Equities and the Economy

Equities roared strong for a second consecutive session adding to last Friday’s gains. The Dow popped a big 223 points, 1.39%, and back over 16,000 to 16,196. The S&P jumped 31, 1.65%, to 1,896 and the Nasdaq was the big winner rising a whopping 2.27%, 98 points, to 4,435. I like the price action with the indexes finishing the day close to their high. You know that coupon website GroupOn? It was up 41% yesterday! Now in full disclosure, its rally was from its all-time low. Back in November of 2011 the stock traded at $26.19. Yesterday even after the rally, $4.08. Some of yesterday’s equities gain was catch-up from Monday’s rally in Europe where equities logged their biggest gain in three weeks on comments by ECB president Mario Draghi hinting of more QE to come in March. Gold settled down 2.5% marking its biggest one day drop in nearly a year as investors moved out of safe haven assets in favor of riskier assets, i.e. stocks. Of note, U.S. stocks rallied even with oil prices closing lower.

Turning to the fundamental economic data, the National Association of Home Builders reported that its NAHB/Wells Fargo index of builder sentiment fell from 61 in January to 58 in February. However, anything above 50 means business is growing so although mildly disappointing, things are still good in the housing industry. Producer Prices in January fell 0.2% m-o-m and were down 1.0% y-o-y. Excluding the volatile food and energy and trade services they were up 0.2% monthly and 0.3% yearly so core inflation remains within the Fed’s target. The only real disappointing data point was Industrial Production which fell in January 0.4% m-o-m with economists expecting a rise of 0.4%. Investors interpreted the weak data that the Fed will have to keep monetary policy loose. The old bad news is good news thing.

If Dow futures are an indication of the trend today we’ll have a third nice up day for Dow futures are up 134 points. If we close higher it would be the first 3 day rally we’ve had in 2016. Asian stocks closed mixed with the Nikkei and Hang Seng down and China’s Shanghai closing 1.08% higher on the government’s announcement of, guess what?, more QE, specifically making more money available to local governments to fund new infrastructure projects as well as discussing lowering the amount of reserves to be put aside for bad loans. Across the pond things are looking very chippy with all the major indexes trading materially higher between 1.58% and 1.93% let by the commodities and banking sectors.

Oil

Oil prices were up big before the open yesterday, as much as 5.5%, on rumors that OPEC and Russia had agreed to cut production, but it turned out to be only a rumor for four nations, including the most important, Saudi Arabia, agreeing only to limit production to January’s level and that even came with a caveat: that Iran and Iraq would not increase production. Once traders digested the real news selling came in and closed down $1.21 at $32.18. The news affected WTI less. It closed down only 40¢ at $29.04.

This morning WTI is up 50¢ and it’s all about the headlines. Iran and Iraq are set to meet and discuss the proposed Saudi and Russian plan to hold output at current levels. There’s rumors that Saudi Arabia and Russia might give special dispensation to Iran and Iraq due to their unique circumstances which are the recent removal of sanctions on Iran and the war against ISIL in Iraq. Kuwait is now jumping on board stating today it also will freeze production at current levels if everyone else agrees. Now I wonder how all these parties are going to do more than jawbone the market higher. Example, a report today showed Russian output in January reached a new record high of 10.9 million bpd.

Courtesy of MDA Information Systems LLC

Natural Gas

The cold air in the 16-20 day time frame that forecasters had been advertising last week failed to show up in yesterday’s 11-15 day forecast and the bears came out pushing natty 6.3¢ lower to $1.903. The front month price has now dropped 30¢, 13%, to a 6 week low. We’re past the statistically coldest time of the year and before you know it it’ll be March, and winter is over. That being said, two things are and will be impacting the market. Natural gas demand by electricity generators has been, and will continue to be, at record highs and next month we’ll begin the nuclear plant refueling season with natural gas fired generation filling in until those nukes come back. Nuclear plant refueling takes between 4 and 6 weeks. And one other thing. Winter’s not over, yet. I’ve seen some pretty darn chilly weather come in March. Now I’m not forecasting that but the forecast for 11-15 day time frame is showing some slightly below temperatures in the east for that time frame which will keep furnaces working. This morning its ho-hum with natty basically unchanged from yesterday’s close.

Let’s do an El Nino update. All the talk in Q4 was about the monster El Nino we were going to have this year. Well to date its proven not only not to be the most severe in the past 50 years, it’s not even the 2nd strongest. But it is the 3rd strongest. The strongest El Nino occurred in 1997-1998 reaching its peak in the autumn of 1997. The 1982-1983 El Nino came in a close 2nd peaking in the spring of 1983. This year’s event appears to have peaked last summer but unlike the other two El Nino’s which peaked and fell quickly, it has dissipated very slowly and remains a force and continues to impact the weather around the globe.

Elsewhere

If you’ve been following the election process you can’t miss the battle going on between Donald Trump and Jeb Bush. It’s been one of the most intense this primary season. While The Donald has scored some direct hits on Jeb for being a “low-energy” candidate, Jeb hasn’t been shy about hitting back at his doughy billionaire rival. As part of the process, before a candidate announces his or her candidacy, their campaigns buy up lots of domain names related to their candidates for obvious reasons: they don’t want rivals or random internet trolls to buy up the domains and use them against the candidate. Donald Trump’s website is www.donaldjtrump.com and Jeb Bush’s is www.jeb2016.com. But it looks like the Bush campaign let one slip through the cracks. For some unknown reason the Bush campaign never bothered to buy www.jebbush.com. This wasn’t a big deal for a while because until last fall going to the website address would produce a blank page. However, sometime late in the year the website’s owner made it start redirecting to, you guessed it, Donald Trump’s presidential campaign web page! Trump’s campaign denies that it’s behind this particular prank stating it apparently was done by a supporter, however, I’m sure that’s of little comfort to the Bush campaign.