Equities and the Economy:

• Stocks retreat after previous huge day.
• Market still looks healthy.

After a huge day on Wednesday profit taking came in yesterday and stocks closed lower. The Dow fell 112 points, 0.53%, to remain a gnat’s eyelash above 21,000 at 21,003. The S&P 500 lost 14, 0.59%, to 2,282 and the Nasdaq closed off 43 points, 0.73%, at 5,861. Yesterday’s losses were between 1/3rd and ½ of Wednesday’s gains depending on the index. I’ll take that any day. Yesterday’s price action was actually healthy and normal so let’s move on to the fundamentals.

The Labor Department released its regular and closely watched initial jobless claims report and the labor market is healthy and strong. The number of Americans filing for unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 last week. Here’s what you need to know. That’s the lowest in 44 years! Last week was the 104th consecutive week claims were below 300,000, which is considered a healthy labor market, the longest streak since 1970! The number of unemployment recipients fell 7% from the same time last year.

So with the labor market healthy and inflation at 1.9% you can bet the Fed is going to raise interest rates. The market has the odds of a rate hike this month at 90% and another hike in June at 50%. You may wonder why I discuss interest rates so much. Because as The Oracle of Omaha, Warren Buffett said, rising interest rates bring stocks down. Why? Because it’s all about risk adjusted returns. The higher interest rates go the better return you get from safe investments, such as T-bills, which takes money from equities. Remember, for a market to go up you need more buying. For it to go down all you need is the buying to cease.

It’s not just here that things are looking better. A report today for the European zone showed CPI hitting 2.0% in February, the first time in 4 years. That number is the ECB’s goal which will place pressure on the bank to adopt a less accommodative stance, i.e., less QE.

This morning the Dow is off 35.

Oil

• All commodities under price pressure yesterday including oil.
• Strengthening U.S. dollar to blame.

The entire commodity complex was under price pressure yesterday on the belief the Fed will be raising interest rates multiple times this year which strengthens the value of the U.S. dollar vs. other currencies, which is at a 2 month high. All other things being equal, this makes commodities priced in the dollar more expensive. Lumber, coffee, sugar, orange juice, wheat, corn, and oil were down yesterday. WTI fell $1.22 closing at $52.61 and Brent lost $1.28 settling at $55.08. I mentioned recently that the long speculative position in oil was at record levels. Yesterday’s price action definitely had some of them liquidating. That being said, we’re still in the well-defined range we’ve been in for 3 months which is $52 to $55.25. Not helping the bulls is that Saudi Arabia announced today they are cutting the price of their light, sweet crude to their Asian customers. Also, data is out that the Russians produced 11.11 million bpd of crude in February which is unchanged from January. They promised to cut production to 10.9 million bpd by the end of March. They have 29 days to do so. This morning WTI is up 30¢. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

• EIA storage report shows first injection ever in February.
• Prices shrugged off the bearish report.

The EIA released its regular weekly storage report yesterday showing the nation injected 7 Bcf into storage last week. This is the first time ever there’s been a storage injection for a week in February. That said, the market was expecting an injection and with natty prices having dropped over the past couple of months nearly $1.50, 27%, the bears were out of gas. U.S. production continues to very slowly leak lower, down 3.8% y-o-y, and traders know this. Today’s scenario is much different than last year’s scenario for although both winters were and are warm, demand is higher this year and supply is lower. Additionally, storage is lower. Currently there’s 187 Bcf less in storage this year than last at this time. This morning natty is moribund up 1.0¢.

Elsewhere

Coca-Cola at McDonald’s taste better. What you say? The food chain recently revealed it follows Coca-Cola’s exacting guidelines to ensure the beverage is as consistent in taste as its bottled soda. To begin with, the syrup is delivered in stainless containers to help preserve the flavor of the ingredients. Then, the company says the water and Coco-Cola syrup are pre-chilled before entering the fountain dispenser with the ratio of syrup set to allow for ice to melt. McDonald’s added that it keeps its fountain beverage systems cold to maximize each drink’s refresh factor (what’s that???) and uses a filtration method for its water to maintain “a gold standard.” Lastly, McDonald’s supplies customers with a straw that is slightly wider than average which ideally allow the soda’s taste to fully spread throughout your taste buds. Talk about science!