Equities and the economy

U.S. stocks closed higher on Friday with the Dow finishing up 35 at 17,577, the S&P 500 rose 6 to 2,048 and the Nasdaq ended 2 higher at 4,851.  Higher is always better than lower but I didn’t like the price action.  Dow futures were trading over 130 points higher before the open but faded being an hour after the opening bell rang.  It wasn’t that great of a week either.  The Dow and S&P were down 1.2% and the Nasdaq was off 1.3%.  It was a mixed bag on Friday with oil prices closing materially higher which helped support equities which are both “risk on” plays but gold also closed higher which is a “risk off” move.  In fact, gold had its biggest weekly gain in three weeks on worries about the global economy. Also, the Japanese yen, which is considered a safe haven place, hit an 18 month low last week vs. the dollar and has crumbled 10.2% just this year, and the Japanese government most definitely does not like it.  So there is some confusion out there.  But the good thing is folks, the Fed has our backs.

Equites on Asia once again closed mixed with the major indexes taking turns on who’s going to rise and who’s going to fall.  Today it was Japan’s turn closing down and the Hang Seng and Shanghai up.  The major European indexes are trading mixed but U.S. investors are jumping in with the Dow up 135 points this morning.  Again, the smart money is “going with” the Fed.  It’s an old saying, “Don’t fight the Fed.”

It’s a new season today.  I’m talking about earnings season.  Q1 2016 reporting.  As usual, Alcoa will begin it tonight after the bell.  The bad news.  This could be the ugliest earnings season since 2009.  The good news.  Expectations are set so low it’s hard to see how investors will be disappointed.  Oh, individual stocks may be rewarded or pounded but in aggregate expectations are extremely low.  In fact, it’s very possible we may get a rally being the bar is set so low.

Oil

Oil prices had a big up day Friday with WTI closing up $2.46, 6.6%, at $39.72.  Brent also had a strong day gaining $2.51, 6.4%, settling at $41.94.  This was a follow through from data earlier in the week showing crude inventories unexpectedly falling.  Baker Hughes released its regular rig count report data on Friday afternoon, and “the count” continues to decline.  Eight less oil rigs were working last week.  This is the third consecutive week of declines.  There were 354 rigs looking for oil.  This is the lowest number of oil rigs working in history, with record keeping dating back to 1944!.  The U.S. producers productivity has been absolutely amazing with production only being down about 600,000 bpd.  But this can’t go on.  Add in the capital expenditure cuts globally and this market is going to come into balance sooner rather than later, even with Iran cranking up production.  Which leads me to my next point, the “freeze production” meeting is this Sunday in Doha.  I’m sure you’ll hear more about this in the news as the week progresses.  By the way, resistance is $41.91, the high from mid-March.

This morning WTI is popping up 73¢ and once again over $40.  Helping the slippery stuff is that the dollar has edged slightly lower hitting a fresh six month low vs. a basket of major currencies.

Natural Gas

Natural gas prices closed slightly lower into the weekend with the May contract settling 2.8¢ lower at $1.990.  However, the deferred calendar strips continue to grind higher closing up 1.5¢.  The cold blast experienced by the upper Midwest and east last week will linger a few days more this week and then normal to above normal temperatures with encompass the nation east of the Rockies.  This is pretty much no load conditions and is putting pressure on prices with natty down 7.1¢ this morning.  This week’s EIA storage report will show a withdrawal contrary to the injections we saw on the previous two reports.

Courtesy of MDA Information Systems LLC

Elsewhere

I’m not sure you’ve been following the politics in Brazil but to say it’s in turmoil is an understatement. On Wednesday of this week Mr. Jovair Arantes, the head of a congressional committee there set up to analyze whether  Ms. Dilma Rousseff, the president of Brazil, should face impeachment charges for corruption, said that in his opinion there are sufficient grounds for impeachment proceedings to continue.  His committee will meet Monday to make a final decision but with the committee’s leader having made that statement it would seem almost a slam dunk the committee as a whole will recommend to proceed.  Now I don’t want to go into all the logistics, but if 2/3rds of the lower house votes to have her impeached Ms. Rouseff will be suspended for 180 days while the Senate deliberates and votes (2/3rds required there too).  During the suspension the Vice-President, Mr. Michel Temer, assumes the duties becoming the acting president.  Now here’s where it gets interesting.  This past Wednesday a justice of the Brazilian Supreme Court proposed there should be a congressional committee set up to investigate if there are grounds to impeach Mr. Temer!  Ok, that is really bad, but like here in the U.S., there is a list of successive governmental officials to assume the presidency.  The problem in Brazil is that the next two men in line for the presidency after the vice president, the Speaker of the House, Mr. Eduardo Cunha, and the Speaker of the Senate, Mr. Renan Calherios, are also facing legal trouble over allegations of corruption!  You can’t make this stuff up!