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Morning Energy Blog – June 23, 2015

Equities and the Economy

Good morning and happy National Pecan Sandies Day. It was an very good day on Wall Street yesterday and although the major indexes closed well off their highs I’ll take a day like yesterday all day every day. The Dow gained 104 points (0.58%) ending at 18,120, the S&P 500 climbed 13 (0.61%) to 2,123 and the Nasdaq was the big gainer of the day up 0.72%, 37 points, to 5,154 with the latter setting another record. By the way, the Russell 2000, which is primarily small cap stocks, also set a record. The equity indexes performance in the U.S. paled in comparison to the German and France indexes which both closed up 3.81%. Now in full disclosure Germany’s DAX is off 7% off its highs primarily due to the Greek matter. The move up was headline driven and as mentioned in yesterday’s Blog it was about Greece’s most recent proposals with euro zone leaders cautiously optimistic about the developments. That being said, the Eurogroup said the proposals required detailed study and that it would take several days to determine whether they can lead to an agreement. Greece needs fresh funds to avoid defaulting on a $1.8 billion debt repayment to the IMF on June 30th. It’s actually quite humorous. Greece debt repayment to the IMF will be met by borrowing from the IMF and from the ECB once again thus paying off one credit card debt with an advance from another credit card from the same credit card itself!

Unsurprisingly to me, this morning the word is that disagreement remains over the fine print with revenue from sales tax rates the chief sticking point. German Chancellor Angela Merkel, debatably the most important of all the Brussels Group leaders in this saga, today said the new proposals represent “a certain step forward, but is was also very clear that we’re not yet where we need to be” and that “hours of the most intensive deliberations are ahead of us.” Greek’s prime minister Alexis Tspiras has got his own very serious challenges at home for he ran and was elected on a platform of ending austerity and he’ll have a difficult task of convincing left wing hardliners of his Syriza party to support the deal.

Turning locally, the National Association of Realtors reported yesterday sales of existing homes rose a robust 5.1% in May to an annualized rate of 5.35 million homes blowing away economists’ expectations. May’s figures were the 3rd consecutive month sales exceeded 5 million units putting buying on pace to make this year the best since 2007. The NAR noted that sales were strong throughout the entire country and very, very importantly, sales to first time buyers, that would be the millennials, were 32%, up from 27% for the same month a year ago. First time buyers have been on the sidelines for this entire economic recovery for a few reasons. First, due to low inventories home prices have been rising for years making affordability difficult. Second, qualifying for financing, a mortgage, has been a lot tougher the last few years in reaction to the financial/housing crisis, and third, many of them have seen what’s happened to the value of their parent’s home and the stress it’s put upon their parents and have chosen to rent or at least delay a purchase.

So with the latest from Greece where to the markets stand this morning. Well there’s no doubt that although there may be some issues with Greece’s latest proposals it has taken some anxiety off the table which has resulted in investors feeling more confident about buying riskier assets which is the category equities are. The Asian indexes closed nicely in the green and the major European bourses are trading nicely higher with Germany’s DAX and France’s CAC 40 up 1.44% and 1.42%, respectively. Here in the states we’re not getting any love from the good will in Europe for Dow futures are up only 16 points. Remember, a lot of analysts have said they believe U.S. equities are fully valued adding they think European, and possibly emerging markets, offer better opportunities. European stocks have advanced for 4 consecutive days now. Even better, Japanese shares hit a 15 year high today.

Oil

WTI closed up 7¢ at $59.68. Brent added 32¢ settling at $63.34. Moribund. Quiet. Caught in irons. Those are terms to describe the oil market lately. We’ve been hovering around $60 for a couple of months now and the market is comfortable there for now. An equilibrium has been reached. Further evidence of this is that on Friday Baker Hughes reported the U.S. rig count dropped by only 2 rigs which is chatter in the data. There are currently 857 rigs working in the U.S. How about venturing a guess how many rigs were working a year ago at this time? 1,858! There are currently 54% less rigs working than a year ago. Maybe that’s why daily rig rates are down about 30% from last summer.

This morning WTI is down 61¢.

Blog weather 6-23-15
WEATHER BOTTOM STRIP
Courtesy of MDA Information Systems LLC

Natural Gas

Although it’s hot and humid keeping cash prices strong the weather forecast with its below normal forecast for the eastern third of the U.S. in the 6-15 day time frame slayed the bulls yesterday and natty closed down 8.3¢ at $2.733. Natty is now down almost 25¢ over the past week. Yes the weather is going to be cooler than normal but you bears need to remember there’s a lot of summer left and the electric generation market is burning gas at a record pace. This morning natty is up 4.2¢. By the way, the July Nymex contract expires this Friday.

Elsewhere

I’m not sure you caught this piece of news but recently our Secretary of Treasury Jack Lew proposed that a woman’s countenance be on the U.S. $10 bill replacing Alexander Hamilton. In doing so he has ignited the ire of our former Federal Reserve Chairman Ben Bernanke. Writing in his Brookings Institution blog Dr. Bernanke called the decision “appalling” stating that Alexander Hamilton was without doubt the best and most foresighted economic policy maker in U.S. history. He further wrote that as Treasury Secretary Hamilton put in place the institutional basis for the modern U.S. economy and helped put U.S. government finances on a sound footing consolidating the debts of the states and setting up a strong federal fiscal system.

Dr. Bernanke and a chorus of others think instead that a woman should be on the $20 bill knocking out Andrew Jackson. Dr. Bernanke, who described Jackson as “a man of many unattractive qualities and a poor president,” noted Jackson fought vehemently against a national banking system and likely wouldn’t shed a tear if his mug was removed from the currency. Joining Bernanke is former auto bailout czar Steven Rattner who stated that Lew should keep Hamilton and “evict” Jackson. First Aaron Burr and now Jack Lew!  Have a good day.

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