Equities and the Economy
Good morning and happy National Peanut Butter Cookie Day. There were a few fundamental economic reports out yesterday which pushed stocks higher. The most important was the Commerce Department’s Retail Sales report which showed May sales were up 1.2% which although below economists’ forecast of 1.3%, were up for the third month in a row and just as importantly, March and April sales were revised up 0.2%. Drilling down into the report most of the categories were good with building material sales were up 2.1%, clothing and accessories rose 1.5% and sales at the nation’s department stores were up 0.8% after falling 3.0% in April. This data supports other data that we’re definitely seeing a rebound after a winter lull. Remember Q1 GDP was negative.
The second report was the Labor Department’s weekly unemployment claims which came in at expectations at 279,000 remaining at historically low levels. Lastly, export prices rose 0.6% in May and above the consensus of 0.1% and far above last month’s -0.7%. Import prices rose 1.3% also much above last month’s -0.3% and above forecasts of 0.9%. No doubt the Fed will read this data that inflationary pressures are building for the first time in a long while supporting their rationale for raising interest rates.
Equities responded positively to this data with the Dow closing 39 points up at 18,039, the S&P 500 added 4 to 2,109 and the Nasdaq tacked on 6 to 5,083. Stocks would have closed even higher yesterday (the Dow was up 109 at one point) were it not for the stunning announcement yesterday that the IMF walked out of the talks with Greece stating there was “no progress” on the “major differences” with Greece.
What drove the markets up on Wednesday is pushing them lower today: Greece. The news of the IMF leaving the talks is really hammering European stocks this morning with Germany DAX and France’s CAC 40 down 1.79% and 1.95%, respectively. Unfortunately, the negative sentiment has crossed the Atlantic with the Dow down a very material 147 points and trading at the lost levels of the day. The Greek Kabuki theatre is in full swing and its being heard here in the U.S. as well as Europe. By the way, the next big date is June 18th when all the Eurozone finance ministers meet.
With the U.S. dollar rebounding oil prices slid with WTI losing 66¢ settling at $60.77 and Brent falling 59¢ closing at $65.11. Also weighing on prices at the macro level continues to be Saudi Arabia’s strategy of maintain market share. In May the country produced 10.3 million bpd which the is highest rate on record. Now on the other side of the equal sign is demand which is also up with the IEA revising up their forecast of global demand by 300,000 barrels for the second half of 2015. The biggest increase in demand is being seen in India. India has replaced China for growth with the latter seeing a slowdown in their economy this year. Now Saudi Arabia has historically lowered oil exports in the summer months when domestic demand peaks to power air conditioners. But not this year. Mr. Ahmed Al-Subaey, Saudi Aramco’s executive director for marketing, stated yesterday “We have plenty of crude. You are not going to see any cuts from Saudi Arabia.” No ambiguity there!
This morning WTI is down 89¢, but still above $60, primarily as a function of the value of the U.S. dollar but still we’re close to 5 month highs.
Yesterday the EIA released its always much anticipated weekly storage report showing an injection into storage of 111 Bcf. Although this was within 1 Bcf of being spot on forecasts it was the second week in a row it the largest injection in at least the last 5 years for this week and well above the 5 year average of 89 Bcf. Storage levels are 753 Bcf above last year at this time and we’re starting to gain on the 5 year average. Last week was the first week this year we had more gas in storage than the 5 year average and we increased that amount by 22 Bcf last week such that we’re now 44 Bcf above the 5 year average. Today’s weather forecast is Bill Murray’s Ground Hog Day to yesterday’s forecast but traders are taking the morning off with very trading being very light. The July contract down 3.0¢ but some of the deferred contracts have not even traded.
Teddy Roosevelt is remembered as much for his one-liners as for his achievements as our nation’s 26th president. Who can forget “Speak softly and carry a big stick.” And then there was “Don’t hit a man if you can possibly avoid it, but if you do hit him, put him to sleep.” However, one of his most popular aphorisms is repeated every day without folks knowing it was Teddy who coined the phrase in 1903. In that year Roosevelt went on a tour of the country which took him to Nashville, Tennessee. While in Nashville he stayed at the luxurious and opulent hotel that had hosted many famous people before him including at least three past presidents. The rooms were lavish and it pampered its guests with impeccable service. However, its claim to fame was its coffee. The very smell of the morning brew, specially prepared by its hotel’s kitchen staff, brought Nashville’s fancy visitors alive with a sip or two and described as “pure elixir.” On the morning of his first visit the president was feeling especially sluggish and had a cup of that popular coffee and so savored those dregs he asked for more. When he saw the bottom of his last cup he turned to the attendant and pontificated that the brew was “good to the last drop.” The hotel Mr. Roosevelt was staying at was called the Maxell House, named for its owner’s wife, Harriet Maxwell. You know the rest.
Have a great weekend.