Equities and the economy

U.S. stocks closed lower for a 4th consecutive day yesterday marking the Dow and S&P 500’s longest losing streak since the market lows in February. That being said, the damage to your 401K was slight. The Dow lost 58 points, 0.33%, to finish at 17,675, the S&P fell 4 points ending at 2,075 and the Nasdaq declined 5 to 4,844. As I mentioned the last couple of days, and forgive the redundancy, but the stock market was poking at record highs last week which is strong resistance and needs something fundamental to push it through, and the unknowns of the FOMC and Bank of Japan meetings this week and the Brexit vote next week are definitely not providing that push. Now it’s possible the results of these events might be the fundamental push we need to go to new highs, but we need to see the results first. Speaking of the Fed, the FOMC concludes its two day meeting today and Fed Chairperson Janet Yellen will hold a press conference. The market is pricing in a zero chance of rates being raised at this meeting and only a 15% chance at the July meeting. The Bank of Japan meets tomorrow and Friday.

Regarding fundamental data, the big news yesterday was the retail sales report which was strong and better than expectations. Sales came in up 0.5% for May compared to forecasts of 0.3% with core sales (excludes auto sales, gasoline, building materials and food services) rising a robust 0.4%.

This morning the Dow is up 80 points primarily being driven by overseas equities. All the major Asian indexes closed in the green and the European bourses are also trading positive. This may be a bounce of some sort for both of these markets have gotten bludgeoned over the past week.

Here is an interesting fact. Per a Bank of America Merrill Lynch survey, fund managers are currently hoarding cash at levels not seen in nearly 15 years.

Oil

The oil markets have been decidedly on the defensive over the past 4 sessions and yesterday was no exception. WTI closed down 39¢ at $48.49 and Brent lost 52¢ settling at $49.83. Similar to equities, investors and traders are worried about the Brexit vote with the fear that a “leave” win will hurt the economy and dampen energy demand. I also believe that traders are taking some chips off the table going to cash waiting for the results of all the aforementioned risk events.

Today WTI continues to leak being down 26¢. The bulls go no help from the API which released its crude and inventory report last evening. The report showed U.S. crude stockpiles unexpectedly rose by 1.2 million barrels last week when the market was looking for a decline of 1.4 million barrels. That’ll kill a bull. Oil prices, which had climbed more than 85% over the last 4 months, have now retreated 7.5% in less than a week. A lot of the run-up was due to the Canadian wildfires and the Niger Delta Avengers (NDA) in Nigeria blowing stuff up taking supply off the market. The wild fires are no longer a threat to the oil sands area and production is slowly ramping up. Also bearishly, it’s reported the NDA are for the first time considering peace talks.

Courtesy of MDA information Systems LLC

Natural Gas

Natural gas prices spent a second consecutive day meandering with the July contract closing up 1.9¢ at $2.604. With the heat wave currently in the central U.S. (it’s blazing hot in Houston!) the cash market has been strong buoying prices. The day cash market is trading only 2¢ less than the July Nymex contract with is the tightest cash/futures spread we’ve seen this year. That’s bullish. The weather forecast this morning will keep the sentiment bullish with above normal temperatures across almost the entire country.

Elsewhere

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