Equities and the economy

Yesterday was a repeat of Friday in that the major U.S. equity indexes began the day strong, up over 100 points, only to fade by the day’s end.  The difference was that yesterday the indexes closed in the red while on Friday they managed to close in the green.  When the closing bell rang yesterday the Dow posted a loss of 21 points at 17,556, the S&P 500 was off 6 to 2,042 and the Nasdaq closed down 17 at 4,833.  I’m trying to figure out if the price action over the last two days is just a fatigued bull gathering strength to bust through technical resistance on to new highs, or if this is something more insidious.  Volume for the day was below average with investors waiting for Alcoa’s report, released after the closing bell, to begin the earnings season.

The U.S. dollar remains weak briefly falling against a basket of 6 currencies and to its lowest level since last August before finishing the day off its low.  The dollar has been steadily falling since Janet Yellen announced the Fed was in no hurry to raise interest rates.  A weak dollar is bullish of U.S. equities as well as saying it is dangerous to do so and not wanting to start a currency war.  And yes, it’s true they don’t directly manipulate their currencies.  They do it indirectly, by buying tons of debt (bonds) which pours newly printed money into their economies devaluing their currency.  I’m telling you, the Bank of Japan is next.  The yen is at an 18 month high vs. the dollar.

Turning to the economic data of the day the only report of significance was the NFIB small business Optimism Index rose to 94 in March from 93 in February and this index has been for the most part steadily rising since the recession in 2009.

Alcoa reported last night and it wasn’t a good start to “the season.”  The aluminum giant posted a 92% drop in profit and lowered its 2016 outlook for the aerospace market.  The good news, investor expectations for company Q1 earnings is so low a lot of this is already built into the market.  The European markets are all trading marginally in the green and U.S. markets are chopping around with the Dow up 8 while the Nasdaq is down 22.

Regarding interest rates, you can rule out a hike in April.  Maybe in June.

Oil

Oil prices closed marginally higher yesterday on the heels of the weak dollar.  WTI ended up 64¢ at $40.38 and Brent closed 89¢ higher at $42.83.  It’s real interesting to see they dynamics going on at the global level regarding production.  Iraq announced their production is at a post-Saddam Hussein high and Kuwait intends to increase output to its highest level since 1973.  And U.S. production is down 600,000 bpd and the EIA is forecasting further declines reporting yesterday that it’s forecasting U.S. shale production in May to decline 2014 levels.  And don’t forget Iran who wants to increase production to a presanction level of 4 million bpd.  The tide is definitely turning with the power of production shifting back to the Middle East, unfortunately.

This morning WTI is up 46¢ which is down from being markedly higher overnight.  Blame it on the dollar which is getting bid.  Two other factors are bringing in some buyers.  First, China released data on its gasoline sales which came in very strong and second, word is thousands of oil field workers in Kuwait are planning to strike beginning Sunday.  The situation there is ”fluid.”  Brent traded at a 4 month high today at $43.50.

Natural Gas

Natural gas got hit pretty good yesterday closing down 7.8¢ at $1.912.  Over the weekend, all the weather models switched form forecasting cooler than normal temperatures through the end of April to warmer than normal.  Additionally, some private research firms showed production, which had been waning, increased 0.5 to 1.0 Bcf/d.  This morning natty is up 4.8¢.  For the last couple of weeks we’ve been range trading between 1.90 and $2.05.

Courtesy of MDA Information Systems LLC

Elsewhere

I don’t know if you saw this but last week we had the most successful one week launch of any product ever!  Tesla Motors Inc. said last Thursday it had more than 325,000 reservations for its Model 3, the mass-market sedan the electric car maker unveiled the week before, at least based upon revenue. That figure represents about $14 billion in future sales!  And it was all achieved without any paid advertising or endorsements.  Each customer who ordered the Model 3 had to plop down $1,000 in deposit money, which is refundable.  The vehicle is supposed to go 215 miles between charges, which is a substantial increase from current Tesla’s.  Tesla says the delivery date for the Model 3 is late 2017.  I’ll take the over.  Way over!  I guarantee you it it’ll be 2018, and maybe 2019.  Why?  Because Tesla has a horrible record for meeting delivery dates.  For example, the Tesla Model X, its SUV, came in 3 years late!  All this being said, it was an amazing launch.  Wall Street was forecasting it would take three weeks to get 100,000 reservations.

Tesla is not without competition with other manufactures hitting the market now or soon with attractively priced vehicles.  Nissan has the Sway which is coming out in 2017 and has a 150 mile range, and that range will most likely be higher by the time Tesla’s Model 3 hits the market.  General Motors has the Chevrolet Bolt which goes on sale later this year with a range of at least 200 miles. Toyota is reintroducing a plug-in hybrid to its Prius lineup with the 2017 Prius Prime which will get the equivalent of 120 miles per gallon with sales also slated to begin this year.  I’m not sure whether my next vehicle will be electric, but think about it.  Wouldn’t it be cool to almost never have to stop at a gas station again!