S. dollar which is near a 4 month high vs. the euro. As a side note, the DOE released their crude and products report for the week and it came in pretty much at expectations.
Natural gas ended a quiet day down up 1.1¢ at $4.640 but higher for the third consecutive day. Today is Thursday and we all know what that means. EIA natural gas storage report day. The market is expecting an injection of 115 Bcf which compares to 108 Bcf injection last year and the five year average of 93 Bcf. We’ll find out how close this number is at 9:30 CDT. This morning traders are playing it from the long side and front running the storage report pushing it 2.0¢ higher as I write which is a one month high.
Mortgage rates fell last week touching their lowest levels in a year. The average interest rate for a 30 year fixed rate conforming loan fell to 4.26% from 4.31% and rates on jumbo and federally insured FHA loans also fell. This enhances “affordability” resulting in increasing loan applications. Anomalously, this was not the case. Applications to refinance fell 3% on the week and are down nearly 57% on the year. Applications to purchase a home fell 4% on the week and are 17% below year ago volumes. Spring was a disappointment for home sales due in part to bad weather and it was widely believed pent-up demand would surface later, but signed contracts to buy existing homes in April were essentially flat from March and are down about 9% from April 2013. So what’s going on here? The answer may be that many people are struggling with their personal finances. A new survey form the MacArthur Foundation found that while the public may believe the housing crisis is improving many do not feel personal relief with their monthly housing costs. Also, attitudes about home ownership have shifted. 43% of respondents do not believe owning a home is the wealth building vehicle it once was and that owning a home is “an excellent long-term investment and one of the best ways for people to build wealth and assets” and more than half believe that buying a home is less appealing than it once was. Memories die hard. Have a nice day.
