Equities and the Economy:

• U.S. equities notch 4th consecutive record close.
• Fed chairperson Yellen signals higher interest rates are coming.

The three major U.S. stock indexes all posted record highs for the 4th consecutive day yesterday with the Dow closing up 92 points, 0.5%, at 20,504, the S&P 500 finishing 9 points higher, 0.4%, at 2,338 and the Nasdaq rising 19, 0.3%, to 5,783. Ride this train as far is it takes you amigos! Trumponomics and positive fundamental economic data are supporting the market. Regarding the latter, the Labor Department reported that that core PPI, which excludes the volatile food and energy categories, was up 0.2% in January from December and 1.6% annualized. Note this is below the Fed’s 2% inflation target. Really positive news came from the National Federation of Independent Business noting its index of Small Business Optimism rose in January by 0.1 points to 105.9. Now the increase isn’t much but the absolute number is the highest level since 2004! The index also showed that 18% of small business owners are planning to hire more workers, up from 16% in December. Remember, it’s small business that is the primary creator of jobs in America.

Janet Yellen testified yesterday before the Senate Banking Committee stating it would be “unwise” to wait too long to raise interest rates. The committee couldn’t pin her down on the timing with her saying “I can’t tell you whether it’s March, May or June.” That being said, the market is only pricing in a 34% probability for a rate hike in March. Specifically mentioning the unknowns surrounding the Trump Administration’s fiscal policy, the Fed is erroring on the cautions side, i.e. slow to raise rates, aided by the fact PPI prices rose 1.6% annualized and below their 2% target.

This morning is quiet with the major indexes pretty much unchanged from yesterday’s close.

Oil

• Samo, samo $53ish.
• API data show crude inventories at highest level in decades seasonally.

Oil prices ended little changed with WTI closing 27¢ higher at $53.20 and Brent rising 38¢ settling at $55.97. Last night after the closing bell the API released its weekly crude and products report noting crude inventories rose a stunning 9.89 million barrels last week. The market was expecting a rise of 2.25 million barrels. Inventories are currently at 513.54 million barrels which is at the highest level seasonally in decades. The DOE releases its report today with the market looking for a rise of 3.5 million barrels. So why haven’t prices dropped? Because there are numerous reports that the supply/demand balance will get tighter in the second half of the year. We’ll see if that happens with the U.S. rig count continuing to rise. This morning WTI is down 20¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices hit 11 week low yesterday.
• Warm weather continues to weigh on the bulls.

The lack of any cold has castrated the bulls with natural gas prices falling again yesterday albeit marginally. The March Nymex contract closed down 3.9¢ at $2.905 which is an 11 week low. The forecast for the next two weeks shows above normal temperatures for the next 2 weeks except for the western U.S. but that region has virtually no influence on natural gas prices. In the winter it’s all about the major gas consuming regions, i.e., upper Midwest, MidAtlantic and northeast, and they are going to have April-like temperatures next week. This morning natty is up 4.5¢ on two factors. 1) we’re getting a short covering bounce after prices have fallen so hard for so long and 2) longer term forecasts are showing March to be colder than the 5 year average and much colder than last year.

Elsewhere

Are we back in the Cold War? I’m not sure if you heard but this week a Russian spy ship has been “loitering” off the U.S.; east coast. It’s last position was just 30 miles south of Groton Connecticut, which happens to be where the Naval Submarine Base New London is located. Groton is the U.S.’ primary east coast submarine base. Technically the Russian ship hasn’t violated any laws for its in international waters, but it is making U.S. leaders uncomfortable. The ship is armed with surface-to-air missiles and equipped with technology that can intercept communications and collect data on U.S. Navy sonar capability. It’s all interesting this is happening now. It may all be purely circumstantial that earlier this week President Trump’s national security advisor, Michael Flynn, resigned after just three weeks on the job as it emerged he discussed U.S. sanctions on Russia with Moscow’s ambassador before the president took office and misled VP Mike Pence about the conversations. Flynn was seen in Moscow as a leading advocate of warmer ties with Russia. Sounds like something from a John Clancy novel.