Equities and the economy

Crazy day yesterday. U.S. equities opened lower and it looked like we were going to have a 6th consecutive day of losses but around noon eastern time the Dow tuned positive on the day and continued to rally into the close turning a bad day into a good one. The Dow closed up 93 points, 0.53%, at 17,733, the S&P 500 rose 6, 0.31%, to 2,078 and the Nasdaq added 10 points, 0.21%, ending at 4,845. Now here’s the strange thing and maybe a complete coincidence. Stocks turned around yesterday at about the same time Ms. Jo Cox, a Labour Party member of the British Parliament and an outspoken supporter of the “remain” vote in the Brexit referendum, was killed by a madman who screamed “Britain first.” The implication here is that citizens who were leaning “remain” but not necessarily voting would now vote in sympathy with Ms. Cox keeping the UK in the EU relieving investors’ fears. Prime Minister Cameron immediately ordered a cessation to all campaigning on the referendum raising the notion that the referendum vote may be postponed. At this point of inflection stocks both in Europe and the U.S. rallied, the yen fell, the British pound Sterling rallied as did the euro. As I said, this may be a complete coincidence but massive short covering occurred in the aforementioned markets, which were materially oversold after 5 days of selling, at the same time the murder was announced. Prime Minister Cameron has not announced a delay in the vote and my vote is he will not delay it for Mr. Cameron probably does not want to put the country through this havoc again.

There were numerous fundamental reports released yesterday. The Labor Department reported its weekly jobless claims noting first time claims rose a somewhat surprising 13,000 last week to 277,000. Forecasts were for something closer to 265-270k. So this report was mildly bearish. The same department also released its consumer price index noting the index rose 0.2% in May compared to April and was up 1.1% y-o-y. The Fed looks more at the core index, which excludes volatile food and energy prices, noting it rose 0.2% and up 2.2% y-o-y which if you remember is right in line, and actually above, the Fed’s target of 2.0%. That being said, this is a dovish Fed and it will error on the easier monetary policy side. The National Association of Home Builders noting its sentiment index rose to 60 in June from 58 in May coming in better than expected. The housing market, which has been the backbone of the economic recovery, remains healthy.

This morning European stocks continue to rally with the major indexes all up a healthy 1.0% but the love is not spreading across the pond for the Dow is down 70 points.

Oil

Those traders playing the equity/oil correlation got destroyed yesterday for as U.S. stocks rallied oil prices got bludgeoned. WTI closed down $1.80, 3.7%, at $46.21 and Brent fell $1.89, 3.6%, settling at $47.19. Early in the day oil prices were following stocks lower but as equities turned for the positive oil kept falling. The technicals were the reason. WTI prices had been trading in a channel formation (Google it) since its low back in February. Yesterday morning when the price definitively broke support at the $48 level a huge amount of traders that had been long for months came in selling. The market is currently kind of in no man’s land right now so we’ve got to sit back and see what the next move will be. On the bullish side U.S. production is declining and global demand is increasing. On the bearish side, global stocks are at record high levels and Iran continues to increase production.

This morning WTI is trying to snap its 6 day slide trading up a material $1.32 continually screwing with those equity/oil correlation traders. This could be some short covering ahead of the weekend along with some help from a slightly weaker U.S. dollar with the latter occurring on statements by St. Louis Fed President James Bullard, a hawk, calling for only one interest rate hike over the next 2.5 years which is dollar bearish.

Courtesy of MDA Information Systems LLC

Natural Gas

It was another day down the Mississippi River with natural gas prices meandering. The July Nymex contract closed down 1.5¢ at $2.580. The calendar strips closed flat to Wednesday. The EIA released its weekly storage report noting 69 Bcf was injected last week which was almost dead on expectations so there was no consequential buying or selling. U.S. storage levels are currently 633 Bcf, 26%, greater than last year at this time and 704 Bcf, 30%, above the five year average. These percentages have and will continue to decline as we approach the end of the storage injection season which is the end of October.

We’ll see elevated consumption of natural gas for electric generation over the next few days, particularly in the west where they’ll see record high temperatures. The cash market remains strong this morning which is buoying futures prices with July up 4.4¢ as I write.

Elsewhere

We all know the name John Wilkes Booth but here’s something I bet you didn’t know about the man. John Wilkes Booth had two brothers, Junius Brutus Jr. and Edwin. All three brothers were critically acclaimed actors in their day but ironically they only appeared together once in the same play, which was Julius Caesar in 1864. John Wilkes played Marc Anthony, Junius took the role of Cassius and Edwin played Brutus. In a monumental act of generosity they took the funds from the performance and donated them for a statue of William Shakespeare to be built and placed in Central Park. The statue still stands today.

Edwin Booth was a staunch Unionist and Lincoln supporter (who interestingly, also once saved the life of Abraham Lincoln’s son) while John Wilkes Booth was an even more fanatical secessionist. When Edwin informed his brother he had voted for Lincoln, John Wilkes become rabid and asserted his belief that Lincoln would soon set himself up as a king of America.