Equities and the Economy

Good morning. U.S. stocks closed with a whimper on Friday. And I’ll take it. After two big up days and retracing back into my resistance area I was worried about sellers coming in especially with the weekend was coming up. The huge and rapid drop in the major indexes did very serious damage to the charts from a technical perspective so I was relieved. Remember that last Monday the Dow lost over 1,000 points in the first 4 minutes on the open! The most tumultuous week in recent history ended with the Dow closing down 12 points to 16,643 on Friday. It wasn’t as “quiet” as the final numbers indicated though for the range of the day was 120 points. The S&P 500 and the Nasdaq closed higher with the former adding a single point to 1,989 and the latter finishing up 16 points at 4,828. Even with the material damage done Monday the indexes managed to eke out weekly gains with the Dow up 1.1%, the S&P up 0.9% and the Nasdaq adding 2.6%. But remember, this is after the previous Friday’s big loss. Still, higher is much better than lower. For the year the S&P is off more than 5% from when the market began to sell off on August 18th.

Fundamentally, on Friday consumer spending and inflation data were released for July both of which ticked up marginally less then what was expected with the market’s reaction being largely muted. Over the weekend the Fed finished its annual meeting at Jackson Hole, WY with the focus being on Fed Vice Chairman Stanley Fisher’s comments that the FOMC can’t wait for the case to be overwhelming to raise interest rates and that the impact of a stronger U.S. dollar and falling crude prices have begun to diminish suggesting he’s confident inflation will be rising. We need to pay attention to Mr. Fisher’s comments for he has both material influence on the committee and it’s the Vice Chair which is a permanent voting member.

This morning Dow futures is down 127 which is better than the 172 points lower when I came in. A combination of factors is at work here. First, the aforementioned comments by Fed Vice Chair Fisher of higher interest rates and second, weak Asian markets. Yes folks, China is still squarely in the spot light and the Shanghai closed down 26 points. Now this really isn’t much but it was the comments by the government that traders and investors are taking to heart. The Financial Times reports that the authorities there have decided to abandon attempts to prop up equities through large large-scale stock purchases. Instead they are opting to intensify efforts to find and punish those suspected of “destabilizing the market.” That’s trade talk for short sellers.

Oil

Oil prices on Friday settled higher with WTI jumping a big $2.66, 6.2%, closing at $45.22 and Brent up $2.49, 5.2% settling at $50.05. The day before, Thursday, oil prices surged 10.3% posting the largest one-day gain since March 2009. For the week WTI scored a nearly $7.00 rebound, an 11.8% gain which was its largest weekly percentage gain in about 6 years! Going into Thursday the market was egregiously oversold and with the bullish DOE crude and products report from Wednesday and Thursday’s report that Venezuela and Russia requested an emergency OPEC meeting (that ain’t gonna happen) no sellers could be found and short term traders smelled blood in the water and took it higher setting off buy stops.

This morning WTI is down $1.17. The U.S. dollar is pretty flat so the pressure is the result of lower equity prices. Oversupply concerns remain as well as the end of the summer driving season and the decrease in demand that is just about upon us as refineries do their regular seasonal maintenance.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas found a bid on Friday closing 5.1¢ higher at $2.715. Natty sold off all week and had hit a two month low last week and Friday’s price action was primarily short covering going into the weekend. Additionally, the October contract hit a descent support trend line giving traders another excuse to cover. This morning traders are returning to those shorts they covered with natty down 5.8¢ driven by a very mild forecast for the 11-15 day period. This translates into very low natural gas load for this term. However, for the next 10 days load will be elevated as temperatures for the upper Midwest and northeast are 5 to 8 degrees above normal kicking on some natural gas fired peaking plants.

Yesterday Eni, SpA, the Italian energy company and largest foreign producer in Africa, announced they discovered a “supergiant” natural gas field off the coast of Egypt. So how big is this field? Well the CEO of Eni said it is potentially the world’s largest natural gas field! In a press release Eni said it could hold “a potential of 30 trillion cubic feet of lean gas.” Folks that is beyond huge! Even if it is exaggerated, this is a game changer for Egypt. Eni said the discovery could satisfy Egypt’s demand “for decades.” And apparently the discovery is in close proximity to Eni’s existing processing facilities expediting the time when this gas can come to market.

Elsewhere

I know we’ve got over 14 months to the elections but it’s already interesting if not entertaining with Donald Trump’s comments about the other candidates. Although it may seem he’s doing some serious mudslinging his verbiage pales when compared to history. Personal attacks in political campaigns are nothing new. Consider for a moment the campaign of 1860. Four candidates had their hats in the ring: Abraham Lincoln, Stephen A. Douglas, John Bell and John C. Breckinridge. The four men fought like cats and dogs. The campaign hit a nadir when Lincoln’s opponents began to make fun of his looks. Lincoln’s handlers rejoined by asserting, “We know Old Abe does not look very handsome, but if all the ugly men in the U.S. vote for him, he will surely get elected.” Then there was the election of 192 when Warren G. Harding was running against James Cox and Eugen Debs. Never known for his intellectual depth, Harding was accused of being stupid. His opponent, Debs charged, discussed the issue by “uttering pompous phrases that moved over the landscape in search of an idea.”

In was the election of 1936, however, that brought out the worst in the political operatives. Stunned by Franklin Roosevelt’s victory four years earlier, Alf Landon’s campaign manager was quoted as saying that, “If the President became convinced on Tuesday that coming out for cannibalism would get him the votes he needed, he would begin fattening up a missionary in the White House backyard come Wednesday.”

So the next time you cringe at comments by today’s candidates and believe civility is slipping away from our political process it might help to remember our forefathers weren’t the most gentlemanly and magnanimous campaigners who ever hit the trail.

Have a good day.