Equities and the economy

On Tuesday we traded above it intraday but didn’t settle above it. Well, yesterday we did. I’m talking about Dow 18,000. Yesterday the Dow gained 67 points, 0.37%, closing at 18,005 and above 18,000 for the first time since April 27th. The S&P 500 added 7 points, 0.33%, finishing at 2,119. The S&P is now within 12 points shy of its all-time high of 2,131. Helping both equities and commodities is a materially weaker U.S. dollar which is at its lowest level in a month. U.S. multinationals that derive a large portion of their sales overseas benefit from a weaker dollar because it makes their U.S. produced goods cheaper in other countries. The Nasdaq added 13 points, 0.26%, finishing at 4,975.

The only economic report of a material nature are out of Asia where in Japan machine orders fell 8.1% y-o-y in April from March which is the steepest decline since 2014. The strength of the yen is killing them. In August of last year it took 125 yen to buy a U.S. dollar. Now only 107. To put this in perspective for you, when U.S. multinational corporations reported their Q1 2016 earnings a lot of them noted the strong U.S. dollar hurt their earnings. Like I’ve been saying for years now, “It’s a race to zero.” Although every major central bank (Fed, ECB, BOJ) would never admit they manipulate their currencies, but that’s the effect of their “accommodating” monetary policies.

After banging against record highs U.S. stocks are backing off a little this morning with Dow futures down 69 points. I said this before and it bears repeating. Record highs are major resistance. It’s tough to break through major resistance. It takes time and some fundamental event, such as a bullish economic report, to bring in new buying. Not helping us this morning are European equities which are all trading materially lower. The latter are not in a free fall but they are dragging down U.S. stocks.

Oil

Crude oil prices rallied for the third consecutive day with WTI gaining 87¢ closing at $51.23 and Brent settling up a hefty $1.07 at $52.51. This is the second consecutive day both oils have closed over $50. Prices got support from a Chinese report noting crude imports into the country in May hit their highest level in more than 6 years.

Yesterday the EIA released its weekly crude and products report which confirmed Tuesday’s API report of a draw down in crude inventories. The number was 3.6 million barrels. Now gasoline and distillates inventories did increase but not enough to offset crude’s decline. The aggregate draw was 0.4 million barrels compared to the 5 year average of a rise in inventories of 2.6 million barrels. I’m sure the Canadian wildfires had some effect.

The Niger River Avengers (INGA) are not backing off. Yesterday they blew up another Chevron oil well. The NGA are much, much more idealistic than the “old” militant group of the region, the Movement for the Emancipation of the Niger River Delta, which would occasionally cause some turmoil and then be bought off by the government. The Nigerian government has offered to talk to the NGA but the NGA has rejected the overture. The Nigerian government has a very serious problem here and potentially the country’s oil exports could go to virtually zero. Don’t forget, the government is dealing with the terrorist group Boko Harem as well.

WTI is taking direction from equities this morning (no surprise there!) and is down 74¢.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices spent a second consecutive day meandering closing down 0.6¢ at $2.468. That being said, we are near 8 month highs. It looks like trench warfare is settling in around the $2.50 mark. Today the EIA releases its weekly storage report with the market looking for an injection of 74 Bcf. This is less than both last year at this time and the 5 year average, but it needs to be. Due to the high storage levels we had exiting the winter we just simply don’t have the storage capacity available to inject at those rates.

The weather forecast looks toasty for the 11-15 day time frame which will definitely kick on air conditioners in the Midwest and mid Atlantic increasing natural gas demand. Now this forecast really isn’t that new and a lot of it is already built into the market, which is why natty is almost flat to yesterday, down 0.6¢. Chatter.

Elsewhere

Led Zeppelin’s got a big problem. Another band is suing saying the opening chord progression from possibly the most famous rock ‘n roll song in history, Stairway to Heaven, was copied from them. The estate of an obscure rock musician, Randy California, who played in rather obscure band, Spirit, says Jimmy Page’s first few bars were cribbed from their song and is suing for $40 million for copyright infringement. The two sides have not been able to settle and are headed to court. It’s estimated that “Stairway” has generated as much as $500 million in revenue for Led Zeppelin. Now you may be wondering why this is all happening now being the song was released a whopping 45 years ago. Well everything changed in 2014 when the U.S. Supreme Court ruled that copyright cases could be pursued even years after the alleged initial infringement. In a case settled last year, singer Robin Thicke (along with Pharrell Williams) was found guilty of pirating the sound and feel of Marvin Gaye’s “Got to Give it Up” in Thicke’s “Blurred Lines.” Folks, I listened to both Led Zeppelin and Spirit’s riffs and although I readily admit I’m no expert, I heard similarities.

On a logistical note, the Blog will not be published tomorrow for I will be travelling on business.