Equities and the Economy.

Good morning. [expletive!] Right after I’m feeling we dodged a bullet with Thursday’s rally which followed a bludgeoning from earlier in the week U.S equities get absolutely destroyed on Friday. The Dow lost 146 points (0.82%) to 17,749, the S&P 500 fell 13 (0.61%) to 2,053 and the Nasdaq lost “only” 22 (0.44%) to 4,872. And it could have been worse for the Dow was down around 265 points not once, not twice but three times intraday. The only thing that saved us was day traders short covering the last 75 minutes of the day. Well folks, the Dow and S&P are once again back in the red for the year. The two benchmarks have now posted 3 straight weeks of losses. The continual worry is about a Fed rate hike and a surging U.S. dollar which have been weighed on the market (U.S. dollar up 1.2% vs. euro on Friday. Big move for one day!). But Friday’s equities whammy came from lower oil prices which pounded energy stocks. Other economic data sure didn’t help. The Bureau of Labor Statistics reported a surprise drop in wholesale (producer) prices of 0.5% in February indicating deflationary pressures still exist. If that wasn’t enough, consumer sentiment as measured by the University of Michigan fell in March more than economists had forecast. Where’s the “bad news is good news” effect?!

This week all eyes and ears will be focused on the Fed which will be meeting tomorrow and Wednesday with Ms. Yellen having her post-meeting press conference at 2:30 EDT. The big question is will the Fed drop the word “patient” from its post-meeting communique. It’s astounding how one seven letter single word can effect global stock prices.

The weekend is behind us and that means we have two days of news events to affect markets and we’re beginning the week on a positive note with Dow futures up a hefty 113. Asian markets closed flat to up with China’s Shanghai Composite flying higher closing up 2.26% (401 Dow points!) but it’s European equities that are really supporting the domestic markets all trading nicely higher, particularly Germany’s DAX 30 Index which is up 1.44% trading over 12,000 for the first time and up a whopping 20% so far this year and on track to log its 26th record close in 2015 (and we’re only in early March!). Once again its QE that driving equity prices with the ECB just 2 weeks into its QE program there with an anticipated end in September 2016. My research reveals that U.S. investors are swapping U.S. equities for European equities. It’s Dorothy with a variation. Follow the QE road.

Oil

Both WTI and Brent got hammered on Friday with the former losing $2.21 (4.7%) closing at $44.84 and the latter down $2.41 (4.1%) settling at $54.67. The rig count may be decreasing (on Friday Baker Hughes reported the North American rig count fell 67 last week) but it has yet to affect production which continues to hit record levels. That being said, my 35 years of experience in the energy markets tells me that generally there’s about a 6 month lag between rig counts and prices. You may not know this but many, many producers have their 2015 production hedged, or at least a good part of it, so they can weather this year. The real pain will start in 2016 if prices don’t recover.

We need to begin following a new player in the global market game and that is Dr. Ibrahim al-Muhanna, Dr. al-Muhanna is the Chairman of the Watan Investment and Securities Company in Riyadh, Saudi Arabia. More importantly, he has been the advisor to he Minister of Petroleum in Saudi Arabia and with the ascension to the throne of the new king his voice will carry more weight. At a conference over the weekend Dr. al-Muhanna stated that “conspiracy theories have lost their traction” and that fundamentals are asserting themselves bringing the oil price [Brent] back to $60 and he’s optimistic demand will be stronger and prices will firm. I guess few folks tuned into that conference for WTI is down 75¢ this morning. Support is at $43.55, the previous low set in late January.

Natural Gas

Natural gas couldn’t have been much more sedate than on Friday with the April Nymex contract closing 7/10ths of a penny lower at $2.727. There’s a quiet battle going on out there between supply and demand. Supply is strong and we’re coming to the end of the natural gas winter season which is the end of March when we switch from withdrawing gas from storage to injecting. On the demand side the U.S. economy continues to improve with baseload industrial demand increasing primarily in the fertilizer and industrial sectors and we’re into the “coal stack.” The cheaper natty goes the more coal fired electric generation it will replace increasing demand. And then of course we have demand from “the ground,” i.e. storage facilities to build. This is data you just can’t get anywhere. A lot of research and resources is necessary.

Courtesy of MDA Information Systems LLC

This morning the weather forecast is about the same as Friday with the folks in the Midwest and northeast looking at a late spring with below normal temperatures continuing to be forecasted for the 11-15 time frame. The April contract is down 4.2¢ as I write but the deferred contracts are unchanged.

Elsewhere

In 1746, Jean-Antoine Nollet conducted and experiment in which 200 monks formed a 1.6 km circle and were linked by iron wire. He then had electricity pass through the wire which shocked all the monks simultaneously. He concluded the speed of electricity was very high.