Equities and the Economy

Good morning and happy National Talk in an Elevator Day. U.S equities pared early losses to end little changed yesterday with the Dow closing down 5 points at 17,746, the S&P 500 literally closing flat to Wednesday at 2,109 and the Nasdaq closing up 17 at 5,129. The big report yesterday was Commerce Department’s release of Q2 GDP which showed a healthy 2.3% growth. Q1’s GDP was revised up from -0.2% to +0.6% so that was positive. Households contributed the most to the improvement in Q2 GDP with consumer spending on big ticket items, such as autos, jumping 2.9% and at the fastest pace since the recession ended more than 6 years ago. So why didn’t equities pop? Because the Q2 GDP number came right in at The Street’s estimate. It was in the market. As in all markets, including corporate earnings announcements, it’s how “actuals” come in relative to expectations that move markets. This all leads toward next Friday’s Labor report for July. If it comes in comes in positive the Fed will just about have all the data they need to raise interest rates at their September meeting.

The Labor Department released its weekly jobless claims report yesterday which came in higher than last week but, and I didn’t report this because there wasn’t a blog last week because I was travelling, last week’s claim number was a multi-decade low so a bounce of some sort is not to be unexpected. By the way, the Fed is well aware of this data which is further justification to raise interest rates.

Asian markets closed mixed while you were sleeping with the closes not far from Thursday’s closes. European markets are currently trading mixed also on either side of unchanged. Here in the U.S. the same if happening with the Dow lower, 21 points, but the S&P and Nasdaq are higher. Pretty quiet.

Oil

Oil prices have stabilized over the past couple of days after falling about $11, 19%, this month. Yesterday WTI fell 27¢ closing at $48.52 and Brent ended down 7¢ at $53.31. I believe its technical support that’s holding WTI prices up right now. Strong support comes in at $42 which is only a few dollars lower and traders may be reluctant to sell it right now. Bad risk/reward. Also, traders noted that in Wednesday’s DOE report that U.S. crude production dropped 145,000 bpd which is the largest weekly drop in production this year taking us to 9.4 million bpd. We were at 9.6 million bpd a couple months ago. I’ll be keeping a close eye on the production data.

This morning WTI is down 69¢. Excess global supply is still weighing heavily on the bulls yoke and the bovine wasn’t helped this morning after OPEC’s secretary general, Abdullah al-Badri, stated there would be no cuts in production by the cartel. Badri said rising demand would prevent a further fall in oil prices adding that any cuts in OPEC production would have little impact on the market. A Reuters survey this week showed the market believes there is excess supply of about 3 million bpd which is going into storage from Chile to China and forcing prices lower. Both oil benchmarks are down 50% for a year ago.

Courtesy of MDA Information Systems LLC

Natural Gas

In its first day as the prompt month the September Nymex contract fell 9.6¢ to $2.766 primarily on the weather forecast which is showing some very mild weather in the 6-15 day time frame. The EIA released its weekly storage report yesterday which should have been supportive of prices. The market was looking for a 55 Bcf injection and the actual number was 3 Bcf less. Natty is sure being sucked up in the electric generation sector. U.S. power burn set an all-time higher this week hitting 38.89 Bcf on Tuesday and 38.37 Bcf on Wednesday beating the previous record of 37.81 Bcf set on 7/21/2012. Even with a tightening of the price to coal natty continues to set new records. This tells me the increased usage in natural gas in electric generation is structural and becoming more permanent.

I’m not sure traders showed up at the office this morning for natty is up a totally insignificant 8 tenths of a penny.

Elsewhere

We’re in the middle of summer which means its pool time. And that means there’ll be lots of bikinis. The bikini has a very interesting history. The name bikini was coined in 1946 by Parisian engineer Louis Reard, the inventor of the same. He named the swimsuit after Bikini Atoll where testing of the atomic bomb was taking place. He said that “like the [atom] bomb, the bikini was small and devastating.” His bikini, with a total area of 30 square inches of cloth, was advertised as “smaller than the smallest swimsuit.” In advertisements Reard declared the swimsuit could not be a genuine bikini “unless it could be pulled through a wedding ring.” The bikini was the continuing evolution of the woman’s bathing suit started by none other than the U.S. government. Wartime production during World War II required vast amounts of cotton, silk, nylon, wool, leather and rubber. In 1942, the U.S. War Production issued Regulation L-85 cutting the use of natural fibers in clothing and mandating a 10% reduction in the amount of fabric in women’s beachwear. To comply with the regulations, swimsuit manufactures removed skirt panels and other attachments while increasing production of the two-piece swimsuit with bare midriffs.

The bikini was initially rejected by society with it being banned on the French Atlantic coastline, Spain, Italy, Portugal, and Australia and prohibited or discouraged in a number of U.S. states. Reard himself described it as a “two-piece bathing suit which reveals everything about a girl except for her mother’s maiden name.” It wasn’t until the 1960’s with its social revolution and film stars such as Bridget Bardot, Rachael Welch, Ursula Andress and others wearing bikinis on public beaches and in films that the bikini gained acceptance. Annual sales of women’s two-piece bathing suits in the U.S. is now $8 billion.

Have a nice weekend.