Equities and the Economy

Good morning and happy National Crabmeat Day. Friday was a horrible, horrible day for our 401K’s and portfolios with U.S. equities falling more than 1%. All the bellwether indexes got hit hard with the Dow down 279 points (1.54%) ending below 18,000 at for the first time since February 19th at 17,857. The index had its worst day in over a month at one point in the day trading down over 300 points. The S&P 500 fell 30 points (1.42%) to 2,071 and the Nasdaq lost 55 (1.12%) to 4,927. Despite setting record highs last Monday all three indexes closed down nearly 2% for the week. As I mentioned Friday, it was good news being the bad news with the Labor Department’s surprisingly strong unemployment report for February which the market translated as the Fed will raise interest rates sooner rather than later. This showed up in the market as the percentage chance for a June rate hike went from 18% to 25% (yes, there is a tradable market for when the Fed will raise rates!). Let’s see if the word “patient” is removed from the communique of the next FOMC meeting.

The report sent turbulence into the bond market with the U.S. 10-year Treasury note yield rising to 2.25% and the 2 year surging to 0.73% (the face value of a bond falls with an increase in yield). The U.S. dollar skyrocketed to a 11.5 year high rising more than 1% (which is a huge move in foreign exchange) against major world currencies.

Interestingly this morning, overseas markets are not negatively reacting (playing “catch up”) to the Friday’s drop in U.S. stocks with the Asian markets closing mixed and the European markets currently trading the same although the pressure is to the down side especially in London with the FTSE down 1.24%. Locally, we’re starting out very flat with the three major indexes almost unchanged to Friday’s close.

Oil

On Friday WTI lost $1.15 settling at $49.61 while Brent lost 75¢ closing at $59.73. Oil was trading higher in the morning reacting to violence in northeastern Iraq where ISIL has set oilfields ablaze but when the unemployment report came out and equities tanked and the U.S. dollar leapt the bull’s yoke just got too heavy. All that being said, $50 WTI price has had the gravity of a black hole for the last couple of months with prices returning to that level. Although I’ve monitored it for years, the Baker Hughes rig count report in once again front and center amongst traders. The company reported the number of rigs drilling for oil in the U.S. fell by 64 last week to 922, the smallest number since the year began. The rig count now stands at 1,348, down 335 from January and down 421 year-on-year so doing simple math, the rig count is down 20% from January.

This morning WTI is down 9¢. Chatter.

Courtesy of MDA information Systems LLC

Natural Gas

Natural gas was completely moribund on Friday closing down 0.2¢ at $3.839. Natty has now spend more than a month pivoting around $2.750. We have this ying-yang thing going on right now with demand being strong with the cold weather, industrial demand up and traders eyeing the falling rig count while supply growth is up year-on-year. The cash market is driving prices currently which is what boosted prices last week, and pressuring them today. As you can see from the weather map, above normal temperatures will encompass just about the entire country over the next 5 days which is pulling natty down 13.9¢ this morning. However, the 11-15 day forecast is showing some below normal temperatures in the MidAtlantic and northeast. Remember though that spring is around the corner and as each day passes the average number of heating degree days drops.

Elsewhere

I’m sure you noticed (I did) that gasoline prices are on the rise again. However, I bet you didn’t know they are rising 5 times faster than crude oil prices! Per AAA, retail gasoline prices rose 0.3¢ to $2.458/gallon last Thursday which is the highest level since December 17th. And get this. AAA stated that after rising 20% since January 31st they expect another 20¢ rise this month because of refinery maintenance and unexpected outages. Currently refineries are operating at the lowest rate in 6 weeks primarily driven by maintenance as they convert from winter to summer blend. The explosion at the Exxon Mobil refinery in southern California is killing Californian drivers’ wallets with retail prices rising a record 37.2¢/gallon in one week last week. The glass is half full though amigos because we’re still paying less than last year at this time. American households are expected to save $750 in 2015 compared to 2014.

I know it’s taking us all a little bit of extra time to get going this morning due to the time change but smile, it gives your face something to do. Have a good day.