Good morning and happy National Heimlich Maneuver Day. We needed a Heimlich Friday for the marked choked. The Dow fell 115 points to 18,101, the S&P 500 lost 13 ending at 2,107 and the Nasdaq fell 28 closing at 5,032. All of the indexes lost 0.6%. For the week they lost 1.2%, 0.9% and 0.4%, respectively. The month was much better with the S&P up 1.1% and the Nasdaq ended up 2.6%. As mentioned in Friday’s report, the big news of the day was that Q1 GDP was revised downward +0.2% to -0.7% which as I also mentioned, and really didn’t surprise anyone and being pretty much built into the market.
There were a couple of economic reports on Friday that did catch investors’ eyes and they were that the Commerce Department reporting consumer confidence in May dropped to a 6 month low and the Chicago PMI index disappointingly plunged from 52.3 in April to 46.2 in May. Folks here’s what’s going on when at the 40,000 foot level. People who manage money for a living note we’ve been in a bull market for years and it’s over extended and metric show stocks are fully valued at the moment. Hence, one, or both, of two things need to happen. We need time to consolidate, think of an army bivouacking, or we need a correction, and I’m not talking about a few percent. I’m talking 10%. You may actually want to consider looking into emerging and other developed markets rather than U.S. stocks if you’re looking for growth (take a look at what the index in India has done this year). By the way, any of you own the big healthcare firm Humana? Its stock popped a whopping 19% on Friday after it became public Cigna was looking to acquire it.
The crescendo has and is building and you are going to hear a lot about it this week and that is Greece. Greece has a big payment ($327 million) due to the IMF on Friday and parties have been in negotiations for weeks over the entire debt issue. Comments from Greece indicate the parties are close to a deal. Comments from the “Brussels Group,” which the Troika is now called (Brussels Group is so much more palatable than Troika), are however to the contrary. Although everyone is talking about June 5th the IMF has said that deadline could be pushed back until later in June so let’s see how this plays out. The real deadline is June 30th when Greece’s bailout expires.
So you may wonder “Why the heck doesn’t the Brussels Group and the rest of Europe tell the Greeks “See ya”? There are a myriad of reasons but one of the biggest is that Germany, who is one of the biggest lenders, wants to keep Greece in the European Union. Why? Because if Greece leaves and returns to the drachma the euro will skyrocket and Siemens, Volkswagen, BMW, DaimlerChrysler, et al, will freak out because Germany is an export based economy. Stronger euro makes German exports more expensive. So Mr. and Mrs. Schmidt may look with distain upon Mr. and Mrs. Papadopoulos but the big money in Germany knows what’s at stake.
This morning the Asian markets all closed in the green with the Nikkei barely doing so, Hong Kong’s Hang Seng a bit better (up 0.63%) and China Shanghai really popping gaining 4.71%. Man is the Shanghai volatile. 2-5% moves are common. Feels like Disney World. European stocks are flat to up marginally and U.S. stock futures are up nicely.
Oil prices really popped on Friday with WTI closing up a big $2.62 (4.5%!) and once again over $60 at $60.30. Brent prices rose as well gaining almost $3.00, $2.98 (4.47%) at $65.56. Prices were up on Friday but when Baker Hughes released its weekly rig count report showing 10 fewer were working in the U.S. last week prices soared. What I found most interesting though is that the rig count in Canada went up by 26 rigs. Now that number itself is material but that represents an amazing 36% increase in the total Canadian rig count. It’s apparent that Canadian producers can make $60 WTI and $65 Brent work!
Also boosting prices on Friday was the carryover of the DOE’s crude and products report from Thursday showing not only that crude inventories in the U.S. dropping but so did gasoline stocks. The data implied the demand for gasoline over the last 4 weeks averaged 9.2 million bpd which is the highest level since August 2007.
This morning WTI is pretty much flat being down 12¢. Chatter.
Natural gas prices slipped 6.4¢ on Friday closing at $2.642 on 1) the carryover from Thursday’s bearish EIA storage report and 2) the weather forecast which showed the above normal temperatures in the east moderating. Today’s forecast is marginally cooler than Friday’s for the east although temperatures will still be above normal in the 6-15 day time frame albeit by only but a degree or two. After rising to $3.10 a couple of weeks ago, and squeezing out the shorts, prices have now fallen 50¢ wiping out 75% of the nearly 70¢ previous rally.
This morning the cash market is hanging in there with natty prices this morning flat to Friday’s close. Remember, the U.S. is still burning record amounts of natural gas in electric generation, more than back in the summer of 2012 when the price in April hit $1.92.
Today marks the official start to the 2015 hurricane season (whee!). The NOAA is predicting a below-normal hurricane season for the Atlantic this year. They are forecasting 6-11 named storms of which 3-6 could be hurricanes with 0-2 being major storms (Category 3 or higher). The main factor expected to suppress the hurricane season this year is an El Nino which is already affecting wind and pressure patterns and is forecast to last through the hurricane season. NOAA is also forecasting the El Nino to intensify and have its greatest influence during the peak months of the season (August, September and October). The El Nino could also impact precipitation on the west coast, where the desperately need it, and temperatures in the upper Midwest.
Have a good day.