Equities and the Economy

Good morning and happy Lima Bean Respect Day. That’s all I could afford to eat this weekend after what happened to my portfolio on Friday! Equities around the world just got obliterated on Friday starting in Asia with the Chinese government announcing regulations which expand short selling and limiting the financing of over-the-counter margin trading. It then spread like a the Asian flu to Europe with the sell-off there was exacerbated by increasing nervousness and chatter of a Greek exit from the eurozone. Then the virus moved across the pond like the plague to the States made worse with disappointing earnings from American Express. It was like a really bad science fiction B movie with horrible reviews such as Dow down 280 points (1.5%) to 17,826, the S&P 500 losing 24 points (1.1%) to 2,081 and the Nasdaq off 76 points (1.5%) ending back below 5,000 at 4,931. The S&P and Dow suffered their worst one day point decline in more than three weeks and ended the week with losses after two consecutive weeks of gains. For the week the Dow was 1.3% lower and is now once again negative for the year. The S&P posted a 1% loss and the Nasdaq fell 1.3% for the week. With the Shanghai, Nikkei and DAX at record highs and fairly lofty P/E ratios for U.S. stocks clearly there was some profit taking which was triggered by the move by the Chinese regulators.

Regarding economic news on Friday, consumer prices were released for March and came in right at expectations. Prices rose 0.2% broadly and the same ex-food and energy.

This morning the Asian markets all closed lower but they were playing “catch up” to European and U.S. equities. The latter two are rebounding nicely today with Germany’s DAX up 1.47% and Dow futures up a nice 118 points. As I’ve said many times, the closes are way more important than the opens and let’s see if we can hold onto these gains and make up a little of the pounding we took on Friday.

This week the main focus will be on earnings for we’re in the middle of that season and news surrounding Greece and how she’s going to pay her debts. The capital markets are very concerned on Greece’s ability to meet its obligations. Borrowing costs on Greek government bonds are at levels not seen since 2012 and the cost of insuring those bonds has surged.

Oil

Oil prices pulled back on Friday with WTI falling 97¢ closing at $55.74 and Brent settling down 53¢ at $63.45. Oil prices were sucked lower as equities fell. However, it was a strong week for crude prices with the WTI price climbing 7.9%. On Thursday it settled at its highest price this year. Brent had a robust week as well posting a 7.6% gain.

On Friday Baker Hughes reported in its weekly rig count report that the number of rigs drilling as of April 17th fell 26 to 734. That is 51% fewer than the same week last year. The U.S. rig count has now declined for 19 consecutive weeks and is at its lowest since November 2010.

This morning WTI is down 46¢ on a marginally stronger U.S. dollar which is bouncing after getting pounded for 4 straight days last week. Also weighing on crude prices were comments yesterday by Saudi Arabia’s oil minister stating production from the country will remain at 10 million bpd which is close to its record peak of 10.3 million bpd hit in March.

Oil prices just might be due for a pull back for hedge fund and other money managers now have the largest net long position on record, 263,578 contracts as of April 14th. The boat is definitely heavily listing.

Courtesy of MDA Information Systems LLC

Natural Gas

After popping 7.4¢ on Thursday natural gas prices fell going into the weekend closing down an even 5¢ at $2.634. After hitting a multi-year low, natty rallied nearly 22¢ last week (9%) and hit an intraday high of $2.70. There’s no doubt a lot of gas is being burned in the electric generation sector displacing coal fired generation which lends support to prices at current levels making it hard to push prices below $2.50 especially since storage levels are still below the 5 year average for this time of year.

This morning you folks in the eastern half of the country will be happy to hear temperatures are forecasted to be close to normal for you in the 11-15 day time frame following the next 10 days of much below normal temperatures. That being said, we’re getting deeper into spring and average temperatures are slowly climbing so even much below temperatures won’t have that much impact on heating demand.

This morning traders are taking their cues from the cash market which is weaker and the May Nymex contract is down 8.3¢

Elsewhere

We all know what a nice guy Joseph Stalin was. Well here’s one not in the history books. In 1907 at the funeral of his first wife he said “This creature softened my heart of stone. She died and with her died my last warm feelings for humanity.” Wow! Now I can’t send you off like that so take this Yogi Berra quip to heart, “90% of the game is half mental.” Have a good day.