Equities and the Economy

Good morning. It was a see-saw day for U.S. equities yesterday with the major indexes ending slightly lower with the Dow off 40 points to 17,678, the S&P 500 lost 5 to 2,056 and the Nasdaq was again the laggard down 13 to 4,863. Unfortunately for us yesterday marked the 4th consecutive day of losses. Turning to the economic news of North America, weekly jobless claims, which are reported every Thursday, came in sharply lower (better) driving the 4 week average down a sizeable 7,750 to 297,000. This was positive. Markit reported its Services Industry PMI come in reasonably strong at 57 and although about the same as the previous month and also better than expectations.

This morning is starting out very passively with the Dow and S&P trading a few insignificant points better than unchanged and the Nasdaq is up 14. The Nasdaq is due for at least some sort of correction for its gotten hammered this week down 3.2%. Bottom line: the sensibilities of this market remain fragile.

Oil

Oil found a strong bid as the conflict in Yemen escalated. Yesterday morning it jumped over $2 after Saudi Arabia initiated air strikes against Houthis positions but prices eased during the day. But when word came out that Saudi Arabia and Egypt were preparing to send in ground troops and it was all buyers and at the bell WTI had gained a material $2.22 closing at $51.43 with Brent adding $2.17 to $59.19. The dollar actually rose vs. the euro but no one cared. It’s all about bullets, bombs and fear factor. No oil supplies have been impacted and as I noted yesterday, Yemen produces less oil than Denmark! But anytime there’s conflict in the Middle East and especially one directly involving Saudi Arabia people get nervous.

This morning and ahead of the weekend some profit taking is emerging after the big run-up with WTI down $1.28.

Yemen is obviously on the “front page” of a newspaper but no one gets their information any more from newspaper so it’s a virtual front page but here are the players you need to know about, besides the power houses Saudi Arabia and Iran. The Houthis: They are Zaidi Shia-led rebels form the north who seized control of Sa’naa last year and have since been expanding their control. Zaidi Shi’ia was the first of the Shi’ia sects and are followers of Zayd bin Ali as the first of the true Caliphs after the death of Mohammed. They say they are independent from Iran but Shia is Shia and Iran is supporting them. President Hadi: He is Sunni and backed by military and police loyalists and by the militia known as Popular Resistance Committees. He has been unsuccessfully in fighting back against the Houthi rebels from his stronghold in the south and fled the capital yesterday. Al-Qaeda in the Arabian Peninsula: This is perhaps the most dangerous offshoot of al-Qaeda, AQAP opposes both the Houthis and President Hadi making the situation there confusing and complicated. Islamic State: This is the Yemeni affiliate of ISIL and has only recently emerged seeking to eclipse AQAP and having openly fought with AQAP which makes an already a confusing and complicated situation even more so.

Courtesy of MDA information Services LLC

Natural Gas

The EIA released its weekly storage report yesterday showing the first injection of the year, 12 BCF, which came in at expectations. Storage levels are 575 Bcf higher than last year at this time but materially lower than the 5 year average, 194 Bcf. Traders took the storage report as a reason to sell (possibly book squaring) and the April Nymex contract settled 5.1¢ lower at $2.672, and at a 6 week low. The weather forecast is almost identical to yesterday’s and Wednesday’s with the next 5 days being quite chilly the eastern third of the nation and although moderating, still quite cool in the 11-15 day time frame. It’s an important day for us today for the April Nymex contract expires and although it’s early, April is down 5.3¢. This could translate into some really cheap electricity if we expire here.

Elsewhere

The ECB’s bond buying program is really turning things topsy-turvy in Europe. The QE program enacted by the ECB includes buying sovereign debt of the various European nations and is creating some weird anomalies. Take Portugal for example. The 10-year benchmark bond yield is 1.734%. No big deal, eh. Except that the bond carries a bond rating of BB which is in junk bond territory! Have a nice weekend.