Equities and the economy
On Friday U.S. stocks booked a 4th consecutive gain with the Dow adding 19 points to 17,949, the S&P 500 gaining 4 to 2,103 and the Nasdaq rising 20 points to 4,863. The Dow came within a whisker of its pre-Brexit close of 18,011 before retreating in the afternoon. The S&P was helped by a surge in Harley Davidson which rose 20% on buyout rumors. The Dow and S&P posted their best weekly gains since November 20th both chalking up 3.2% gains. The Nasdaq also had a good week rising 3.2% for its best week since May 27th. The Dow and S&P have now posted 3 straight quarters of gains.
Stocks were boosted by good fundamental data. On Friday the Institute of for Supply Management said its manufacturing index jumped to 53.2 in June from 52.3 in May coming in better than expectations and marking an uptrend after a bout of weakness. Auto makers marked had their best June auto sales in more than a decade with sales came in at a seasonally adjusted 16.7 million units.
Even as stocks climb investors remain concerned about risk. On Friday the 10 year U.S. Treasury yield ended near 1.44% after earlier touching its lowest level in about 4 years. The 30 year Treasury yield hit an all-time low intraday but recovered to trade near 2.22%. The Japanese 10 year note yield hit an all-time low of negative 0.251%. Yes, that was negative. By the way, gold hit a 2 year high and is one of the best trades this year being up about 24%.
After a long holiday weekend global equity markets are starting the day mixed. Both Japan’s Nikkei and Hong Kong’s Hang Seng closed lower while China’s Shanghai finished up marginally. In Europe London’s FTSE continued to rebound trading up 0.44% but France’s CAC and Germany’s DAX are getting whacked trading down 1.47% and 1.58%, respectively. U.S. stocks are being weighed down this morning by European stocks with the Dow down 115 points. The aftermath of the Brexit vote is still being felt. The British pound sterling has fallen to a 2 ½ year low vs, the euro and a whopping 31 year low vs. the U.S. dollar.
Regarding Brexit, I like what Bill Blain of Mint Partners who works on the London trading floor said, “We’ve pretty much have gone through the 8 stages of Brexit: Shock, denial, anger, bargaining, depression, applying for an Irish passport, acceptance, and finally hope that it doesn’t matter anyway..”
Oil prices rallied from losses early in the day with WTI closing up 66¢ at $48.99 and Brent settling up 64¢ at $50.35. Oil had its best quarter in 7 years with prices jumping 25% during the term. I’ve been following the rid count closely lately noticing it has stabilized. Over the past 4 weeks there’s been about no net change in the rig count. On Friday Baker Hughes noted a weekly gain of 10 rigs. Oil was up 11 and natural gas was down 1. There are now a total of 421 figs working in the U.S. which compares to 862 rigs a year ago.
Let’s move on to today because it’s a completely different story with the bears coming out of their caves and feasting with WTI down a material $1.87. Once again concerns over global growth are raising their head, particularly in China. Additionally, Nigerian crude production has been rising. This may change being that over the weekend the Nigerian Delta Avengers (NDA) resumed their attacks bombing 5 oil facilities. This comes less than 2 weeks after the government negotiated (bought off?) a 30 day truce. The NDA said they did not “remember” agreeing to a cease fire. If not sad, it would be humorous. The militants say they want a greater share of Nigeria’s oil wealth, which accounts for around 70 percent of national income, to be passed on to communities in the impoverished region and for areas blighted by oil spills to be cleaned up. The bulls have got to be concerned for this event should have pushed crude prices higher, but didn’t
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Natural gas prices climbed all of May and on Friday, July 1st, closed up 6.3¢ at $2.987/MMBtu. Prices intraday traded almost $3.00 ($2.998). Both the intraday high and close are the highest so far in 2016. Let’s move on to today because it’s a completely different story with natty getting massacred being down 18.1¢. The weather forecast has not changed substantially with the forecast for temperatures the next 2 weeks remaining above normal throughout the important eastern half of the country. Here’s my take on this morning’s price drop. Today is for all practical purposes the first working day of the month and I bet the cash market is very weak, which is the complete opposite of what we saw last month. I think that with where natural gas prices were/are going into July a materially greater amount of electric generation fueled by coal was baseloaded for the month compared to June. Thus, even with the warm temperatures predicted for this week, traders came in this morning and the cash market was weak. The forecast for July and August is for above normal temperatures so let’s see how this plays out. It’s only Monday after a long weekend.
A consortium led by U.S. firm Noble Energy has approved, sit down, a $265 million project to drill a well in a major natural gas field off Israel. Folks, that’s one well! Putting this in perspective, the cost to drill a shale well in the U.S, is about $9 million. The other partners in the group are Delek Drilling and Avner Oil Exploration which are both Israeli firms. The well, which is schedule for Q4 2016 to be drilled in the Tamar field, is located 60 miles offshore in the Mediterranean Sea and will be drilled to depth of about 11,500 feet below the sea bed. It’s expected to take 4 months to drill, complete and connect the well. Israel views developing its own energy resources to be a strategic asset for the country has no oil and little water.