Equities and the Economy

Good morning and happy National Sibling Day. U.S. equities ended a choppy session yesterday with modest gains helped by a rally in energy and the healthcare sectors. Trading was tight ranged with the Dow closing up 56 at 17,958, the S&P 500 adding 9 to 2,091 and the Nasdaq closing 24 higher at 4,975. I’m not sure if you’re keeping track but these main indexes have now advanced 4 of the last 5 sessions. U.S. investors have one eye on the Asian and European markets which are setting new highs and should at a minimum support equities here. However, the other eye is on upcoming earnings announcements here and investors are worried about weak reports. Example: Alcoa, which unofficially marks the beginning of the “earnings season,” reported Wednesday after the closing bill with revenue that missed forecasts and mentioning a challenging outlook and the share price got whacked falling 3.4% yesterday.

Yesterday the Labor Department released its weekly first time unemployment claims report and sparing you the numbers I’ll just tell you the four week average (which most folks use because it “smooths” out the data) is now at its lowest level since June 2,000. As Martha Stewart would say, “This is a good thing.”

This morning the Dow is up 35 following the action continuing to be in the Asian and European markets. Japan’s Nikkei traded above the physiologically important 20,000 level today for the first time since April 17, 2000 but closed below that level with end of day profit taking. Until recently, Tokyo’s rally had been mostly funded by domestic investors but foreign buying has reached its highest level since last November. The big mover this week however has Hong Kong’s Hang Seng which rocketed up a huge 7.9% in just the last three days.

European stocks are also performing really well today with all the major bourses trading in the green with Germany’s DAX leaping 1.65%. Folks, what’s going on right now is investors around the globe are 1) feeling U.S. equities are a little toppy, and 2) following the QE which is alive and well in Europe, Japan and China.

Oil

After an extremely volatile week oil took a day off yesterday with WTI closing down 37¢ at $50.79. Brent was much stronger gaining $1.02 settling at $55.67. After climbing more than $12 over the past couple of weeks to a 6 week high above $54 WTI has fallen by about 7.5% this week drive by the DOE’s crude and products report on Wednesday showing an unexpectedly ginormous rise in inventories. Crude inventories are at a fresh 80 year high concurrently with U.S. production reaching a 40 year high of 9.4 Million bpd. And don’t forget that this week Saudi Arabia announced their production level is at a record high. So why aren’t oil prices falling? Demand. Specifically Asian demand which is strong. Note this week Saudi Arabia raised its price to Asian customers.

After a crazy week I guess traders just want the weekend to come and are laying low with WTI up an insignificant 50¢. The headwind is picking up again against WTI, and all commodities priced in U.S. dollars, for the greenback is at a 3 week high vs. the euro driven by the strong jobless claims report yesterday.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its always closely watched weekly storage report yesterday showing that 15 Bcf was injected into U.S. storage fields last week. This was a little more than the market was expecting, 11 Bcf, and immediately prices fell with natty closing down 9.1¢ (3.5%) at $2.528. Weather forecasts are a moot point, at least as far as demand is concerned, with few HDD’s or CDD’s this time of year. So we have nuclear plant maintenance supporting demand as well as natural gas used in electric generation. The cheaper natty goes the more it will displace coal in electric generation. Coal fired electric generation still accounts for about 50% of total U.S electric generation so there’s a heck of a lot of switching that can occur. Storage levels are currently 173 Bcf below the 5 year average so don’t think natty is going to $2.00 amigo. This morning its very quiet with natty basically unchanged from yesterday, up 0.2¢.

Elsewhere

The summer driving season is rapidly approaching and it’s good news for you folks packing up the station wagon and heading to the Jersey shore as my family did many, many moons ago. The EIA is forecasting the average price of regular grade gas for the April through September period this year to be $2.45/gallon. That’s a hefty $1.14 than last year’s $3.59/gallon for the same time period. Contrary to what you might believe, U.S. gasoline prices tend to follow more closely to the Brent price than WTI due to transportation constraints of getting WTI to Gulf Coast refineries (by the way, this is changing albeit slowly). Gasoline prices vary significantly among regions. Projected average summer prices for 2015 range from a low of $2.25/gallon in the Gulf Coast area to a high of $2.82/gallon on the West Coast. For all of 2015 the EIA projects a retail price of $2.40/gallon which is expected to save the average household $700 compared to 2014 with annual motor fuel expenditures on track to fall to their lowest in 11 years. Now you have an excuse to buy your siblings dinner this weekend (and don’t forget mom and dad!)

Have a good weekend.