Markets are trending lower again, now selling off relentlessly for three consecutive days.  The currency markets remain at the forefront of the movement with the dollar index rising another 500+ basis points to over 84.50 while the euro goes for new lows below $1.28.  Equities are opening mostly flat and despite a small bump down in initial jobless claims and good retail sales figures (with the exception of Target) for April, the market remains in a cautious mode right now as everyone positions themselves for tomorrow’s highly anticipated April unemployment report.

Greece is still the word of the day as their parliament begins to debate the austerity measures prescribed as part of this bailout.  Riots yesterday turned deadly, and while the EU has come to its rescue when they (on some level) didn’t have to….it’s quite the slap in the face to see civil workers and other protesters in Greece challenging any of the cost cuts necessary like pay freezes and the like.   The EU should be insulted Greece’s public protest.  Binding countries to a single currency without a central political or financial apparatus, not to mention the book-cooking that was going on, always ends in disaster when times of crisis unfold as countries lose the ability to manipulate their money supply.  The end-game could be the removal of Greece as a member of the EU with an implication they could enter a few years down the road after they have “healed” themselves.  If Greek’s think they have it bad now……wait until that’s thrown on the table.  Contagion is the real fear right now. 

Focusing on energy more crude traded below $80 and the 100-day moving average (MA), quite a feat and a decidedly bearish position near-term.  The question of whether this correction was a blip or a developing trend is not quite answered yet, but with this correction in the Dow still being less than 5%….we might still have more to go in May.

At least 3 rigs in the Gulf of Mexico have been shut-in as a safety precaution as the oil slick invades their waters.  As much as 1/5^th of the Gulf’s platforms could be within the slick-field in another 2 days and also might be forced to shut-down in response.  The growing concern about the slick today, above and beyond stopping it, is how traffic might be impaired through these shipping lanes.  More than 25% of all the refining in the country takes place in this Delta region, and any shutdown of the channels would force inventory out of the SPR. 

In short, while disruptions are not likely in the near-term…….long-term implications could be bullish, especially where it changes the offshore drilling debate.  Do you believe that the current catastrophe will impair future off-shore drilling…should it be the case, and if so, how will prices react?

Today the market is off to the races after Exxon’s earnings for Q1 rose 38%, helped along by the recovery in oil prices.  This as well as sharply higher equity futures are pushing  energy values higher, looking to test $85 in oil today.   The dollar index is weaker as the prospect of an EU bailout for Greece got a boost from fast-track approval from Germany, the major player in the region.  This is politically very difficult for them, and it will be interesting to see if they write the check and under what conditions.  

Initial jobless claims also fell 11,000 to drift below the 450,000 level, its lowest reading in 4-weeks.  The trend is definitely better, but it will be the April unemployment report at the end of next week that will really drive the market’s economic sentiment. 

Today sentiment is decidedly positive, and with equities higher, the dollar lower, and the macros (while bearish) giving some a reason to be bullish product demand moving forward…..the markets are trending notably higher and trying to get back toward the highs for the year that they’ve consistently failed to take out.  

Oil volatility over the last 50 days is the lowest since July 2007.  Does that mean we’ve found equilibrium?  Doubtful, but what isn’t is the impact of $3 retail fuel on business and consumers moving forward.  Overall the market is still range-bound and continuing to take its cues from equities.

Near-term demand for fuel remains suppressed, but more broadly there is still a belief the economy is in the midst of a steep recovery…..sentiment furthered by the surge in new home sales in March (up 27%).  Clearly this was tax credit driven, but for many the idea that individuals are ready to engage the economy (and most importantly the credit markets) has them bullish the current economic cycle.  Corporate earnings continue to beat most estimates despite still being below the peaks seen a few years ago, and interest rates overall remain in check and off their highest levels of the last couple months. 

Overall energies continue to trend with equities as sentiment shifts from optimism to caution and then back to optimism.  We expect the market to remain range-bound near-term as it struggles with its own fundamental weakness and the reluctant climb by equities during this Q1 earning’s season.  Tomorrow’s stocks report will be key to oil’s near-term direction, and already the market is looking for another round of builds in the products of 2 mb and 1.5 mb gasoline/ distillate respectively (oil expected to decline slightly) to further cushion already burgeoning inventories.  For now the market continues to be in a holding pattern more or less with $80/bbl representing the low-end and $85/bbl indicating the high-end of the trading range.

Equities remain the key to energies ultimate direction, but increasing fundamental pressures continue to bias the complex lower or at least keep any advance in check. Overall we expect the complex to congest further, likely waiting until next week to make another push higher.