Equities and the Economy

Good morning and happy National Father Daughter Take a Walk Day. After the “No” vote, let the punishment begin. That’s in reference to what the Greeks may be bringing on themselves in a debtor vs. creditor battle played out on the world’s stage but unfortunately our 401K’s are feeling the pain. On the heels of the Greek vote the Dow fell 46, 0.26%, to 17,684, the S&P 500 lost 8, 0.37%, to 2,069 and the Nasdaq ended off 17, 0.34%, to 4,992. That’s really not bad for futures were down 150 points when I came in yesterday. Additionally, the U.S. markets did really well when looking around the globe for the Asian markets lost 2% to 3% and the European indexes lost 1.5% to 2.00%. Other than feeling the effects of the “No” vote there was no new news in the Greek negotiations. German Chancellor Angela Merkel met with French President Hollande last night which is followed by a meeting of the eurozone finance ministers today and then a full summit of the leaders of the 19 euro countries this evening.

Greek demands for debt relief at the same time they’re requesting more funding may not be well received by many creditors. Further complicating the matter is that there can be no agreement without the IMF and since Greece missed its payment to the IMF due on June 30th and is in arrears the IMF cannot not participate until the payment is received, at least technically. The next deadline is July 20th when Greece is due to repay €3.5 billion to the ECB. If Greece doesn’t make the payment the ECB could withdraw all emergency credit collapsing the Greek banking system, which is just about there anyway.

Greek Prime Minister Alexis Tsipras has not explained why he thinks creditors will now bend over and agree to hand him their taxpayers’ money against fewer reform just because a majority of the Greeks think it’s a good idea. So one would think the Brussels group, essentially led by Germany, holds all the cards. But the question Angela Merkel must be asking herself is “Do I really want a Greek exit from the eurozone as my legacy?” I think not. Therefore, she is motivated, just like Tsipras, to keep Greece in the eurozone. Right now the ball in in Tsipras’ court with the Brussels Group asking him to offer serious, credible proposals. The parties are meeting as I write.

Asian equities were volatile overnight ending mixed with Japan’s Nikkei rallying nicely but the Hang Seng and China’s Shanghai got whacked. The S&P 500 may be flat to slightly negative for the year but the Shanghai is down a staggering 29% from its peak which was only about a month ago! European markets have stabilized compared to yesterday but are trading negative by about 0.5%. U.S. Dow futures were up nicely early this morning but are giving those gains up with Dow up a scant 15 points currently, but it’s in the green which is much better than can be said for most other global equities.

By the way, CNN’s Fear & Greed Index is down at 12, extreme fear, which is where it was at this time last week.

Oil

Oil prices got unadulteratedly destroyed yesterday. $60 had been an equilibrium point for months until yesterday when WTI fell a huge $4.40/bbl yesterday from last Thursday closing at $52.53. That’s a big 7.7%! Brent fared even worse losing $5.53 Friday and yesterday (8.9%) settling at $56.54. WTI’s close yesterday was its lowest since Mid-April. There was a confluence of factors that led to oil’s price fall. First, the Greek situation and fears it will drag the overall European economy down. Second, The Iranian foreign minister said on Friday, when the WTI market was closed, that Iran and the West were close to reaching a deal. Now we’ve heard this before and Secretary of State John Kerry came out and stated there were still differences on important points, but traders are leery. Third, China. There are signs of slower growth in the world’s second largest importer of oil. Oil imports are down 10% year on year in May which is a huge drop. Finally, OPEC. The cartel’s production in May climbed to its highest level since October 2012 and shows no sign of decreasing. So you know the formula: lower demand, more supply means lower prices. Amazing how free markets work.

This morning calm has come over oil with WTI down 4¢.

Courtesy of MDA Information Systems LLC

Natural Gas

While not driven by the Greek tragedy but like just about every market in the world natural gas prices closed lower with the August contract down 6.6¢ settling at $2.756. Get this. The price for yesterday’s cash gas was 92¢ delivered to the Philadelphia city gate! Now that’s only one day but 92¢! Philadelphia! Wow!

Natty continues to hover around the $2.80. The forecast is bearish the next 5 days but neutral for the 6-15 day period with normal temperatures throughout the major population centers of the nation. What’s supporting natty prices is the power burn which is at record highs this summer due to the low prices, coal plant retirements and coal–to-gas switching.

This morning it’s all chatter with natty down 1.9¢

Elsewhere

I know the U.S. presidential elections are a long way off but I had to laugh at the following comment by a veteran Democratic strategist regarding Donald Trump’s run for the president. “I am a person of faith – and the Donald’s entry into this race can only be attributed to the fact that the good Lord is a Democrat with a sense of humor.” Personally, I hope Trump has the staying power to make it to the debates. I guarantee you he’ll be lobbing bombs making the debates, if nothing else, very entertaining. Have a good day.