Equities and the Economy

Good morning and happy National S’mores Day. U.S equities closed lower on Friday for the 7th consecutive day with the Dow falling 47 points to 17,373, the S&P 500 closing down 6 at 2,078 and the Nasdaq off 12 to 5,044. Things though could have been much, much worse for the Dow was down 141 points intraday. This recent bear run is the worst losing streak for the Dow since the height of the debt crisis in the summer of 2011. Back in late July/early August 2011 the Dow lost ground for 8 secessions in a row. Although this recent run of down days has been almost as long as the record losing streak the damage to your 401K is a lot less this time. Back in 2011 the loss was 857 points, 6.7%. This time we’re “only” down 380 points, 2.1%. For the week the Dow lost 1.8%, the S&P was off 1.2% and the Nasdaq down 1.7%.

The big news Friday was the Labor Department’s Employment Situation Report for July showing a 215,000 jobs were added last month which was pretty much in line with economists’ expectations of 215,000. The unemployment rate was unchanged from June at 5.3%. The number of full-time U.S. jobs as a share of total employment rose to 81.7% which is the highest level since November 2008. The pool of Americans working part-time for economic reasons fell by 180,000 to 6.3 million which is the lowest level since September 2008. Average hourly earnings rose 0.2%, right at expectations. Average hours worked rose to 34.6 from 34.5. Now 0.1 hours per week may not seem like much but it equates to several tens or thousands of “new” workers working. June’s payroll numbers were revised for the positive up modestly higher to 231,000.

The employment report was a “Goldilocks” report. Not too hot. Not too cold. Just right. It was enough, however, to give further credence to the Fed raising rates in September, but not enough to end the debate. You can see it in the numbers. The fed-fund futures showed market participants are pricing in up to a 75% probability the Fed will raise interest rates in September. Fed-funds futures are used to express the market’s views on the likelihood of changes in U.S. monetary policy.

The big news this morning is out of China where the economic news continues to be ill. Firstly, producer prices there are down 5.4% year-on-year and at a new 6 year low. Also, exports have fallen 8.3% July vs. July 2014 and that was far worse than expectations which was a decline of only 1%. 8.3% is a stunningly weak number. Exports to Europe were down 12.3%, to Japan 13% and to the U.S. down “only” 1.3%.

So on the horrible news from the world’s second largest economy, how are global equities doing this morning? Well it’s the bad news is good news thing with China’s Shanghai index closing up a huge 4.92%. Why? QE, baby! On the lousy economic news investors and traders are convinced the government through the PBOC will pump more support into the market. Today’s move up equates to an 855 point Dow move! That’s just crazy! I’m regularly seeing 500 Dow equivalent point moves in that index! If that we’re happening here in the U.S. Dow I guarantee you Maalox sales would skyrocket!

European shares are mixed with France’s and Germany’s markets higher on the belief the Greek bailout talks will be concluded by tomorrow (I haven’t mentioned Greece in a few weeks!) with the Greek parliament voting on the program on August 18th.. The can has been given one great and mighty kick yet again.

Locally, U.S. equity futures are starting the day out nicely with all three major indexes trading green with Dow futures up 175 points. Stocks are moving higher this morning on comments today by Federal Reserve Vice Chairman Stanley Fisher suggesting that the Fed might wait until inflation returns to normal before raising interest rates. Mr. Fisher’s comments count for he is voting member.

Oil

Ugly, ugly, ugly. The push to find the bottom in oil prices continued on Friday with WTI closing down 79¢ at $43.87 and Brent losing 91¢ to $48.61 and are at fresh 5 and 6 month lows, respectively. WTI prices have fallen 16% in just the last 30 days. On Friday the story behind crude’s fall was gasoline. The driving season is just about to end and gasoline supplies are building which is pressuring the entire complex. On Friday, unleaded gasoline fell 3¢ which rippled to lower crude prices.

Unsurprisingly, lower crude prices are leading to job losses. Oil producers, struggling with the lowest prices in 6 years, have slashed 78,000 jobs through the first 7 months of 2015. Putting this in perspective, this is equivalent to all the job gains in 2012, 2013 and 2014, combined! Most of the job cuts took place earlier in the year, but the industry still trimmed 4,000 jobs in June and nearly 5,000 in July. Even with the drop in energy related employment, the U.S. added nearly 1.5 million new jobs in 2015 and we’re on track to add another million before the year is overs.

This morning WTI is up 18¢. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

Following Friday’s bullish EIA storage report on Thursday natural gas prices were quiet on Friday falling a meaningless 1.5¢ settling at $2.798, almost right on the $2.80 black hole price level we’ve been pretty much at all summer. Prices are up 3.1¢ this morning on today’s weather forecast showing above normal temperatures in the upper Midwest and Northeast for the 6-15 day time frame. Bear in mind though that time frame is past the historical peak CDD’s for the U.S. so above average temperatures are not as impactful on natural gas demand for electric generation as they would be in late July.

ERCOT set another all-time peak electric demand record on Friday. That record is sure to fall if not today, definitely tomorrow with record setting temperatures to hit Houston and other cities tomorrow. Summers are hot enough here without record temperatures! Is it October yet?!

Elsewhere

Investors everywhere are questioning the success of the Apple watch, but if you ask a traditional watch seller you’ll be told the Apple Watch is killing them. According to the NPD Group, a recognized organization that provides market information, sales tracking and advisory services, U.S. watch sales fell the most in 7 years in June, one of the first signs the Apple watch is eroding demand for traditional times pieces. Retailers sold $375 million of watches during June 2015 which is 11% less in dollars than June 2014. The 14% decline in unit sales is the largest since 2008 at the beginning of the Great Recession. The market for watches that cost less than $1,000 is at most risk as consumers in that price range have indicated they’re most likely to buy an Apple Watch. In June, sales of watches costing between $100 and $149 posted a 24% decline year-on-year. Producers such as Swatch Group AG, the maker of Omega, have maintained that Apple’s entry isn’t a threat and will spur sales of traditional timepieces in the long term by getting young people in the habit of wearing a watch. Didn’t the maker of the buggy whip say something similar???

Have a good day.