Equities and the Economy:

• Chop continues.
• Investors hedging their equity bets.

Although the Dow posted a gain after 4 days of losses of 15 points to 21,410 and the S&P 500 closed a point higher at 2,439, equities over the last month have really done very little. For the record, the Nasdaq yesterday shed 18 points to 6,251 but this is after a nice gain on Friday, which was a down day for the Dow. It looks like the market is struggling to attract new buying with valuations stretched. I can tell that investors are shifting a little more conservative. How? It’s evident in the bond market where the 30 year T-Bill yield is below 2.70%, which we haven’t seen since last November (yields fall as bonds get bid up). This also tells me that although Janet Yellen and company are telegraphing higher interest rates with expectations of higher inflation, the market doesn’t think so, or that yield would be higher.

Friday marks the end of the quarter which means money managers will be doing their usual “window dressing” (Google it) and with only one significant economic report coming out before Friday (consumer confidence) it wouldn’t surprise me if we just chop around the rest of this week.

And this morning that’s exactly what’s happening. The Dow is down 16 points.

Oil

• Prices log third day of gains.
• Short covering.

After last week’s collapse oil prices are crawling back. Yesterday oil logged its 3rd consecutive gains with WTI closing up 37¢ at $43.38 and Brent climbing 29¢ settling at $45.83. But folks, I really think this is just short covering. Why do I think this? Because the WTI short position held by money managers has doubled in the last 2 months to 190 million barrels and in the Brent market short positions are at a record level at 169 million barrels. The boat is listing too heavily. I could see a rebound to the $47.50 to $48.50 range over the next week or two. But that doesn’t mean we’d be in a bull market. At the moment the fundamentals just don’t look very good for the bulls.

This morning the bounce continues with WTI up 43¢. Late this afternoon the API will release its crude and products report.

Courtesy of MDA Information Systems LLC

Natural Gas

• Big jump on warmer forecast.
• Lots of weather left.

Mondays are always interesting in the natural gas market because we get a new weather forecast after not having one for 2 days. Yesterday morning the forecast came in materially warmer than Friday’s forecast and the bulls came out in force taking the July Nymex contract (which expires tomorrow) up 9.8¢ to close at $3.027. We’ve now rebounded about 20¢, 7%, from last week’s low just above $2.850. That being said, the calendar 2018 strip rose only 2.9¢ and the calendar 2019 through 2022 ended little changed. I’ll go out on a limb here but based upon current weather forecasts I expect front month natural gas prices to range between $2.85 and $3.15 for the next 2 or 3 months. If we go down, storage buyers (remember we’re 10% below last year) and electric generators will buy it, and if we go above $3.15 electric generators will burn coal. Also capping the top side is that natural gas production, while still below last year at this time, has rebounded to 71.5 Bcf/d, up about a Bcf/d from this year’s average.

Forecasters continue to warm up the 11-15 day term which will definitely provide support for natty. After yesterday’s big up move natty is “relaxing” being up a meaningless 0.2¢.

Elsewhere

Norway may not be a big payer at the global level in reducing their carbon footprint, but their left-of-center government is determined to lead the way in reducing hydrocarbon fueled vehicles. Norway has the most electric cars in the world with 51% of all cars currently sold in the country being electric or hybrid. Additionally, the government has set the date of 2025 to have no hydrocarbon fueled cars on the road. They’ll all be electric. They plan to do this by offering incentives such as no taxes on electric cars, free parking, free charging stations, and free access to toll roads. You can even drive in the bus lanes if you drive an electric vehicle. And oh, they’re doing one more thing. They’re “super taxing” cars that burn hydrocarbons.

But the Norwegian citizens are paying a hefty premium to attain this goal. State subsidies bring the price of buying the top-selling electric Nissan Leaf in Norway down to $42,500, which is competitive with the 1.3 liter Volkswagen Golf at $42,000. In comparison, in Britain the Leaf cost $35,500, which includes a $6,360 government subsidy, but that is still way higher than the cost of the Golf which sounds like a bargain at $24,600.

By the way, 95% of the electricity in Norway is generated by cheap hydropower.