Equities and the Economy

Good morning and happy Name Your Poison Day. The last Morning Energy Blog was published last Wednesday reflecting Tuesday’s market action so let’s see what’s transpired since that time. On Tuesday the Dow closed at 18,012, the S&P 500 at 2,110 and the Nasdaq at 5,077. On Friday the three indexes ended at 17,849, 2,093 and 5,068, respectively. So over the last three sessions we really haven’t gone anywhere but what has transpired has been to the negative side with the Dow down 1%, the S&P off 0.8% and the Nasdaq having fallen 0.2% for that time frame. For all of last week the Dow was down 0.9%, the S&P 0.7%, its second consecutive losing week, and the Nasdaq down 0.03%.

The big news Friday was the release by the Labor Department of its monthly Employment Situation Report for May. The report showed employers added a very impressive 280,000 jobs in May which was 50,000 more than economists were forecasting. More good news came in that March’s and April’s job gains were revised 32,000 for the better. Average hourly earnings, which the Fed watches closely and been the missing piece in the jobs recovery, rose 0.3%, in line with forecasts, taking the year-on-year gain to 2.3%, the largest since August 2013. The unemployment rate did tick up from a near seven year low of 5.4% to 5.5 as more folks, including recent college graduates, looked for jobs. The labor force participation rate increased 0.1% to 62.9% which is a four month high. In May, 28.6% of the unemployed had been out of work for 27 weeks or more which is the lowest in 6 years.

So what does this all tell us? Firstly, that Q1’s revised GDP of -0.7% was, as widely thought, an anomaly, and second, the likelihood of the Fed raising interest rates is now September or October rather than December or even 2016 which was the consensus before the report. GDP for Q2 and the remainder of the year is on a path of +3%.

This morning stocks are slipping with the Dow down 31. For those of you interested, the Asian markets closed flat with the exception of China’s ever volatile Shanghai Composite which closed up 2.17%. The European markets are flat to down.

By the way, and not surprising to me, on Friday Greece missed its 300 million euro payment to the IMF. Greece claims they have the money but are not making the payment until a debt restructuring deal can be worked out. This is the first time a developed country has ever missed a payment to the IMF since the creation of the Bretton Woods Institutions at the end of WWII. Greece is now saying it will bundle four debt payments and pay them all, 1.6 billion euro, by June 30th. Keep an eye on this for we’re in the 10th round of a really good heavy weight fight. Little Greece is not backing down from the “big boys.”

Oil

WTI and Brent closed at $61.26 and $65.49 last Tuesday and both have slipped about a couple of bucks closing at $59.13 and $63.31 last Friday. So we’ve really gone nowhere. In fact, we’ve really gone nowhere since late April with WTI pretty much trading between $57 and $62 since that time. Remember though, that is about 43% higher than the low of around $42 put in in March. The OPEC meeting on Friday came and went with little fanfare with the cartel sticking to its current policy of unconstrained output for another 6 months. Even the typical vociferous hawks, Iran and Venezuela, were sedate. OPEC kept its ceiling at 30 million bpd although the group is currently producing 31.2 million bpd, the highest in 3 years. The Saudi’s, OPEC’s “big daddy,” has stated its objectives are being met with the global economy growing, demand growing and non-OPEC supply not growing. That “non-OPEC” supply folks is U.S. shale production.

This morning WTI is down 59¢. Chatter.

Natural Gas

Last Tuesday the July Nymex natural gas contract closed at $2.698 and on Friday it settled at $2.590 thereby losing 10.8¢ over the last 3 trading sessions. Crushing the bulls was the EIA’s storage report released last Thursday showing a whopping 132 Bcf injected into storage the previous week. This was way over expectations and not only the largest injection in at least the last 5 years for this week and materially greater than the five year average of 92 Bcf but the largest weekly injection ever!

So why aren’t natty prices falling even further? Because it’s too early in the season. Folks want to see how the weather this summer comes in. If it’s hot we’ll burn a lot of natural gas in electric generation. Speaking of the weather, the forecast for the next couple of weeks shows some above normal temperatures in the eastern U.S with this week being very warm temperatures across most of the nation. Natty burns will be strong as grid operators call on operators of peaking generators. This heat is pushing natty prices up this morning 8.4¢.

Courtesy of MDA Information Systems LLC

Elsewhere

Although we’re still a long way from the elections and it seems like everyone and his brother in the Republican Party is running for president, I ran across some trivia I thought you’d like. One of our former Presidents, Andrew Jackson, was extremely strong headed never reluctant to express his opinions. He was so stubborn that he openly defied an edict of the U.S. Supreme Court and threatened to hang his former Vice President, John C. Calhoun. He relentlessly assailed the Bank of the United States and almost invaded South Carolina because its leaders resisted his tariff policies. However, it was the beautiful wife of his secretary of war who caused Jackson to exhibit uncompromising tenacity that his political enemies began to liken him to a certain barnyard animal. What this was all about was that Jackson’s Secretary of War, John Eaton, married a woman who was rumored to have a less than stellar reputation regarding men. The blue-blooded wives of the rest of Jackson’s cabinet entered into a compact to snub Mrs. Eaton. The more the Secretary of War’s wife was vilified the more staunchly Jackson defended her and the more the public became involved. The issue reached such proportions that the President gave an ultimatum to his cabinet that the men would convince their wives to accept Mrs. Eaton or they could resign their offices. They all resigned except for Eaton and Secretary of State Martin Van Buren!

The internal debate played right into the hands of Jackson’s opponents in the election of 1832. They began to caricature the president and his followers as being short on intelligence and long on determination to have their own way. The anti-Jacksonians launched a campaign to paint the president as a “jackass,” and before election day the symbol of a donkey had stuck, not only on Jackson but on all his followers as well, and continues to this very day. Hence, the donkey and the Democratic Party have been merged in the public mind all because of President Andrew Jackson intransigence and stubbornness. Have a good day.