Equities and the Economy

Good morning and happy National Blueberry Cheesecake Day. On Friday U.S. stocks traded like they had all week, choppy, with the Dow closing down 54 points at 18,232, the S&P 500 off 5 to 2,126 and the Nasdaq closing down 2 at 5,089. The results for the week reflected the week’s price action with the Dow down 0.3% and the S&P up 0.2%. The Nasdaq actually faired pretty well gaining 0.8% last week. The big event last Friday was Fed Chairwoman Janet Yellen’s speech on Friday in Providence, Rhode Island stating the weak economic data resulting in a 0.2% growth in GDP for Q1 was “transitory” and that economic signs looked strong enough for the Fed to raise interest rates this year followed by gradual moves thereafter. Then she added “Of course the outlook for the economy, as always, is highly uncertain.” I liked this part the best. “I can assure that any specific projection I write down will turn out to be wrong, perhaps markedly so.” I’ve never heard a Fed Chair make such an admission. Bottom line is that the central bankers of the largest economy if the world with all their tremendous resources with some of the smartest economic minds in the U.S. have no idea what the economy will look like a year from now. Now we must remember that economic and financial forecasts are exercises in induction. They take what happened in the past and on this basis project what will happen in the future. This process is about following trends, back testing and tweaking models. So often these projections turn out to be wrong because, well, no one knows the future. Remember that caveat every financial product has “Past performance is not indicative of future performance.”

Overnight all the Asian market closed higher however that strength is not carrying over to the European markets which when I came in this morning were choppy but are now getting hammered. Choppiness was the norm last week but conviction is beginning this week, and unfortunately its negative with the Dow down a stinging 154 points. Folks are blaming the U.S. dollar’s strength which continues today.

It will be a busy day today with a plethora of data to be released today including durable good sales and a number of housing market indicators, Markit’s preliminary Purchasing Managers Index and the Conference Board’s Consumer Confidence report. Be sure to read tomorrow’s report.

Oil

Oil prices got hit on Friday with WTI losing and even buck closing at $59.72 and Brent off more, $1.17, settling at $65.37. Oil is once again feeling the effects of a rising U.S. dollar with it rising to a one month high this morning.

We’re starting to find a price equilibrium in WTI. How do I know this? Because the rig count decline has lost momentum. Last week Baker Hughes reported the U.S. rig count declined only by 3 rigs from the previous week which for all intents and purposes is flat. As I’ve been saying for a while, oil and gas exploration companies can make the numbers work between $60 and $65. Today’s price action certainly isn’t going to raise the rig count for WTI is down $1.33 this morning on the dollar’s strength.

Cheap oil prices are increasing global demand. Japan reported yesterday their imports rose a whopping 9.1% to 3.62 million bpd in April. China’s crude imports also hit a record in April at 7.4 million bpd with healthy car sales more than offsetting a sputtering economy (of “only” 6+%!)

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices fell on Friday losing 6.2¢ settling at $2.887. After hitting a four month high above $3.10 last week prices have fallen nearly 30¢ (9%). Remember that “reversal” I pointed out last week? Well that was the high and prices have fallen three of the last 4 sessions and the one day that natty closed higher the gain was only marginal. The down trend continues this morning with natty down a material 8.4¢ which is somewhat interesting for the MidAtlantic and northeast regions of the country are going to see some substantial air conditioning load for the next 5 days due to the high temperatures and humidity. However, what may be coming into play, besides the aforementioned technicals, is that the 6-15 day forecast, while still showing above normal temperatures, has been cooled substantially.

Elsewhere

If your Memorial Day holiday included driving to your destination you had more left in your wallet than last year at the end of your trip. Gasoline prices averaged $2.74 per gallon over the weekend which is 92¢ per gallon less than last year on Memorial Day weekend and the lowest average price for a Memorial Day weekend in 6 years. On a regional basis the Gulf Coast had the lowest average price at $2.47/gallon. Gulf Coast gasoline is usually the cheapest being the region is home to half of all U.S. refining capacity.  Have a good day.