Equities and the Economy

Good morning and happy National Talk Like Shakespeare Day. U.S. equities ended higher yesterday after a choppy day of trading. The Dow closed up 89 points and once again over 18,000 at 18,038. The S&P 5000 added 11 to 2,108. The Nasdaq finished 21 points higher at 5,035 which is just 13 points shy of its all-time high. As I’ve stated probably too often, we’re in the heart of earnings season with this week seeing a large number of companies reporting, and the ones that did yesterday gave mixed results. Coca-Cola and Visa were positive and Boeing’s were negative. But what really juiced U.S. stocks yesterday was the National Association of Realtors (NAR) report on existing home sales (which by the way dwarf new home sales) showing sales rose a very sharp 6.1% in March to an annualizes rate of 5.19 million units and very importantly, way above economists’ expectations. NAR also stated the median home price rose 7.8% from the same period a year ago to $212,000 and in the process repairing a broad swath of the average American homeowner’s balance sheet. Even with the home price increase rents didn’t suffer with Zillow reporting national home rental costs were up 3.7% in March ’15 compared to March ’14. Folks you’re seeing what a lower unemployment rate will do.

This morning we’re seeing a slight pullback with the Dow down 29 points. While Asian markets closed mixed all the major European bourses are trading materially lower which is weighing on equities on this side of the pond.

As I do my research on equities a common theme emerges. Investors are concerned about valuations of U.S. companies, especially some of the tech companies.

Oil

WTI prices retreated yesterday after the DOE released its weekly crude and products report showing an aggregate increase in inventories of 3.575 million barrels vs. the 5 year average of a draw of 680,000 barrels for this week. Gasoline inventories actually decreased, the result of the normal seasonal refinery maintenance, but crude inventories shot up 5.315 million barrels dwarfing the gasoline inventory decline. The day ended with WTI losing $1.27 to $56.51. Brent price actually managed a small gain rising 65¢ to $62.73.

Of note, the DOE reported that oil production ticked lower for the second consecutive week. Although output is up 13.5% year-on-year domestic crude production fell about 18,000 barrels/day. The latter data is more important to traders for that is what they trade, the future.

Interestingly, the DOE pointed out that the implied demand for petroleum products over the last 4 weeks is up 5.2% form the same time last year. It’s not rocket science folks. Low commodity prices result in more demand and often less production.

This morning WTI is up strong this morning, $1.39. By the way, data was just released showing China imported 26.8 million tons of crude oil in March, 14% higher than a year ago.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices rose ever so marginally yesterday with the May contract rising 3.1¢ closing at $2.606. There’s that $2.60 magnet! Today the EIA releases its weekly and very closely followed storage report and the market is expecting an injection of 88 BCF for last week. The “whisper number” must be greater than 88 for natty is down 5.4¢ as I write implying traders are front running the report. If I was to bet I’d bet that we close higher from here. Maybe not a lot but close5 to that $2.60.

Weather and the forecast is a moot point right now although the Midwest and east will see the coldest temperatures of the week (and for at least 4 ½ months!) today and tomorrow.

Elsewhere

You may not have been following this story but I have and it’s most interesting, and unfortunately, indicative of how business is done throughout most of the world. After more than 8 months PriceWaterhouseCoopers finally signed off on Petrobras’ much anticipated financials, which they had previously refused to do. And it was ugly. Petrobras has to write down $14.8 billion after determining the assets were overvalued. Here’s the worst part, they also had to write off $2.1 billion for alleged bribe payments.

Petrobras is in the midst of a giant corruption scandal with allegations that the company’s suppliers conspired to overcharge Petrobras for major projects funneling some of the illicit profit to former Petrobras executives and politicians in the form of bribes and illegal political donations. Some of the indicted include the current President Dilma Rousseff’s Workers’ Party and its allies. President Rousseff denies any involvement. Oh, did I mention that she chaired Petrobras’ board during much of the period under investigation. I’ll let you be the judge. Have a nice day.