Equities and the Economy

Good morning. Yesterday was what I call “chatter” with the Dow falling 23 to 18,117, the S&P 500 literally closing flat to Friday at 2,110 and the Nasdaq adding 5 points to 4,691. Hurting the Dow index were oil stocks which fell in sync with lower oil prices. The Nasdaq rose for the 9th straight session, its longest rally since 2010. That funny fruit company, Apple, pushed the Nasdaq up gaining 2.7%. The Nasdaq is now within 1.7% of its record high reached waaaaay back in 2000. Volume was very light being 14% below the three month average volume. Overall it’s been a quite sedate period recently with the last 6 sessions having included 5 of the smallest intraday ranges of the past 35 market days. Tidbit: The S&P is trading at its highest valuation in 5 years at 17.8 times projected earnings.

The National Association of Realtors said existing home sales fell sharply, 4.9%, in January to an annual rate of 4.82 million units. This was the lowest level in 9 months. But the problem isn’t demand. It’s supply. Tight inventories are hurting sale by limiting the selection of houses available to potential buyers. The lack of supply is also keeping prices elevated sideling first time buyers.

The only other important piece of data was the Dallas Fed’s Manufacturing Survey. The index was expected to be weaker due to oil’s lower price but it was egregious coming in at -11.2 from a -4.4 last month with market expectations of something closer to -3. Anything less than zero is a sign of economic weakness so you can see there’s some serious “weakness” in Texas.

Investors will be turning to CNBC today and tomorrow with Fed Chairwoman Janet Yellen testifying before the Senate Banking Committee today and the House on Wednesday and with no major economic news overnight stock futures are barely budging ahead of her testimony with Dow futures up an immaterial 7 points while Nasdaq futures are down 4. The aforementioned lack of volatility could change today on her testimony.

Oil

As mentioned above, oil got hit yesterday with WTI closing down $1.36 at $49.45 and Brent off $1.32 to $58.90. Oil took it on the chin from the onset of the day due to, as I stated in yesterday’s Report, Libya getting a pipeline restarted and Oman announcing it was increasing exports. Although I regularly look at but don’t necessarily report the “shape” of the price curve I am now for the term structures have shifted quite bearishly. The WTI front month contango (April ’15 vs. April ’16) has widened to $11.20 this morning compared to yesterday’s $9.80. The absolute numbers themselves probably don’t mean much to you unless you’re really following the market but let me put it to you this way. This is the widest contango for WTI that we’ve seen in recent years. And with supplies continuing to pour into Cushing I fully expect this to get even wider. Yes, the rig count has been falling like a rock in water but it takes time for the lower rig count to impact production. Bottom line, crude is aggressively bidding for storage.

This morning WTI is bouncing albeit a little being up 59¢.

As early as today President Obama will receive on his desk the legislation passed by the Republican Congress authorizing the cross border construction of the Keystone Pipeline. By law the President has 10 days to send it back to Congress unsigned, i.e., the pocket veto, or veto the legislation. One of these two things is guaranteed to happen.

Courtesty of MDA Information Services LLC

Natural Gas

After seeing a short covering on Friday ahead of the weekend the short term traders once again emerged yesterday re-establishing their shorts despite the continuance of bitterly cold weather across the eastern half of the country. At day’s end natty closed down 7.2¢ at $2.879. Like oil, it’s going to take some time for the dropping rig count to affect production with supplies ample currently. And thank goodness for that for 5 years ago these temperatures would be driving natty prices a dollar higher.

This morning the 6-10 and 11-15 day forecasts have shifted colder from yesterday’s forecast (Hey, I’m just the messenger!) and what is natty doing? Down 1.1¢. Today March Nymex options expire and tomorrow the March contract expires. Thursday we have the EIA storage report. The market is looking for a withdrawal of 240 BCF. I’ll take the over because I bet there’s well freeze offs not being accounted for in the number.

Elsewhere

You just gotta love the way Italians do business. Like every bank, Italy’s Credem Bank makes loans. But in their case the collateral is different. It is parmesan cheese! The bank takes parmesan cheese from local producers in exchange for cheap loans charging 3-5% interest depending on the quality of the cheese. They also charge a “cheese maturing” fee for storing and maturing the cheese in their bank vault. Currently there are 430,000 parmesan wheels ($200 million+ !) stored in the bank. Pasta party anyone?! Have a good day.