Equities and the Economy:

• Solid June employment report.
• Stocks notch small weekly gain.

Stocks closed higher on Friday with the Dow gaining 94 points closing at 21,414, the S&P 500 adding 15 ending at 2,425 and the Nasdaq finishing up 64 points at 6,153. Friday’s strength was enough to push all three indexes into the green for the week. For the week the Dow, S&P and Nasdaq were up 0.3%, 0.1% and 0.2%, respectively.

The big news Friday was the Labor Department’s employment report for June which showed the U.S. added 222,000 jobs in the month. This was way over economists’ forecast of 180,000 and the second highest number of jobs created this year. The unemployment rate increased 0.1% to 4.4% but this was because people are feeling better about the job market and more people are looking for jobs. The only blemish on the report was that average hourly pay rose only 0.2%, below forecasts of 0.3%. Wages have climbed 2.5% in the past 12 months which is below the usual gains at this point in a cycle of expansion. This is frustrating the Fed. That being said, it’s still widely expected that the Fed will continue to unwind its ultra-loose monetary policy by buying less bonds. The way this works is that the Fed will let the bonds it currently owns expire and buy less in new auctions. This creates less demand which drives yields higher, which is in effect is an interest rate increase.

This morning we’re starting out pretty quietly with the Dow down 9 but the Nasdaq is up 17.

Oil

• Oil prices have a bad week.
• Rig count rebounds.

Oil prices got whacked on Friday with WTI losing $1.29 closing at $44.23 and Brent settling down $1.40 at $46.71. Traders sold on the news from OPEC that it exported 25.92 million bpd in June, 450,000 more bpd than in May and 1.9 million bpd more than a year earlier. A lot of the increase is coming from Libya and Nigeria which are not part of production cut agreement. The fact these two countries are undermining OPEC’s effort to rebalance the global market is starting to agitate some of the cartel’s members. Over the weekend Kuwait’s oil minister stated that OPEC may request the two countries cap their production.

For the week WTI prices were down 3.9% marking their 6th loss in 7 weeks.

Baker Hughes released its rig count report on Friday noting the U.S. rig count increased by 12 last week, 7 oil and 5 gas. This marks the 24th week out of 25 the rig count has increased with last week being the one where the count declined. Although the growth in the rig count has slowed we’ve yet to see a full-scale reversal even at current prices.

The bears are out again this morning. WTI is down 30¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• EIA storage report bearish.
• Price closes down marginally.

The EIA released its weekly storage report a day late due to the holiday noting 72 Bcf was injected into storage last week. This was more than forecasts of 63 Bcf and thus somewhat bearish pushing prices marginally lower. The August contract finished 2.4¢ lower at $2.864. The calendar strips ended virtually unchanged. With a lot of summer left and weather forecasts for August and September to have above normal temperatures traders are going to be cautious about playing it from the short side. Remember too, the lower prices go the more gas that gets burned in electric generation. The big data point is that natural gas production has rebounded from levels for the first 5 months of the year, but it has backed off significantly from its record level over the July 4th holiday.

This morning natty is up 5.0¢ on the 11-15 day forecast showing above normal temperatures coming into the east.

Elsewhere

For Volvo the internal combustion engine has run its course. The Chinese owned automotive group announced last week that beginning in 2019 all the cars it builds will be either fully electric or hybrid. Volvo thus becomes the first major auto maker to abandon a technology that has powered the industry for more than a century. The U.S. is Volvo’s fastest growing market posting an 18% increase in sales y-o-y and they’re currently building their first manufacturing plant in the U.S.

On a logistical note, I will be out the rest of the week travelling on business so the next Morning Energy Blog will be Monday.  Have a great week!