Equities and the economy

U.S. equities skyrocketed yesterday, and you’ll never guess who you have to thank for it. Yes, that’s a “who” not a “what.” First the numbers. The Dow popped 165 points, 0.94%, finishing at 17,721, the S&P 500 rose 20 points, 0.97%, to 2,062 and the Nasdaq ended 0.80% higher, 39 points, at 4,872. Ok, who do you need to thank? The Saudis and the Russians! Newswires reported yesterday that the two countries have reached an agreement regarding freezing output at January levels regardless of whether or not Iran participates. This drove oil prices higher which brought buyers into the energy sector (energy sector advanced 2.8% yesterday) which brought in buyers to the general market. The fatigued bull has rested and is once again on the march! With the Fed continuing its accommodative monetary policy and keeping interest rates low it continues to be a “buy dip” market.

Being there were no fundamental economic reports material significance yesterday let’s move on to today where it’s beginning very well with the Dow up 126 points. While you slept China reported that its exports in March rose more than expected, 11.5%, which is the first time this has happened since last summer. The report boosted investor confidence and pushed Asian equities to their highest level since the first day of 2016 and European equities are working on their 4th consecutive day of closing higher.

Oil

As mentioned above, on the report of the Russians and Saudis agreeing to some sort of production limit oil prices soared with WTI closing $1.81 higher, 3.3%, at $42.17 and Brent settling up $1.86, 4.5%, at $44.69. These are the highest closing prices of the year. Oil prices are up 10% in just the last 3 sessions. Although I haven’t mentioned it, I’ve been closing watching the “shape of the curve” (as usual) and both WTI and Brent have been moving quite bullishly with the contango narrowing quite markedly. Crude is definitely bidding a lot less aggressively for storage. A week ago the average of the two oils front month one year contango was $4.45. It is trading $3.61 this morning. One month ago it was $5.54. Another example, the front month/six year contango in February was nearly $20. It is presently about $10.

This morning WTI is down 56¢ and if we need something to “blame” I point to the API report last evening showing crude inventories rising 6.2 million barrels. Product inventories fell 2.1 million barrels leaving the aggregate number at a rise of 4.1 million barrels. This compares to a 5 year average of an aggregate withdrawal of 390,000 barrels. All that being said, traders are currently playing oil from the long side with the U.S. rig count dropping, U,S. production falling and the capital budgets of producers being materially reduced.

Natural Gas

The “risk on” mode brought in buyers into natural gas as well with the May contract closing 9.2¢ higher over $2 at $2.004. Traders have been closing monitoring the production reports which are showing U.S. dry production continuing to fall. Lower 48 production is down roughly 3 Bcf/d from its February high. It’s taken longer than we’ve seen historically but we’re finally seeing oil and natural gas production falling on the heels of a precipitous fall (70%) in the rig count. This morning natty is pretty flat up 0.7¢. Chatter.

You probably haven’t followed this but the LNG market is getting crowded, and will get more so over the next few years. Australia has brought on material new capacity and the Middle East is also ramping up. And netbacks are getting squeezed. USGC calculated that LNG netbacks to Asia fell to zero cents/MMBtu this week on a combination of rising Henry Hub prices and falling Asian LNG spot prices. This suggests that exports from Cheniere’s Sabine Pass LNG plant will be constrained to the Atlantic Basin. Australia is bringing on materially more capacity over the next few years and will literally capture the Asian market leaving U.S. LNG sales to Europe and South America. Cheniere is bringing on more “trains” (capacity) and there are 3 more LNG plants under construction in the U.S. Things are going to get real interesting if natty prices keep climbing.

Courtesy of MDA Information Systems LLC

Elsewhere

Tonight will be a very special night in NBA history. Kobe Bryant will play his final NBA basketball game this evening. The game is against the Utah Jazz and odds are the Los Angeles Lakers will lose. Their record is horrendous at 16 and 65. Despite the terrible record ticket prices are off the charts! The average resale ticket for the game is $2,110, 500% higher than the average Laker home game ticket price this year. The cheapest ticket is going for $888. The most expensive ticket is listed at $27,500. And that was as of Monday. I’m betting it’s higher now. The 37 year old Bryant announced last November he would retire after this season. His final year has sent ticket prices skyrocketing for the entire season. The average resale price for a Lakers’ home game this year was $317, second highest only to the Golden State Warriors, who, by the way, may tonight set a NBA record for most games won in a single season! It’s been a going away party at every venue Bryant has played! He and LeBron had a love fest the last time Bryant was in Cleveland. He deserves it. The Lakers have won 5 NBA titles with him on the team and in one of them he has received the MVP. He is the third leading scorer in league history. Congratulations Kobe!