Equities and the economy

U.S. stocks continued their grind higher yesterday. Well, at least the Dow and S&P 500 did. The Nasdaq actually fell 20 points, 0.40%, to 4,940. But let’s ignore that! Let’s focus on the positive. The Dow gained 49 points, 0.27%, to 18,064 and the S&P 500 climbed 6, 0.31%, to one point over 2,000. The day started very lackluster trading with stocks in negative territory but they got lifted by energy stocks on oil prices. The S&P is now less than 2% shy of its May record close. By the way, the Nasdaq got hit because of IBM which posted a 16th straight quarterly drop in revenue which resulted in its stock having its worst one day percentage drop in nearly 2 years. A word of caution here regarding the S&P 500. The index is trading about 17.8 times expected earnings, the highest level since 2004.

Turning to the fundamental data, yesterday the Commerce Department reported that housing starts fell 8.8% in March to an annualized rate of 1.09 million units. The Street was expecting a drop but not of this magnitude. Building permits, a proxy for future activity, were also down 7.7%. This was disappointing but remember, the constraint in the system has been lot availability so expect prices to continue to rise.

The focus today will be on the ECB whose monetary policy council meets tomorrow in Frankfurt. No changes in policy are expected but it was a month ago when Mario Draghi, ECB president, sent the euro soaring (and U.S. dollar falling) when he said further interest rate cuts were unlikely so investors will be focused on the post meeting press conference for future direction. By the way, our FOMC meets next week for a couple of days and that’s starting to get discussed. Ahead of the ECB meeting stocks are flat to their precious day closes. That being said, U.S. equity futures have bounced back to unchanged from opening lower which is always a good thing.

Oil

Oil prices had a big day yesterday with WTI adding $1.30, 3.3%, closing at $41.08 and Brent settling up $1.12, 2.6%, at $44.03. Events in Kuwait have managed to do what Sunday’s meeting of OPEC and Russia couldn’t. Boost prices. Yesterday was the 3rd day workers were on strike cutting Kuwait’s production by 1.4 million bpd, about 50% of the country’s production. That’s a heck of lot of oil off the market in a very short period of time. Additionally, Venezuela has had to cut back production in the order of about 200,000 bpd because of power outages and a pipeline fire in Nigeria cut production by 400,000 bpd.

Well that’s all changed this morning on the news the Kuwaiti oil workers have ended their strike and the expected result is happening with WTI down 88¢ this morning. Additionally, the API released its weekly crude and products inventory report noting crude oil stocks increased by 3.1 million barrels which was more than analysts forecast of 1.9 million barrels. Offsetting that data point somewhat was that distillate and gasoline inventories dropped more than anticipated. I wrote yesterday that the 1st and 2nd Brent futures contracts were in backwardation. Let’s see if that was a function of the Kuwaiti workers strike. If it remains that way with the return of Kuwaiti production to normal levels we need to take heed!

By the way, the May WTI NYMEX contract expires today.

Natural Gas

Natural gas prices rocketed yesterday with the May futures contract closing 14.8¢ higher, 7.6%, at $2.088/MMBtu, a three month settlement high. Folks, this was a combination of traders jumping on the bull wagon of a tightening supply/demand balance and breaking of a technical level around $2.05. Natty prices have now risen more than 50¢ from February’s 18 year low at $1.611, despite record amounts of gas in storage. The weather forecast is showing the southeast is to have some above normal temperatures over the next couple of weeks but the recent move up is not based upon the short term weather forecast. It’s based upon the summer forecast for above normal temperatures and tightening fundamentals. It’s also the “spring rally” which always runs over the neophyte. It did me decades ago. Early this morning the bulls tried pushing natty higher but it has backed off and is now trading down 2.3¢. Chatter.

Courtesy of MDA Information Systems LLC

Elsewhere

“Would you like to Supersize that?” I’m sure you’ve heard that before. Well if you live in St. Joseph, MO you’re going to have the option to get that in one soon to be built McDonald’s, unlimited french fries. A location in that city was torn down last month and is being rebuilt with various new features including customers being able to customize their burgers, chicken sandwiches and desserts ordered through a kiosk (have you noticed how many more places have you order your food through kiosks? This is the result of higher labor costs). Once your order is ready an employee will deliver it to your seat, which will be a collection of couches and arms chairs. But perhaps most striking and anticipated option is that this McDonald’s will be first to offer unlimited french fries.

The availability of options at McDonald’s fluctuates on geography. While unlimited french fries are available in Missouri, in California you can get a low calorie breakfast bowl made with egg whites, turkey sausage and kale.

On a logistical note, the Blog will not be published tomorrow. I have to take my daughter to the orthodontist in the morning. She’s having her braces removed. Is someone excited?!