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Morning Energy Blog – March 18, 2016

Equities and the economy

We’re back! As of yesterday’s closes the Dow is now positive for the year and the S&P 500 is just barely below it. The Nasdaq still has a ways to go being bogged down this year by biotech stocks. The Dow had a healthy gain of 156 points, 0.9%, finishing at 17,481. The S&P climbed 13, 0.7%, to 2,041 and the Nasdaq posted an 11 points gain, 0.2%, to 4,775. Stocks are positively responding to the dovish message delivered by the FED after its FOMC meeting with Janet Yellen basically saying the central bank was not going to raise rates as swiftly as it previously anticipated. The Fed’s accommodative stance was fuel on the fire of some good economic data yesterday. The Labor Department reported initial jobless claims which although came in up 7,000, were less than economists were forecasting and the 4 week average is at 268,000 which is quite low. Overall, 2.24 million people were collecting unemployment which is down 7% less than last year at this time. Additionally, the Job Openings and Labor Turnover Survey (JOLTS) showed that U.S. employers advertised 5.541 million job openings in January, up 4.9% from the prior month. The euphoria continues this morning with the Dow up 100 points.

I’m not sure if it was their intent but since the conclusion of the FOMC meeting the dollar has plunged vs. other currencies, all very much to the chagrin of the Europeans and Japanese who have been trying to keep their currencies weak (remember last week the ECB lowered interest rates and increased the magnitude of their bond buying program which means they’re printing money with one of the consequences being a weaker euro). I’ve been saying for years now “it’s a race to zero” interest rate. I was wrong. It’s a race to negative rates! Each central bank is trying to make their currency weak relative to other currencies to make their exports cheaper and stimulate domestic growth. The DXY is an ETF which tracks the U.S. dollar vs. a basket of other currencies. Yesterday it hit a new low for the year. The euro, which is extremely important relative when it comes to commodities, is up 4.2% this year and trading at a 5 month high vs the dollar. The Japanese yen is up 8% this year and hitting highs not seen since October 2014. Even countries with less actively traded currencies like Norway are playing the game. Yesterday it’s central bank cut its main interest rate to a record low 0.5% with the bank governor stating he wouldn’t rule out negative rates. Even with the rate cut the Norwegian krone rose 1% vs. the dollar. What’s crazy about this all is that since each central bank is following the same approach they’re in effect canceling each other out! This is completely uncharted territory for the word’s economies and I really have no idea how this will all shake out in the end. This all leads to the next session.

Oil

Oil prices leapt yesterday with WTI posting a gain of $1.74, 4.5%, closing over $40 for the first time this year at $40.20. Brent climbed $1.21, 3.0%, finishing at $41.54. WTI is up 55¢ on track for a 6.0%+ gain for the week. Brent is heading for a 4th week of gains and is up over 4.6% for the week. A combination of the meeting in Doha on April 17th, the falling U.S. dollar and the EIA noting U.S. production is falling is bringing in buyers. Since I talked extensively about currencies I must add that the U.S. dollar is very marginally stronger to the euro and yen this morning. Call it short covering ahead of the weekend.

Blog Weather 3-18-16
WEATHER BAR IMAGE FOR BLOG
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices continue their climb with the April contract posting a material gain of 6.8¢ closing at $1.936 yesterday. And this was despite a bearish EIA storage report which showed a 1 Bcf withdrawal for last week with the market looking for a 9 Bcf withdrawal. Immediately after the release of the report at 9:30 CDT prices traded off but the bulls who’ve been empowered of late came in buying. Folks, it’s “risk on” everything, everywhere. Prices have rebounded 20% for this month’s earlier 18 year low. And the prices are rising in the face of storage levels that are 911 Bcf greater then last year, 67%! They’re 727 Bcf great then the 5 year average. That’s 48%! It’s crazy out there folks. This morning natty is down 2.2¢. Again, weekend profit taking.

Elsewhere

Last August Marianne Winkley, a retired post office worker found a bottle with a message in it that had floated onshore Amrum Island, Germany. So you say “What’s the big deal?” Well it turns out it is the world’s oldest message in a bottle (you better not be humming The Police’s song!). Guinness World Records was called in, did their research and confirmed it as the oldest message in a bottle. The bottle was part of a science experiment conducted by marine biologist George Parker Bidder III. At the turn of the century, and way before the age of satellites, GPS and water-proof electric trackers, Bidder released 1,020 bottles off the eastern shore of England to see which direction the bottles would travel. Inside each bottle were clear instructions to break the bottle and describe on the enclosed postcard where they found it and then mail it to the Marine Biological Association. More than half the bottles were collected after the first few months and as a result Bidder was able to prove for the first time that the North Sea current flowed east to west. Winkley discovered the bottle 310 miles from the UK and 108 years later. And she completed the postcard and mailed it!

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