Equities and the Economy
Good morning and happy National Bomb Pop Day. Well a bomb went off on Wall Street yesterday sending the Dow down 179 points (0.98%) closing at 17,966, the S&P 500 fell 15 (0.72%) ending at 2,109 and the Nasdaq lost 38 (0.74%) finishing at 5,122. The selling began early but once it became clearer that the Greeks and Brussels Group were not going to reach an accord the selling intensified. The price action doesn’t surprise me. We’ve had a good run for a few days with some of the major indexes hitting record highs despite nervousness over the Greek situation so some sort of pullback is to be expected. Quite frankly, I’m surprised equities aren’t lower. Remember, “confusion breeds contempt” and with Greece there’s a heck of a lot of confusion. There are meetings taking place all across the continent and each meeting is important. Proposals are being put forward and counter-proposals follow, all at a feverish pace. Most of the world, and definitely most investors, have no idea what the news will be, how it shall be delivered, or why, or when, or by whom. Supposedly June 30th is the “drop dead” date Greece must make payments to IMF but who knows, even that may will change. One thing I do know is that Greek Prime Minister Alexis Tsipras is between a rock and a hard place. He is caught between the desire and fiscal need to remain in the Eurozone and the far left-wing of his Syriza Party who now see him as a traitor to their anti-austerity cause. I’m sure the man envies the sleep you’re getting.
So where are we this morning? Today Eurozone finance ministers have received revised proposals from both Greece and the Brussels Group with word that divisions are narrowing. There’s a major meeting this afternoon of the eurozone finance ministers which precedes an even bigger meeting of the European leaders this evening. European equities are in a wait-and-see mode trading flat to yesterday’s close. We’re faring a little better here in the states with Dow futures up 54 points. This may be some front running on some economic data to be released today with the major report being weekly jobless claims which has been very positive for weeks now.
There’s was one bit of data released yesterday and it was somewhat encouraging. Q1 GDP was revised from -0.7% to -0.2%. Positive revision, but still negative.
Yesterday oil gave back all it gained on Tuesday with WTI losing 74¢ closing at $60.27 and Brent off 96¢ settling at $63.49. The DOE released its weekly crude and products report and while gasoline and products inventories came in at analysts’ estimates crude inventories were much more bullish. The market was looking for build of 1.15 million barrels and inventories decreased a material 4.6 million barrels. In aggregate the 5 year average last week was for a build of 2.87 million barrels and due to the heavy draw in crude the actual number was a draw of 2.1 million barrels. The bullish number was even more bullish than on the surface for drilling down it was noted that the government purchased 0.4 million barrels into the SPR which counts as a build in inventory.
So the data was bullish but the price action benign. Peace is found around the $60 level. This morning WTI is down 37¢.
Natural gas closed 3.3¢ higher in a quiet session on very low volume. I guarantee you today we’ll see more volume because it’s………EIA storage report day. Whee! The market is looking for an injection of 76 Bcf which is lower than last year, a big 109 Bcf, and the 5 year average, 87 Bcf. Last week was pretty hot and the surprise might be to low side (lower injection) which would be bullish, and that’s the way traders are playing it this morning being up 3.8¢ as they front run the number. There’s been a lot of coal plant retirements within the last year replaced by natural gas fired plants and no one really knows how the hot weather last week impacted gas demand. So traders’ anxiety levels will be even greater than usual. So exciting!
Some of the best inventions in history have come from some of the most unlikely sources. Example: Starlite. First announced in the pages of Jane’s International Defense Review, Starlite was a revolutionary insulation crated by hobbyist chemist Maurice Ward in the 1908’s. Tests conducted on live television showed the material keeping an egg completely raw after 5 minutes of blowtorching. Several noted scientists vouched for its ability to resist heat and impact. Unfortunately, Ward passed away in 2011 before revealing the secret of Starlite to any other living being and the material hasn’t been seen since. Have a nice day.