Equities and the Economy:

• Stocks recover some of Wednesday’s loss.
• Fundamental data strong.

After suffering their worst single day loss in 8 months on Wednesday stocks bounced back yesterday with the Dow closing up 109 points at 20,715, the S&P 500 rising 14 points to 2,371 and the Nasdaq climbing 51 points ending 6,062. That being said, yesterday’s bounce recouped only 37% of what was lost the previous day. But it could have been a lot worse. Yesterday morning in pre-market trade the Dow was down 100 points.

Equities were supported by solid fundamental data. The Labor Department released its regular weekly jobless claims report yesterday noting claims fell 4,000 from the previous week to a new 3 month low and the second lowest reading of the economic recovery which began 8 years ago. Continuing claims are at their lowest level since 1988. Separately, the Philadelphia Fed manufacturing index rose to 38.8 in May, a big jump from April’s 22. This data point is parochial so we must take it with a grain of salt, but positive is positive.

This morning the bulls are trying to keep the momentum going with the Dow up 76.

Oil

• Prices close at one month highs.
• OPEC meets Thursday.

Oil prices crept higher yesterday with WTI closing up 28¢ at $49.35 and Brent adding 30¢ to settle at $52.51. Prices are now at one month highs. Platts reported yesterday that Saudi exports increased 275,000 bpd in March from February. Now while at first blush this appears bearish, Saudi production y-o-y is down 4.2%.

OPEC begins its formal meeting next week with everyone expecting the 1.8 million bpd production cut agreement to be extended. The only question is whether it will end December 31, 2017 or the end of Q1 2018.

WTI is up another 65¢ this morning to an even $50. Here’s the way I’d play this. It’s the old “”Buy the rumor. Sell the fact.” Prices continue to creep higher through OPEC’s meeting. Then, unless something truly shocking is announced by the cartel, prices trend lower.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices close unchanged.
• EIA storage report marginally bearish.

Natural gas prices closed little changed from Wednesday with the June Nymex contract falling a penny to $3.182. Total chatter. The calendar strips ended virtually unchanged from Wednesday. The EIA released its weekly storage report yesterday stating 68 Bcf was injected into storage last week. Traders were looking for a 62 Bcf injection so this was a marginally bearish report. Prices were up a few cents going into the report and traded down to unchanged upon its release. What’s really interesting to me is that after pushing to a 14 week high last week at $3.424, we’re back to the $3.20ish level which is where we were trading for many days prior to the up move.

Returning to storage, current levels are 375 Bcf, 14%, below last year and 256 Bcf, 12%, above the 5 year average.

This morning the bulls are out in force with natty up 8.1¢. All eyes continue to be on production which, in spite of an about 100% increase in rig count from last year at this time, production is down 2.5% y-o-y and hasn’t increased in many months.

Elsewhere

Anyone who is at all familiar with gambling has heard of the game “stud poker.” The most commonly recognized version of the game is five card stud. It describes a game in which players are dealt some cards face-down and some face-up. Competitors can see some but not all of their opponents hand. But strange name, eh? “Stud poker.” Nobody knows for sure where the name originated but here’s the most commonly accepted version. The term arose from one of the earliest American poker games, which occurred in a backwoods saloon somewhere in Ohio just after the Civil War. In other words, it was a contest between a bunch of likely drunk and gruff war veterans.

As the story goes, one such war-worn, poker-playing fellow had three kings in his hand in a game of what was “draw” poker, i.e. you made the best hand of the five cards you were dealt. Having put all his money on the table already, he left the saloon and returned leading a stallion inside tying it to his chair as betting collateral. This man was no fool. He realized that his fellow players had likely looked at his cards while he was gone. Hence, he demand that each player turn his three cards face-up, discard two of them, and draw two others face-down (basically the foundation for modern stud poker). Under these new requirements, his “stud” horse was placed in the betting pool.

It’s not known whether or not he lost his horse.