Equities and the Economy

Good morning. The market had time to digest the lousy Labor Department’s Employment Situation Report from Friday and after selling futures all weekend and into the open investors came to realize the bad news is once again good news. As I mentioned in yesterday’s morning Report, the jobs report means the probability of an interest rate hike by the Fed in June is virtually zero and the odds of a September hike have been greatly diminished. The result of the day was stocks finished with solid gains. The Dow rose 118 points (0.66%) to 17,881, the S&P 500 added 14 (0.68%) to 4,917 and the Nasdaq rose 30 (0.62%) to 4,917. Energy stocks were the big percentage gainers with crude oil rallying big. As you regular readers know, I’m a “glass half full guy” and we may be setting up for a nice goldilocks period. Economic growth hot enough to avoid a recession but not hot enough to force the Fed to raise interest rates in the near future.

The domestic equity markets also got a minor boost in that weird way with additional data from the ISM’s with its nonmanufacturing index showing the services sector pace of growth falling in March to its lowest level in three months further convincing investors the Fed, who has repeatedly stated that are “data driven,” will delay a rate hike.

Looking overseas this morning Asian markets have skyrocketed with Japan’s Nikkei up 1.25% and China’s Shanghai up a whopping 2.52%. European markets are following suit with the major indexes all trading 1.14% to 1.51% higher. Here in the States? Unfortunately not so much. Dow futures are up 13. I’ve written about this many times. Equities love QE and QE is alive and well in Japan, China and Europe. Not so much here in the U.S. The lesson: “Follow the QE.”

Here’s one thing that could be in our favor. Earnings season is upon us and invertors’ mood is pessimistic (primarily driven by the strong U.S. dollar) so lousy results may already be “baked in.” Anything positive will be supportive of equities. Tomorrow after the final bell Alcoa in its traditional role unofficially kicks off earnings season.

Oil

Oil prices went apogee yesterday with WTI closing at its highest level in seven weeks on signs of strengthening Asian demand and expectations a preliminary agreement with Iran won’t release a ton of crude onto the market in the near term. WTI jumped an even 3 bucks (5.2%) to settle at $52.14 and Brent added even more, $3.17 (5.8%), ending at $58.12. Both benchmark indexes saw their biggest percentage gains since February 3rd. As I mentioned in yesterday’s Report, over the weekend Saudi Arabia raised its official selling price for Asian buyers for May noting strong demand in the region. Much less reported was that Saudi Arabia lowered most prices for its U.S. bound crude citing weaker Nymex crude prices and on oversupply in the U.S. market. Bottom line: the Saudis are absolutely not going to give up market share to U.S. producers which means shale oil producers for that is the oil at the margin.

This morning oil prices are retreating a bit with WTI down 71¢ but that is not surprising to me after such a big price jump yesterday. Some of the very short term traders are taking some profits. Even with only a “framework” of an agreement in place Iran is wasting no time in lining up additional sales. Officials from Tehran are on their way to Beijing to discuss incremental sales. China is not participating in the sanctions and is Iran’s largest trading partner having bought roughly half of its crude since 2012 when sanctions were tightened. Scallywags.

Courtesy of MDA Information Services LLC

Natural Gas

After jumping 10.8¢ on Thursday on the coattails of a bullish EIA storage report natural gas gave up 6.3¢ yesterday closing at $2.650. It was really a quiet day with a 3¢ trading range and light volume. Natty was pressured on a mild weather forecast but even more so on a research report predicting natural gas storage builds over the next 3 weeks to average greater than the 5 year average. The Midwest and MidAtlantic states will have some fantastic weather over the next 10 days with temperatures then returning to normal but “normal” is now getting warmer as we get deeper into spring. The means “no load” for space heating but natural gas consumption is alive, well and strong in the electric generation segment. Prices are consolidating just above their 2.5 year low. Overall though prices have been very stable of late fluctuating within a tight range of $2.50 to $3.00 for months now. This morning natty is up 0.6¢. Total chatter.

Elsewhere

In 2014 the U.S. continued to move toward energy independence remaining the world’s top producer of petroleum and natural gas hydrocarbons per the EIA. U.S. hydrocarbon production continues to exceed both Russia and Saudis Arabia, the 2nd and 3rd largest producers, respectively. Despite a 50% drop in crude oil prices in the second half of next year U.S. production still increased 1.6 million bpd. In fact, 2014 saw the largest year on year volume increase since record keeping began in 1900. On a percentage basis output increased by 16.2%, the highest growth rate since 1940. Although oil production is expected to rise this year and next the growth rate is forecasted to be much less than in 2014 obviously the result of lower prices and less drilling. Annual crude production is expected to grow 8.1% in 2015 and just 1.5% in 2016.

On the lighter side, statistics show you have a better chance of getting accepted to Stanford University than getting hired by Apple.  Have a nice day.