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Morning Energy Blog – May 11, 2016

Equities and the economy

Just as I write that volatility has been low and we haven’t had a move greater than 1% in a month stocks go bonkers yesterday with all three major U.S. equity indexes closing up over 1%. It was a very, very good day for your 401K. The Dow popped a hefty 222 points, 1.25%, closing at 17,928, the S&P 500 jumped 26 points, 1.25%, ending at 2,084 and the Nasdaq rose 1.26%, 60 points, finishing at 4,810 with all three indexes having their biggest percentage daily gain since Marth 11th. The impetus? The Chinese. For months investors have been worried about the state of the Chinese economy, which is slowing down after a quarter-century of rapid growth. Well yesterday the Chinese government announced measures to boost exports and reduce gluts in many industries which threaten to cause job losses. The moves include more bank lending, greater tax rebates and support for export credits. Needless to say, investors loved it. Investors love any form of QE. Yesterday’s gains breathed new life into a two month rally that had petered out in mid-April and leaves the S&P up nearly 2% for this year. That was it folks. That explains yesterday’s move.

It was a busy day for economic news. The Labor Department reported yesterday in its Job Openings and Labor Turnover Survey (JOLTS) that U.S. employers posted 5.76 million job openings in March which is 149,000 more than February’s 5.61 million, and importantly, much above Wall Street’s expectations. The March figure was the second highest of the year just barely behind July of last year. This was a very positive report. The Commerce Department reported wholesale sales rose 0.7% in March noting it will take 1.36 months of sales at that pace to eliminate inventories which is unchanged from February. Higher oil prices accounted for most of the increase with sales of petroleum products rising 13.5%, almost all of which was due to price, not volume.

Finally, the National Federation of Independent Business issued its monthly Small Business Economic Trends report. I follow this report because it’s small business where most jobs are created. The group stated that in April small business owners were a little less optimistic about the economy. While the index rose a point to 93.6, it is still a good deal below the 40 year average of 98.

This morning Dow futures are down 50. Really not to be unexpected after such a big up day yesterday. Stocks need to bivouac.

Oil

Oil prices rallied with equities yesterday with WTI gaining $1.22 closing at $44.66 and Brent climbing $1.89 settling at $45.52, both recovering a chunk of their losses on Monday. Globally about 2.5 million bpd are shut in between the wildfires in Alberta and terrorist attacks on Nigeria’s oil infrastructure. Those production cuts haven’t yet impacted inventories. Late in the day yesterday the API reported crude oil inventories rose 3.4 million barrels last week which was counter to forecasts for stockpiles to decrease 2.2 million barrels. Additionally, gasoline inventories increased counter to expectations. The news is putting some pressure on WTI with it trading down 55¢ this morning.

As I’m sure you know, the acquisition by Halliburton of Baker Hughes is dead. Consequently, Halliburton has to pay Baker Hughes $3.5 billion. This is the largest cash break-up fee in history surpassing the $3 billion in cash plus $1 billion in spectrum paid by AT&T to T-Mobile in 2011. Putting this in perspective, the break-up fee Halliburton has to pay equates to three years of Halliburton’s profits. That’s gotta hurt!

Blog Weather 5-11-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices rallied yesterday with the June contract closing up 6.0¢ at $2.158. Prices got a bump from longer term weather forecasts for May which came in a little warmer. All eye are starting to turn to the thermometer which dictates A/C and power demand. Right now the bulls and bears are battling with the former noting production slipping while the latter points out that storage levels are at record highs with the forecast for the U.S. to exit the summer with a record amount of gas in storage. It’s trench warfare out their right now with the prompt month continuing to trade on either side of $2.10. This morning natty is down 3.2¢ at $2.126.

Elsewhere

Yesterday Stephen Curry was named the NBA’s MVP for this season. Now you may be wondering why I’ve decided to write about this for in my 9 years of writing this Blog I’ve never written about a MVP winner in any sport. The reason I’m writing about it is because of how he did it. Stephen Curry won the NBA MVP with a unanimous vote! This has never happened in the 61 year history of the NBA! Think about that. This is the first time every NBA MVP voter agreed there was only one choice. This didn’t happen with Michael Jordan in ’95-’96 (109-4 votes) nor LeBron James or Shaquille O’Neal who both received 120 points of a possible 121 points. Congratulations to Stephen Curry! Well done.

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