Good morning. U.S. equities were static yesterday with the Dow rising 20 to 16,715, the S&P 500 up 1 and the Nasdaq down 14 to 4,130. But of significance was the market’s movement on Monday which you may not have heard about because there was no Morning Energy Report yesterday. As a matter of background, in a choppy day on Friday the Dow closed at a record high although the S&P and Nasdaq did not. So we had the weekend to digest that and any new news which means anything could happen on Monday. And Monday was an awesome day with the S&P gaining 18 points to 1,897 and a new record high as did the Dow adding a material 112 points to 16,695. Although the Nasdaq is still significantly below its high it did gain 72 points, 1.77%, to 4,142. So yesterday’s calm, and lack of a decline, was “comforting.” The most significant economic data released yesterday was the Commerce Department’s retail sales report for April showing sales edged up 0.1% which was less than expectations of 0.4%. That being said, March’s sales had a big jump of 1.5%. The Fed Bank of New York reported that household debt rose 1.1% for the third consecutive quarter in the first three months of the year as consumers took on bigger mortgages.
This morning we’re pulling back somewhat with the Dow down 49 with all the major European indexes trading marginally lower. The Asian markets closed mixed. European stocks are trading lower on a report Eurozone industrial production fell 0.3% month-on-month and Germany’s CPI slipping 0.2%. Things continue to look up for Europe. As I’ve said many times, look to a country’s sovereign debt market to see what’s really going on for that is where bets are placed. That is where the rubber meets the road. And it’s looking up for another PIIG, Italy. Today Italian yields on sovereign debt fell back to record lows as a sale of longer-dated bond in Rome drew robust interest from investors anticipating fresh ECB stimulus next month. The Bank of England signaled it was in no hurry to raise interest rates reinforces the move lower in yields with Spanish and Irish yields retesting all-time lows and German yields falling to their lowest level in nearly a year. This all may be taking place on another continent but this is good for the North American economy.
Natural gas continues to fall. Yesterday the June contract lost another 7.6¢ settling at $4.538. The market has lost almost 50¢ from its high and is down about 10% over the past two weeks. Cool weather forecasts combined with strong production is putting pressure on the cash market which is translating into lower futures prices. That being said my friends, we have a huge hole in the ground to fill and we will not get near to the historical five year average level going into next winter. If we come in on a Monday and there’s a heat wave forecasted natty will pop. But currently load is benign, which it should be this time of year. This morning natty is correcting a little being up 3.7¢.
Oil has been strong of late with WTI jumping $1.11 to $101.70 and Brent up 83¢ to $109.24. Oil is taking its cue from the strength in base metals and from the continued strength in the world’s equity markets. The global economy is waxing positive rather than waning negatively and that means greater demand. Of note, WTI got a bid from comments from U.S. Energy Secretary Earnest Moniz who intimated that the ban on U.S. crude oil exports is “under consideration.” The Administration is undertaking a study regarding the export ban because “what we are producing may well not be matched to our current refining capacity… North Dakota and Eagle Ford are producing very light oil that is not well connected by infrastructure to refiners.” For those of you who are unaware, it is illegal to export crude oil but one can export refined products (gasoline, diesel, etc.) and month on month the export of refined products is one of the U.S.’s biggest exports based upon dollar value.
Have a nice day.
Sr. Energy Advisor