Equities and the Economy

Good morning and happy National Reach as High as You Can Day. U.S. stocks closed lower yesterday ending a streak of three consecutive gains with the Dow fell 81 points to 17,977 (once again under 18,000), the S&P 500 lost 10 to 2,092 and the Nasdaq ended the session down 8 to 4,988. The Dow was dragged down by GE falling 3% after surging 10.8% on Friday. We’re about to officially kick off earnings season today (Alcoa unofficially kicked it off last week) with JP Morgan Chase and Wells Fargo reporting this morning and Intel after the close, and investors are very wary. P/E ratios are a bit frothy currently and if revenue and earnings are not satisfactory a pullback is possible, even likely. Many of the large corporations have stated for weeks now that the strong dollar is dragging on earnings. Being the glass is half full kind of guy I am maybe with all the negative talk lately lackluster earnings may already be baked into the market. Let’s hope so.

Yesterday was a very quiet day with respect to fundamental economic data for there was none of material significance released. Today shall not be and I’ll report on that tomorrow.

This morning things are starting off choppy around the world with Asian stocks ending mixed with the Hang Seng down (it’s been on a tear!), the Shanghai up marginally and the Nikkei flat. European stocks are also trading mixed and the major U.S. stock indexes are basically flat to yesterday’s close.

Oil

Oil didn’t do much yesterday with WTI closing up 27¢ at $51.91 and Brent adding even less, 6¢, to $57.93. Oil production from Libya and the U.S. is moving in opposite direction. Libyan crude production increased 210,000 bpd in March to 480,000 bpd despite the political chaos in the country. It appears no matter which side of the fight you’re on there you realize the value of oil production and the income from exports. Regarding U.S. production, the EIA reported yesterday that oil production form the fastest growing shale plays is set to fall some 45,000 bpd to 4.98 million bpd in May from April, the first monthly decline in over 4 years. A drop of 60% in the price of your product and associated drop in the rig count will do that. Experience has taught me there’s usually about a 6 month lag between a material change in rig count and price. This time it’s been about 9 months.

This morning WTI continues its grind higher up 87¢.

Courtesy of MDA Information Systems LLC

Natural Gas

Talk about dead. The May Nymex natural gas contract closed yesterday exactly where it closed on Friday, $2.511. Pretty crazy considering all that can happen over a weekend to affect a market. That being said, the deferreds were down marginally. The electric generation market continues to suck up natural gas with the year-to-date power burn up 2.9 Bcf/d, almost 15% higher than a year ago. The current price of $250ish will do nothing to discourage that number to go down. Actually, it’ll probably go up.

This morning natty is up 2.9¢ but many of the back months haven’t even traded. Chatter is too exciting a word for what’s going on in natural gas right now.

Elsewhere

Electricity generated by photovoltaic cells (PV) is becoming very material to California’s electric generation mix. On-peak solar PV on the California electric grid has averaged 32.5 GWh/d year-to-date. If you’re like me that number by itself doesn’t mean much. But get this. Solar generation has averaged 44.0 GWh/d in April which is 11.1% of the state’s entire load and 7.9% of peak daily load. That is very material my friends. 2015 production is 45% greater compared to 2014 and will be even greater with the months of May and June coming when solar generation typically peaks. It’s anticipated that PV generation will displace 60 mmcf/d of natural gas. Have a good day.