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Europe: +44 (0) 207 198 1634 Good morning. You can tip your Bowler to the Europeans for the S&P 500 setting another record high yesterday, which by the way was the 7th time in 8 sessions. Yesterday the ECB cut interest rates to record lows and it pledge to do more if needed to fight off the risk of deflation pushing not only European stocks higher but also those on this side of “the pond.” The S&P 5000 rose 12 points, 0.61%, to 1,940, the Dow added 95 points, 0.57%, to 16,824 and the more volatile Nasdaq shot up 43 points, 1%, to 4,294. One of the ECB’s moves was to cut the overnight rate to -0.1% meaning that banks must pay the ECB to hold their money. Although this move is not unprecedented, it is for a central bank of this size. Bottom line, the ECB wants banks to lend money, not park it.
Supporting equities here in the U.S. was yesterday’s weekly report for unemployment claims which although coming in at expectations, 312,000, continues to point to a firming labor market. Which brings us to the Labor Department’s other report, the event of the month, and that is the Employment Situation Report for May, which was just released. Non-farm payrolls increased 217,000 in May vs. an estimate of 218,000 and the unemployment rate remained unchanged at 6.3% vs. the street’s estimate of 6.4%, which is a 5 ½ year low. April’s number was revised down slightly, 6,000 jobs. Hourly earning ticked up 0.2% and the average workweek was reported at 34.5 both of which were expected. So all in all the report came in at expectations, which is supportive of equities. May marked the 4th straight month with job gains above 200,000 and an important milestone in the economy’s recovery. Of note, we finally have recouped the 8.7 million jobs lost during the Great Recession. Employment has risen 8.8 million since hitting a trough in February 2010. The pace of hiring adds to data ranging from automobile sales to services and factory sector activity that have suggested growth this quarter will top a 3 percent annual pace (very strong!). The economy contracted at a 1.0 percent rate in the first quarter dragged down by unusually harsh winter weather and a slow pace of inventory building by businesses. The market likes the report. Dow futures are up 52.
Turning to natural gas, the EIA released its weekly storage report showing the U.S. injected 119 Bcf last week. The number was marginally greater than the 115 Bcf estimate and the market initially sold off but quickly recouped its losses to actually close up 6.1¢ at $4.701, a one month high. Folks are really leery of being short with storage still 38% below the 5 year average and 33% below last year at this time and with the heat of the summer still ahead of us. Yesterday’s injection was the 5th largest in EIA records and beat the 5 year average injection of 93 Bcf and last year’s 108 Bcf. Although storage levels are materially behind historical averages we are making progress on catching up. At the end of March storage levels were 54% below the 5 year average. We’ve now seen 4 consecutive weeks of 100+ Bcf injections. The last time we saw that was in 2009 with 5 straight weeks from mid-May to mid-June. Early indications are for another triple digit injection next week representing activity for this week. My 30+ years in the energy market is telling me that consumers are baseloading storage injections and buying, or not, consumption needs based upon immediate demand. This is not what I have typically seen. In most summers consumers will back off storage injections when a short burst of heat comes and then make up the injections on the weekends. Not this year. The need to get gas in the ground ahead of the winter is too great, which will make the market vulnerable to price spikes. This morning traders are celebrating National Donut Day and not trading with the market down 1.8¢.
Oil ended mixed yesterday with WTI falling 16¢ to $102.48 and Brent rising 39¢ to $108.79. All chatter. I’m watching the WTI daily prompt continuation chart closely for “things” are getting interesting. As I mentioned previously, there is strong resistance between $104 and $105 and support dating back to January 2014 is currently around $101.75ish with the formation (a pennant) tightening as time goes on closing in on the tip of the pennant. Something is going to give. This morning WTI is up 31¢.
On June 1st we officially entered the 2014 hurricane season. Forecasters are predicting the number of hurricanes this year will be below normal primarily because of the building El Nino in the Pacific Ocean which creates high altitude wind currents in the Caribbean shearing storms. Last year we has the quietest hurricane season in the past 20 years. That being said, let us not forget that in 1957 we had a very low number of storms, only 8 storms, but one, Audrey, was a category 4 killing 400 people. Also, in 1965, another year with a very low number of storms, we had Betsy which was also a category 4 that wreaked immense damage over southern Florida and Louisiana. It only takes one. Have a good weekend.
