Equities and the economy
The big news yesterday was the release of the minutes of the FOMC’s April meeting and it is apparent that Fed presidents Dennis Lockhart and John Williams on Tuesday were teeing the market up, for the minutes stated “most” of its members were ready to lift rates as early as June. This was the strongest statement the Fed has made to the market in years regarding raising interest rates. Last week Fed funds futures were implying there was virtually no chance of a rate hike in June. Yesterday that skyrocketed to 30%. For the year as a whole the market is still only pricing for one more hike. Stocks were trading higher but upon the release of the minutes they retreated ending the day pretty much flat to Tuesday. The Dow ended down 3 points at 17,527, the S&P 500 closed flat to Tuesday at 2,048. The Nasdaq did well gaining 23 points, 0.5%, finishing at 4,739. Actually, considering the Fed all but stated they were going to raise rates in June, barring some anomalous event, equities performed well. I must add one caveat. The referendum in the UK whether or not to leave the EU is a week after the June FOMC meeting and the Fed may want to wait until they see the results of that vote. Not unexpectedly, bond yields for short duration bonds, i.e., two years, skyrocketed.
There were no economic reports of consequence yesterday so let’s move on to today where the Dow is down 127 points with investors digesting the rate hike as well as feeling the pressure from European markets which are currently trading down between 0.73% and 1.67%. The Asian markets closed pretty flat to Wednesday.
Oil prices were little changed yesterday with WTI closing down 12¢ at $48.19 and Brent off 35¢ at $48.93. The DOE released its crude and products report and looking only at crude inventories it was bearish with stockpiles rising 1.3 million barrels when a drop of 2.8 million barrels was expected. However, gasoline and product inventories fell more than forecasted which brought the aggregate number pretty much in line with expectations which is why crude prices ended little changed. Importantly, the crude market “closed” marking the settles before the release of the FOMC minutes. After the minutes were released and the dollar began soaring vs. other currencies, it’s at a 7 week high, WTI, as well as most all commodities priced in U.S. dollars, got hit and we’re seeing it this morning with WTI getting whacked $1.39. By the way, refineries are running hard at 90.5% above the five year average of 88.7%. Gasoline demand is strong!
Iranian exports are rising faster than most expected. Data shows Iran is set to ship 2.1 million bpd in May which is nearly 60% greater than this time last year.
Talk about productivity! U.S. oil and gas producers are magnificently exemplifying it! Back in 2012 there were 200 rigs working in the Bakken with a rig producing an average of 195 barrel/day. Today there are only about 25 rigs working. Guess what the average production per rig is? 800 barrels/day! Absolutely amazing!
Courtesy of MDA Information Systems LLC
Natural gas prices continue to erode with the June Nymex contract falling another 4.7¢ closing at $2.001. Keeping score, natty prices have now dropped 22¢, 10%, over the past couple of weeks, which is somewhat surprising to me. Storage levels are at record levels but production is down 2 Bcf/d from its February 2016 highs and we’re about to come into summer where all those natural gas units, some of which have replaced coal units, will begin running hard. Additionally, the cheaper natty goes the more it will displace coal. The June contract expires next Friday so let’s see how this plays out. This morning it’s off 1.5¢.
Today the EIA releases its weekly storage report with the market looking for an injection of 76 Bcf which compares to last year’s at this time 98 Bcf and the five year average of 91 Bcf.
Betty White. The beloved actress who has appeared in countless movies and commercials (loved the Super Bowl Snickers commercial). Well did you know she’s older than sliced bread? Sliced bread was introduced in 1928 by inventor Otto Fredrick Rohwedder. Before then bread was only sold in whole loaves because bakers didn’t trust sliced bread would stay fresh. Betty White was born in 1922 and recently spent celebrated her 94th birthday last January which means she has been able to experience the first “greatest invention” much longer than most of us.