Equities and the Economy
Good morning and happy National Making Life Beautiful Day. And it was a beautiful day for the equity markets and your stock portfolio yesterday with the Dow for the first time in five days closing higher, up a big 237 points, 1.33%, to an even 18,000, and returning to positive territory for the year. The Nasdaq also had a nice gain of 1.26% closing up 63 points at 5,077. The S&P 500 added a little less percentage wise, 1.19%, climbing 25 points to 2,105. There was a confluence of three factors, both technical and fundamental, that drove equity markets higher. 1) As I’ve mentioned at least a couple of times this week, having sold off for multiple days the Dow boat was listing somewhat to the short side and was on a support line dating back months resulting in fewer sellers, 2) the U.S. dollar weakened driving commodity prices higher which lifted the stocks of commodity companies, specifically, oil and gas companies (Exxon Mobil, Chevron, etc.) and bringing oil and gas services company stocks with them, and 3), and this was the spark that lit the fire, there was some positive news on the Greek matter boosting investor confidence that Greece won’t default on its debts and the ripple affect associated with that default.
As I’ve also mentioned previously, Greece missed its debt payment to the IMF last Friday justifying it by saying it was consolidating additional debt payments due this month with the consolidated payment date being June 30th. The negotiations between the Brussels Group, formerly known as the Troika, and Greece are really, really heating up with a new headline every day. So how “heated up” are the talks? Mr. Alexis Tsipras, the Prime Minister of Greece, and Ms. Angela Merkel, Germany’s Chancellor, have met five times in the just the last two weeks! And I’m sure they’ll meet again before the end of the month. Obviously a lot is at stake here. Most of the world thinks the Greeks are lazy so why not kick them out of the eurozone and with that Greece goes back to the drachma? Because there are some seriously negative ramifications to that course not the least of which is that if there’s a Grexit would Spain, Italy and Portugal do the same thus ending the eurozone “experiment?” Additionally, Germany knows that if Greece leaves the euro will skyrocket negatively impacting Germany’s exporting companies and Germany lives to export. So the Greek tragedy continues. By the way, Standard & Poor’s downgraded Greece’s credit rating from CCC+ to CCC. It went from junk to more worthless junk.
We’re getting some nice follow through this morning with the Dow up 80. On another note, with the strength of the labor market here in the U.S. it’s widely expected the Fed will raise interest rates in September or October. But I wonder if they will consider this? The IMF had and as of today the World Bank has stated they want the Fed to wait to raise rates until the first half of 2016 saying that while the U.S. will take the rate increase in stride the risks are much higher in emerging markets. I’m still amazed at what effect a very well-advertised 0.25% interest rate hike can have.
WTI continues to climb yesterday rising $1.29 (2.1%) closing at $61.43 which is the highest level in 2015. Not to be left behind, Brent also went higher adding 82¢ closing at $65.70. Getting traders all “bulled up” was the DOE’s weekly crude and products report which showed an aggregated (crude, gasoline, products) drop in inventories of a whopping 8.8 million barrels last week with analysts actually expecting a build of 0.9 million barrels. Data like that will definitely take a market higher!
This morning oil is retreating just a bit with WTI off 69¢ primarily on the fact the U.S. dollar has rebounded somewhat after getting smacked this week. The IEA reported today that Saudi Arabia, Iraq and the U.A.E pumped oil at a record monthly rate to keep output over 1 million bpd above OPEC’s official target which is obviously bearish. However, it also said that global demand will be higher than previously forecast as economic growth and lower prices boosted consumption by for the first half of 2015 which offset the bearish data. The Paris based agency raised its projection from last month by 300,000 bpd.
In a quite choppy session natural gas ended on an “up chop” yesterday closing 4.5¢ higher at $2.891. Intraday it traded up to $2.922 but the cash market disappointed a little and natty backed-off. It’s Thursday which means we get the market moving EIA storage report at 9:30 CDT. The market is looking for an injection of 112 Bcf which is 3 Bcf higher than last year but markedly higher than the 5 year average of 89 Bcf. Traders must have their pre-report positions on already for natty is down 1.3¢ this morning. Super chatter. The jet stream is entrenched with a ridge in the west and east bring above normal temperatures to those regions for the next two weeks meaning natty burns will be higher than normal.
Quick, A or B. Who can raise money faster: A, Silicon Valley startups, or B, presidential hopefuls? Sorry Twitter and Snapchat. The answer is B. According to a report by Hamilton Place Strategies, a Washington based consulting firm, presidential campaigns are the fastest startups in the world and that in roughly 18 months candidates will likely raise and spend a billion dollars each! Snapchat took three years to raise more than a billion dollars in funding. Front running Democrat Hillary Clinton and her supportive super PAC are expected to raise well over $1 billion in that time frame. Jeb Bush, who is expected to announce his candidacy next month, told donors in April he’d set a record for Republican politics for fundraising in the first 100 days of a White House bid. It’s pretty funny. Bush hasn’t even announced and according to polls he’s the leading Republican candidate. Have a good day.