Equities and the economy

Investors had the weekend to think about Brexit, and their opinion didn’t change from Friday. They don’t like it. Not at all. Yesterday the Dow closed down 261 points, 1.50%, finishing at 17,140, and that was after an intraday rally from 77 points lower. The S&P 500 lost 37 points, 1.81%, ending a point above 2,000 and the Nasdaq got bludgeoned falling a whopping 2.41%, 114 points, closing at 4,594. Global equity markets lost $3.01 trillion over the last two trading sessions setting the dubious record of being the worst two day loss to S&P’s Global Broad Market Index in history. This includes the Lehman Brothers event. Investors continued to flock to safe haven assets including gold and the U.S. dollar which traded at its strongest level vs. the British pound sterling in 31 years.

We need to put this in a little perspective though. Even after the two days of damage the Dow is only down to levels we were at last March 9th and 10th and materially above the February low of 15,660. Bear in mind that last Thursday, the day before the results of the Brexit vote was known, we were bumping up against record highs and had rallied for 5 straight days taking S&P 500 earnings per share to “frothy” levels. Looking at the forest through the trees, for the last two years we’ve been range trading between the low last February and the high set on May 15, 2015 of 18,273.

We’re seeing the first results of the Brexit vote, other than the market’s perception. Both the S&P and Fitch ratings agencies cut the UK’s sovereign credit rating two levels which means it’s going to be a little more expensive for the UK to borrow.

You better get used to hearing the term “Article 50.” That’s the article in the 2009 Lisbon Treaty, signed by the heads of state and government of countries that are part of the European Union, which articulates the five point plan should any country wish to leave the EU. An EU summit begins today regarding Brexit and the implementation of Article 50.

It’s a new day, and a very, very much brighter one! Although the Asian markets closed mixed, both the European and U.S. markets are screaming higher. The European indexes are up between 2.81% and 3.03% and the Dow is up a big 195 points. Many stocks have been beaten up badly and investors are doing some bottom feeding.

Oil

Not at all surprising, oil prices got whacked yesterday with WTI falling $1.31, 2.7%, settling at $46.33 while Brent lost $1.25, 2.6%, closing at $47.16 trading at levels seen about a month ago. Oil prices not only are having to deal with falling equity prices but are also feeling the effects of a stronger dollar (up 4% in last 2 sessions) making commodities priced in the greenback more expensive. Prices have fallen 8% since Thursday’s settle yet, as Goldman Sachs states, Britain’s demand for fuel is negligible at the global level. China is much more important. Keep your eyes looking to the east.

Iran yesterday reiterated its intent to bolster production adding it aims to raise $200 billion in foreign investment to do so. On a bearish note, a spokesman for the Nigerian state oil company said the country’s production has rebounded to 1.9 million bpd up from 1.6 million bpd last week following repairs to infrastructure damaged by the Niger Delta Avengers, who have been quiet as of late. “Maybe too quiet” as they say on “B” war movies.

It’s “risk-on” this morning around the globe and oil is being carried along for the ride with WTI up $1.05. Helping the bulls that have survived the last couple of sessions is word that Norwegian oil and gas workers are threatening to strike which would cut production temporarily if they do. The ying-yang prevails with the U.S. dollar is retreating from its lofty level set the last couple of days.

Courtesy of MDA Information Systems LLC

Natural Gas

Boy is natural gas strong. Yesterday it gained another 5.4¢ closing at $2.716. Prices are up 75% from the 18 year low they hit March 3rd. Both the strong cash market and both short and long term bullish weather forecasts are feeding the bulls. Regarding the former, as you can see, the 11-15 day forecast is showing above normal temperatures across the entire country which is sending the price this morning up a whopping 10.7¢. Today’s a big day because the July Nymex contract expires which will set the price of electricity and natural gas for those who have not locked their rate. You can bet that coal will be capturing more market share next month in the electric generation sector. Time to buy coal stocks?

Elsewhere

Quick. How many oceans are there on earth? Many people grew up learning there are four oceans: Atlantic, Pacific, Indian and Arctic. However, most countries, including the U.S., now recognize a fifth ocean, the Southern (Antarctic) ocean. The Southern Ocean is the “newest” named ocean. It is recognized by the U.S. Board of Geographic Names as the body of water extending from the coast of Antarctica to the line of latitude at 60 degrees South. The boundaries of the ocean were proposed to the International Hydrographic Organization (IHO) in 2000. However, not all countries agree on the proposed boundaries, so this has yet to be ratified by the members of the IHO. This U.S. is a member of the IHO, represented by the NOS Office of Coast Survey.