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Morning Energy Blog for July 19, 2016

Equities and the Economy:

U.S. stocks eked out very small gains yesterday but it was enough to push the Dow and S&P 500 to fresh all-time closing highs and although the Nasdaq didn’t set a record high, it did close at its high for 2016. The numbers were Dow up 17 points to 18,533, the S&P up 5 to 2,167 and the Nasdaq up 26 to 5,056. Volume was light and the daily trading range was tight. In summary, it was a quiet day. That being said, the S&P has closed at new record highs in 5 of the last 6 sessions while the Dow has closed at new highs 5 consecutive sessions. U.S. stocks have benefited from 1) better than expected fundamental economic data here in the States, 2) U.S. data being better than European economic data and 3) money leaving countries and regions where investors perceive higher geopolitical risk and looking for safer harbors. Speaking of fundamentals, buyers came in buying financial stocks helping the entire stock market with JP Morgan, Citigroup, BofA and Wells Fargo all posting better than expected earnings. The significance here is that the Financials are seen as bellwethers so expectations will be aligned for a solid showing of earnings from other sectors as earnings season progresses.

This morning is beginning very, very quietly with Dow futures down 6 which I’ll take because the European markets are all getting hit trading down about 0.8%.

Oil

With the realization that Turkey’s coup was unsuccessful and oil supplies went uninterrupted traders came in yesterday selling oil. WTI finished 71¢ down on the day at $45.24 and Brent lost 65¢ settling at $46.96. For the last week and a half the market has been and is currently trading at the $45 -$46 level and seems to be comfortable there. The lines in the sand are drawn. The bulls point to declining U.S. production and expectations of increasing global demand and the bears point to a current glut with global production still greater than global demand even with falling U.S. production.

Also, and importantly, the oil bulls have a big headwind to fight in the form of a strong U.S. dollar which yesterday hit a 3 week high vs. a closely watched basket of foreign currencies.

Blog Weather 7-19 -16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

Yawn. That’s what natural gas has been doing. For the last 2 weeks natty has been waffling around the $2.75 price level. Like oil, the line has been drawn. The bulls point to lower storage injections, high demand in the electric generation sector due to both retired coal fired plants replaced with natural gas fired plants as well as $2.75 being a price which displaces a lot of coal thus setting burn records in electric generation, a rapidly declining number of drilled but uncompleted wells (de facto storage) and steep well decline curves. The bears wave that all off saying inventories are at record highs for this time of year and we can have below normal storage injections for the remainder of the summer and we’re still going to go into winter with storage levels at or close to record levels. The key to watch here is U.S. dry natural gas production. I look at it every day.

The weather forecast is pretty much unchanged from yesterday and natty is about unchanged as well up 3.1¢

Elsewhere

This is a follow up on the Elsewhere I wrote a week and a half ago. On Friday July 8th I wrote that Niantic had developed the Pokeman Go app and in partnership with Nintendo, which owns 33% of Niantic, released the app that week. Refreshing your memory, unlike a typical game where you sit in one place pecking on the keypad, to play Pokemon Go you actually have to physically move to different locations to capture Pokemon. Well to say it’s been a success is to say a category 5 hurricane is a rainstorm. It’s become a global cultural phenomenon. The app has been so well received that it’s crashed the company’s servers forcing the company to push back the release date in countries it hasn’t yet been released. One of those countries is Japan and being it’s Pokemon, you can bet it’ll hit a grand slam in the country. Now get this, as of the market close yesterday Nintendo’s stock price has risen 213% since July 8th. That’s only 8 trading sessions folks! In that time frame it’s market capitalization has risen from $16.9 billion to an incredible $35.9 billion. That’s a gain of $2.375 billion per session! And it’s not only the game developer and Nintendo investors who are making gobs of money, so are peripheral companies that have nothing to do with the app. Pokemon Go players have quickly learned the game is a huge drain on their smart phone battery. That may be bad for players, but it’s great for Zagg. Zagg is the owner of the external battery mophie which plugs into your smart phone as a power source when our internal battery is exhausted. Zagg’s stock price has zoomed up 25% in just the past week.

On a logistical note, I will be in meetings in our headquarters in Stamford, CT for the remainder of the week so you can expect the next Blog on Monday. Have a great week!

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