Equities and the Economy

Good morning. Friday continued the see-saw pattern we’ve witnessed lately with U.S. equities closing sharply higher following a sell-off on Thursday with the Dow climbing 168 points (0.94%) and once again over 18,000 to 18,127. The S&P 500 gained 19 (0.90%) to 2,108. The Nasdaq jumped 34 (0.68%) ending at 5,026 which is a 15 year high and just 0.4% from its all-time high hit on March 10, 2000. Although it was a choppy week overall it was positive with the Dow up 2.1%, the S&P up 2.7% and the Nasdaq up 3.2%. The big driver last week was the Fed which removed the word “patient” from their post-meeting communique but followed up stating they were in no hurry to raise interest rates with the market interpreting their message to mean an interest rate high will be pushed back from June. Now this alone buoyed stocks but what also provided material fire power was the U.S. dollar falling relative to important currencies like the euro and yen which boosted the multi-national stocks.

Friday’s volume was high with about 9.2 shares changing hands which is the highest volume since December 19th and compares to an average of 6.6 billion shares for March to date. It’s a good sign when you see a big “up” day on high volume. It shows conviction. I must add a caveat though. Friday was a quadruple witching day with equity options, stock-index futures, stock-index options and singe-stock futures expiring so this could easily brought in more volume in than normal. Still, an up day on large volume is very positive.

This morning Dow futures are trading flat to Friday’s close. All the Asian markets closed materially higher with China’s Shanghai Composite up 1.95%, the 9th straight winning session. Japan’s Nikkei closed up for the 2nd consecutive session and at a 15 year high. European shares are mixed with London’s FTSE up and Germany’s DAX and France’s CAC lower with the former materially off, 1.2%. Greece is scrambling to secure its next tranche of bailout money and the rift between Germany and Greece is deepening. The relationship has gotten so bad the German Chancellor Angela Merkel has intervened and will be meeting with Greece’s newly elected Prime Minister Alexis Tsipras today. Guess what Greece’s new tactic is to get some sort of relief? Demanding reparations for WW II!

Oil

Stronger equities brought out the bulls on Friday with WTI closing up $1.76 at $45.72 and Brent gaining 89¢ settling at $55.32. WTI got a boost from the falling dollar as well. For three months now WTI has traded in a fairly tight range between $42 and $54 and that’s the top and bottom of the range with most of the trading between $45 and $52. That’s why you haven’t seen prices at your local gasoline station change much recently.

Baker Hughes’ rig count report is back in vogue and on Friday they reported that another 56 rigs were “laid down” in the U.S. There are now 1,069 rigs working compared to 1,473 last year at this time. Rig activity peaked out at 1,930 in October 2014 so simple math tells us the rig count is down 861 or a whopping 45%.

The dollar is marginally weaker vs. the euro this morning but WTI is getting any “love” and is trading down 19¢. Chatter. Actually, you oil bulls should be happy with oil only being slightly lower because yesterday Saudi Arabia’s Oil Minister. Ali al-Naimi, reported that the country was producing nearly 10 million barrels per day, the Kingdom’s highest level since July 2014. Also, keep an eye on those Iranian nuclear talks. Rumor is they’re getting closer to an agreement which would dump a million bpd onto the market.

Courtesy of MDA Information Systems LLC

Natural Gas

After falling on Thursday due to a bearish storage report natural gas was quiet on Friday falling 2.7¢ settling at $2.786. Chatter. The cold weather forecast has been supporting natty and as you can see the 6-10 time frame has some below normal temperatures forecast for the eastern 1/3rd of the country. It appears however that the jet stream, which has been entranced for 2 weeks with a ridge in the west and a trough in the east, might be shifting for the 11-15 forecast is showing the below normal temperatures retreating to New England. This new forecast is putting some pressure on prices with natty down 7.5¢ this morning. That being said, on a broader scale we’re still waffling around the $2.75 level.

Elsewhere

A term used often when discussing oil inventories is “days of supply.” The days of supply number is an indication of how loose or tight oil markets are. It shows the number of days current commercial inventories will last. The number of days of supply is calculated by dividing the commercial crude oil inventory level at the end of the month by the forecasted crude oil refinery runs in the following month. As of the end of February commercial crude inventories were sufficient to supply 29 days of U.S. refinery demand, that’s the most days of supply in 30 years!  Have a good day.