Equities and the Economy

After three days of big gains U.S. equities took the day off yesterday trading on either side of unchanged all day. The Dow fell 41 points to 16,413, the S&P 500 lost 9 to 1,918 and the Nasdaq ended off 46, 1.02%, at 4,488. The latter got hit with the biotechnology sector getting hit 2.59%. But all in all, chatter. As always needs to be mentioned of late, oil prices were also little changed.

Turning to the economic news yesterday, the Labor Department released its weekly jobless claims data and it was surprisingly good. New unemployment claims dropped sharply by 7,000 to 262,000 last week. This is the lowest level in 3 months and materially below (better) than economists were forecasting. Offsetting the weekly claims good news was the Conference Board’s index of leading economic indicators which fell for the second consecutive month in January to 123.2, down 0.2% (This is a data point I follow but rarely discuss but was worthy of including today). The significance here is we need to pay attention to next month’s data. There’s a rule-of –thumb that three months in a row of weakness in this index means the odds of a recession the following year move sharply higher.

This morning global equities are lower, everywhere. All the major indexes closed lower, but not materially. The same is happening in Europe and like Asia, the losses are all less than 1%. The exact same thing is happening in the U.S. with the Dow down 65 points. Folks, this may simply be profit taking ahead of the weekend.

Oil

Oil prices were trading markedly higher yesterday morning, and then the DOE released its weekly crude and products report. Setting the stage, the day before the API reported a surprising drop in crude stocks, although they did report a big rise in gasoline inventories. Well, the DOE reported that crude stocks actually increased by 2.1 million barrels to 64.7 million barrels. The significance? Crude inventories in the U.S. are now at their highest level since 1930. The DOE reported that gasoline stocks increased by 3.0 million barrels and are now at a record 258.7 million barrels. That’ll slay a bull. That being said, oil prices did hang in there with WTI closing 11¢ higher at $30.77 while Brent fell 22¢ to $34.28. Interestingly, the contango has narrowed compared to a week ago, meaning the spread between the front month price and the price one year from now has narrowed. This can be interpreted that crude is bidding less aggressively for storage meaning that in relative terms, there is less crude oil in today’s market. I’m not saying I’m an oil bull. Just that my antennae are up. WTI hit an 11 year low on February 11th at $26.05. This morning yesterday’s DOE report is weighing on the market with WTI down $1.32.

There’s no new news regarding the OPEC/Russia pact to freeze production at January’s levels. Iran has refused to join the pact putting the entire agreement on shaky legs.

By the way, the U.S. is currently producing 9.1 million bpd, down from 9.7 million bpd last April.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices dropped yesterday with the March Nymex contract falling 9.0¢ closing at $1.852. Front month natural gas prices have closed lower the last 7 out of 8 days and are trading near a 2 month low. It was the EIA’s storage report yesterday that slayed the bulls. The market was looking for a weekly withdrawal of 175 Bcf. The DOE reported a withdrawal of 158 Bcf, obviously much less than expectations. Inventories are currently 532 Bcf, 25%, greater than this time last year and 555 Bcf, 26%, above the five year average.

Weather forecasts this morning are little changed from yesterday with normal to below normal temperatures in the eastern third of the country for the 6-15 day time frame. For the next 5 days though widespread above normal temperatures will span the entire nation.

This morning natty is down 3.7¢ trading at a 7 week low.

Elsewhere

For centuries ransoms have been paid for kidnapping people. Now they’re being paid for kidnapping computer networks. On February 5th the Hollywood Presbyterian Medical Center computer system was hacked with the hackers locking up the institution’s network and demanding payment to reopen it. This extortion is called “ransomware” and hackers hold hostage the system providing a digital decryption key to unlock it only after paying a fee. In Hollywood Presbyterian’s case they paid a ransom of 40 bitcoins, or $16,664 dollars, with its CEO stating it was “the quickest and most efficient way to restore our system and administrative functions.” Bitcoins, the online currency that is hard to trace, is becoming the preferred way for hackers to collect ransoms. Computer security experts normally recommend people not pay the ransom, though at times law enforcement agencies do. The FBI was called in on this case but it is not known if they recommended paying the price. More than likely the decision was made by the hospital as the “least cost” alternative.

During 2013, the number of attacks each month rose from 100,000 in January to 600,000 in December according to Symantec, the maker of antivirus software. Intel Corp’s McAfee Labs, another anti-virus software company, estimates that on average 3% of users with infected machines pay a ransom. However, nobody really knows because a lot of companies don’t tell anyone if they fall victim to ransomware. They don’t want it publicized they were hacked. However, according to Adam Kujawa, Head of Malware Intelligence for Malwarebytes in San Jose, “It’s a pretty common practice to just hand over the cash.” According to forecasts it looks like it’s only going to get worse in 2016 because hacking software continues to grow in sophistication.