Prices Higher, But Economic Data Remains Mixed

Markets are trending  higher, boosted by further weakness in the dollar and higher equity futures.  The unwind in currencies is helping support the various asset classes, but the economic data remains mixed and that has kept the rallies in relative check.  The market is looking for more evidence as to whether growth is slowing (or not), and if they find it we think this week’s rally and possibly last week’s could easily be undone.  If the reports are good (and so is the DOE storage report), $75 in crude will likely become near-term support for the rest of the month.

Prices Have Found Support, But Bearishness Still Looms

Crude has halted its downturn and is finding support as equities rally modestly on a mixed bag of news.  As long as nothing is decidedly bearish, most investors are willing to be optimistic rather than pessimistic.  It seems like the market in general continues to make excuses for the sub-par employment picture and more recently seem to be surprised by the divergence between initial jobless claims and other employment data.  We remain concerned that employment is not as strong as advertised, especially with the level of government payments in the form of unemployment benefits being sent out to nearly 5 million individuals. 

Equities will continue to dictate energies general direction, but with leading economic indicators turning over, recent data showing a slowing rate of improvement, and with energy inventories at extremely high levels, we feel that bearishness still looms.

Energy Markets Rally…Likely Short Covering, Not Fresh Buying

Energy markets are trending higher as further strength in equities here and abroad and mild weakness in the dollar continue to provide macro support.  That said, the last several days have seen sharp gains but a likely decline in open interest, and indication this is a short-covering rally ahead of month-end and the holiday, not fresh buying.  After nearly a straight month of declines, it should be no surprise to see this kind of rally on limited news.  We  will look to next Tuesday’s action as an indication of true market sentiment.

Equities Continue to Dictate Energy Direction Lower

Markets are selling off again as continued concerns regarding Europe further the flight-to-safety trade as credit spreads widen, bond yields slip toward fresh lows, and assets classes like equities and energies continue to get pounded.  Yesterday’s holiday for several European markets helped keep things somewhat quiet, but now it’s back to game-on as investors continue to take risk off the table in earnest.  Equities should continue to dictate energy’s direction and magnitude of movement near-term, and right now that direction is decidedly lower.

Equities Remain Directional Indicator For Energy Prices

Markets are trending sideways to lower today after another sell-off Wednesday as a slightly weaker dollar and flat equity futures give the market some pause for now.  The DOE report yesterday was neutral to bullish by the numbers, but weak product demand continues to shake the nerves of some traders with inventories remaining at better than 10-year highs.  The euro’s higher turn Wednesday may be the beginning of the end for the euro-run with the dollar index rising over 1000 points in evening trading yesterday, but the brief drop below the 200-day moving average in the S&P 500 Wednesday also indicates this is not just a currency story anymore.  Equities remain the directional indicator for energies near-term, and the trend there remains lower right now.

Energy & Equities Look Bearish

Energy and equities markets continue to run into selling, as fears connected to the euro-zone remain.  That said, the EU isn’t the only reason to be turning bearish as yesterday’s PPI data and a double-digit fall in housing permits indicate growth here in the U.S. may be slowing as well as stimulus efforts begin to sunset.  Adding to that today was the Mortgage Bankers Association reading on mortgage applications which fell an astonishing 27.1% for the week, its lowest reading since May 1997 (13 yrs) and further confirmation that any housing stability has been government-driven and artificial.  Furthermore, this comes as mortgage rates for an average 30-year sit at 4.83%….just a few basis points from March 2009’s record low of 4.61% (the point is housing hasn’t been driven by rates but free tax money). 

Looking at the 2010 economic powerhouse, Asia and more specifically China, the Shanghai Index is down more than 20% from its peak and already signs of slowing are being seen in China’s high-end property market.  Demand for commodities also appears to be waning from the massive YoYo increases seen in the last 6 months, and so no matter where you look we are seeing signs of slowing.  The U.S. still looks to be performing well near-term, but the now sharply higher dollar isn’t going to do anyone here any favors moving forward.  The equities market (and similarly the energy complex) has been pricing in a robust and near-perfect V-shaped recovery all along, and now we are seeing that this view may be a little too optimistic. 

Looking at gasoline demand alone, the EIA still indicates that consumption is more than 360,000 bpd below 2007 levels….undoubtedly part of the reason why inventories remain above the high-end of the 10-year range.  The energy complex remains decidedly bearish as the macros continue to influence the complex negatively.  Further weakness in equities will likely lead to still lower energy futures near-term.

Market Up on $1 Trillion Greece Bailout

Markets are trending sharply higher this morning as the EU with the IMF put forth a nearly $1 Trillion bailout package to stem the rising crisis in Greece and the rest of the euro-zone.  This has helped assuage near-term fiscal concerns which are helping the euro vs. the dollar, but at the end of the day this is not a solution but more kicking of the can down the road (did they solve Greece’s problem, no).  Is anyone noticing our can is getting pretty flat with all this kicking, and now isn’t rolling as well these days?  Energies are reacting as they should given the Dow is up nearly 400 points, but with gains of only $1.50 to $2/bbl in crude to levels just above $76……we wouldn’t say the complex is quite as bullish as the outside markets would otherwise indicate.

Markets Trending Lower on EU/Greece Crisis

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.

Oil Slick: Long Term Implications…Bullish?

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 1/5th 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?

Equity Futures Pushing Energy Prices Higher

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.