Equities and the Economy

Good morning. U.S. stocks finished the Easter shortened week on a marginally positive note breaking two sessions of material losses. The Dow closed up 65 points at 17,763 and both the S&P 500 and Nasdaq added 7 points with the former ending at 2,067 and the latter 4,887. Now you may not feel it but Friday ended up a really good day considering Dow futures were down over a 100 points before the open. Helping the market and your 401K was the Labor Department’s weekly report of initial jobless claims which pointed to continued strength in the labor market. Claims for the week of March 28th fell by 20,000 to a seasonally adjusted 268,000, the lowest in 15 years! Importantly, the number came in far below economists’ estimates. This set the stage for the big kahuna report released on Friday when the markets were closed which is the Labor Department’s employment report.

Setting the stage, ADP released its private payrolls report last Wednesday and, as mentioned above, on Thursday initial jobless claims were released and both reports were reasonably good. Unfortunately for all of us, such was not the case for the Labor’s Department non-farm payrolls report was shockingly bad. The report showed the U.S. added only 126,000 non-farm payroll jobs in March which was far, far below the consensus of 245,000. Making matters worse, February’s strong number was revised down by 69,000. Amongst the carnage there was some positive news and that was the unemployment rate held at 5.5% and that average hourly wages rose 0.3%, with the latter above expectations. However, continuing reading one discovered that the average work week fell from 34.6 hours to 34.5. Now this may not seem like much but that is the equivalent of another several tens of thousands of non-farm payrolls having been lost. It is very highly likely now that the Fed will not be raising interest rates in June and the odds of a September rate increase have been materially diminished.

The market properly and immediately responded with Dow futures falling like a rock in water and remaining at the bottom the pond being down 128 points this morning. By the way, the European markets are closed today for Easter Monday.

Oil

Oil prices fell on Thursday with the announcement of an agreement on a framework for a final deal between Iran and the 6 major world powers with the parties having until June 30th to work out the details. WTI closed down 95¢ at $49.14 and Brent getting crushed falling $2.15 to $54.95. Things are quite different this morning though for in a quite surprising move Saudi Arabia over the weekend raised the price of their crude to their customers in Asia citing strong demand. The increase was only 30¢/barrel but it is worth noting this is the second consecutive month the Saudis have raised prices. Their action has boosted both bellwether crudes with WTI up $1.08 this morning and Brent is $1.32 higher.

Courtesy of MDA Information Systems LLC

Natural Gas

The May natural gas contract rallied 10.8¢ on Friday closing at $2.713 on the heels of a bullish EIA storage report. The market was looking for a 7 Bcf withdrawal and the actual withdrawal was 18 Bcf with buyers immediately coming in after the number was released. $2.71. Still, cheap, cheap, cheap. The forecast this morning is benign with some fantastic weather the next 10 days in the upper Midwest and northeast. Cincinnati will be in the 70’s and Philadelphia will be in the upper 60’s. Not much is trading the morning but what is is pretty weak with the May contract down 7.3¢ as I write. Many of the deferreds haven’t even traded this morning.

Elsewhere

Crude refiners are coming out of their regularly scheduled maintenance season when they switch their process to the “summer” blend and are poised to make gasoline at a record pace this year. Refiners are enjoying the best margins in two years while concurrently having added an additional capacity of 100,000 barrels per day added since last summer when they processed the most oil on record. Although crude inventories are the highest since 1930 at 471 million barrels, a lot of crude will chewed up quickly by refineries. Their “runs” should help keep crude oil from running out of storage the possibility of which has been the talk of the market of late.

Last July refiners processed 16.5 million bpd which was, per the EIA, the highest level since 1961. Refinery margins in March have averaged $28.09/barrel which is the highest since March 2013. Also let’s not forget about the rig count which has been falling precipitously. Baker Hughes on Friday reported the North American rig count fell another 40 rigs to 1,128l last week. That’s 925 less rigs than were working a year ago. Have a nice day.