Equities and the economy

Good morning and I hope you had a great holiday weekend. U.S. stocks finished the week on a positive note with the Dow closing up 45 at 17,873, the S&P 500 adding 9 points to 2,099 and the Nasdaq closing up 32 points at 4,934. The major bourses had their best week since March and posted a third consecutive week of gains, and it looks like May will be a third straight winning month. Numerous Fed officials were out last week telling the market it should get ready for an interest rate hike and the most important Fed official, Janet Yellen, reinforced those statements stating Friday that “… in the coming months such a [interest rate] move would be appropriate.” Now the only question is whether it will be at the June or July meeting. The point here is that for months investors have been fretting an interest rate increase but with equities flat to higher it implies investor sentiment has changed with them now believing the U.S. economy is healthy enough to absorb an interest rate increase. This is a big change, and a very bullish one. The FOMC meets June 14th and 15th so in a couple of weeks we’ll see if June is the month for a rate hike.

This morning Dow futures are up 20 which I’ll take considering all the major European indexes are currently trading in the red.

There’s a ton of fundamental economic data coming out today with the most important report being April’s Personal Income and Expenditures.

Oil

Oil prices chopped around Friday finishing the day close to Thursday’s close. WTI closed down 15¢ at $49.33 and Brent off 27¢ at $49.32. Notice the two oils are basically at parity which is at least partly due to the wildfires in western Canada. The fires have abated or moved east allowing the affected oil companies to return teams to their operations but it shall take weeks, if not months, for production to reach per-wildfire levels.

OPEC’s semi-annual meeting begins this Thursday and the run-up to the meeting has been one of the quietest I’ve seen. The course of action has been set. There will be no action! Saudi Arabia and Iran are facing off with both intending to produce crude oil as efficiently and largely as they are able not letting one take market share from the other. Mr. Khalid al-Faleh, the new Saudi Oil Minister and former head of Saudi Aramco, has gone on the record stating that the kingdom plans for “significant growth” in oil production this year.

Libya is a disaster. A total mess. At its peak the country produced about 1.8 million bpd. Today, somewhere around 0.2 million bpd. The country is divided east and west with two governments, two finance ministers, two central banks, which means two currencies, and both claim to be the official Libyan government!

Higher oil prices are affecting the rig count. On Friday Baker Hughes released its rig count report noting no net change in the U.S. oil and gas rig count. The report showed a drop of 2 oil rigs which was offset by a gain of 2 gas rigs. There are currently 316 oil rigs working in the U.S, hugely less than at the peak in October of 2014 when a whopping 1,609 rigs were in operation.

This morning oil prices are meandering being up 54¢.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas was quiet on Friday closing up 1.8¢ at $2.169. Today, however, is a different matter with natty up 8.3¢ rallying back to $2.25 for the third time this month and prices not seen since the end of January. The weather forecast is somewhat supportive with the 11-15 period showing some above normal temperatures in most of the country, however, the most critical gas consuming regions, the MidAtlantic and northeast, are forecasted to have normal temps. I believe traders are focusing on production which remains down. Additionally, demand is strong with May’s power burn at record levels, and I expect June, July and August to do the same.

Elsewhere

Talk about old! Did you know that Harvard University, the oldest institution in the U.S., was founded before calculus was invented! Harvard University, originally called the “New College”, was established in 1636. The invention of calculus would come later in the 17th century with Gottfried Leibniz’s 1684 publication of “Nova Methodus,” and in part with Isaac Newton’s “Principia” in 1687.