Equities and the Economy

Happy National Ravioli Day. The U.S. equity markets just can’t seem to get any momentum. One day up. The next day down. After the biggest rally in a month on Monday yesterday stocks got whacked. In fact, U.S. stocks have not risen two consecutive days in March. The Dow and S&P 500 closed lower with the former losing 128 points (0.71%) ending the day at 17,849 and the latter off 7 (0.35%) to 2,074. The Nasdaq actually finished 7 points higher (0.15%) to 4,937 thanks to Apple and Facebook but the Nasdaq didn’t offset the sour mood yesterday. Markets have been very volatile of late with multiple daily swings of triple digits, but overall we haven’t gone anywhere. For the record, the S&P is off 2% from its March 2nd high.

With respect to fundamental data, the Commerce Department yesterday reported that housing starts fell 17% in February from January which was way below economists’ expectations but this is being attributed to the cold February we had. As I’ve mentioned previously, on a natural gas weighted heating degree day basis (i.e., population weighted) last month was the coldest February on record. In the storm beaten Northeast housing starts fell 56.5%. In the Midwest they were down 37%. Although Commerce does incorporate seasonal factors they could not factor in 60 to 80 inches of snow in the Boston region and 50+ inches in the snow belt corridor from Chicago to Buffalo.

But let’s not fool ourselves. All the focus lately is on the FOMC meeting which ends today followed by Dr. Jane Yellen’s press conference at 2:30 EDT. So how in focus is this meeting? I came in this morning and CNBC has a clock counting down the seconds to Dr. Yellen’s press conference! All the world is wondering if the single, simple word “patient” will be removed from the post-meeting communique with reference to the Fed raising interest rates. And if it is dropped, what, if any, language will replace it. One thing I’ll bet even money with any of you is the words “data driven” remain in the communique.

U.S. stock futures are lower this morning (Dow futures down 90) and it’s not Asian or European equities that are driving them lower. It’s oil which is materially lower this morning dragging down oil and gas related stocks. So let’s get to it.

Oil

Oil closed lower for the 6th straight session yesterday with WTI down 42¢ settling at $43.46. Brent lost about the same, 43¢, closing at $53.51. WTI has fallen more than $10.00/bbl, or nearly 20%, over the past 2 weeks and is trading at 6 year lows. Oil’s yoke includes well published comments about storage running out at Cushing, increased U.S. production despite a falling rig count and a U.S. dollar that remains near its highest level in 12 years. It’s sure looks like oil will post another day of losses being it’s down $1.22 as I write. Why? Because the API reported last evening that an aggregate whopping 9.6 million barrels of crude and products went into storage last week. Putting this in perspective, the 5 year average for the same week is a decline of inventories of 2.74 million barrels. This is a deviation of 12.24 million barrels! If not unprecedented, it certainly is stunning. Gasoline and distillates (mostly diesel) fell marginally but crude inventories were up a tremendous 10.5 million barrels with 3.2 million moving to Cushing.

Internationally, tribes continue to fight in Libya but it appears currently it is not centered around politics or land (at least overtly) but with the lack of a central government the fighting is over who owns what oil field and who has the right to sell it.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas got a big pop yesterday closing up 13.9¢ at $2.855. The continuing cold forecast for the east in the 6-15 day time frame plus the noon update shifting colder brought out the bulls. The jet stream continues to ridge over the western half of the country and dip over the eastern half. The weather forecast this morning is little changed with the stable jet stream pattern but the cash market this morning is a little weaker pushing natty 6.0¢ lower. Although heating degree days have and will continue to decline the bulls will get a boost from the seasonal nuclear plant refueling maintenance which is just beginning. As I mentioned yesterday, we continue to waffle around that $2.75ish level.

Elsewhere

I wish I could claim the following but I must attribute it to Mr. Tom McClellan who said that Ms. Yellen should teach the algorithmic traders a lesson by putting in today’s post-meeting communique “The U.S. economy remains a patient upon a table and we are watching the patient with a new sense of patience.” The “algos” would pick up on the words “patient” and “patience” touching off massive buy or sell programs only then to find out they had gotten it badly wrong. Got to love it! Have a good day.