Equities and the Economy

The day started out very nicely yesterday with the Dow up 139 points in the morning but around 10:05 AM CDT investors mead an about-face and turning cautious and began selling and the day ended mixed with the Dow gaining 23 to 16,375, the S&P 500 up 3 ending at 1,951 while the Nasdaq actually lost ground finishing down 16 points at 4,734. I think today’s Labor Department Situation Report created a situation where no one wanted to get too crazy yesterday. The big news yesterday was ECB President Mario Draghi’s statement that the bank is ready to give the eurozone a bigger dose of stimulus, i.e., QE, should inflation across the 19 country bloc fail to pick up. His comments pushed European stocks higher which pushed U.S. equities higher, at least in the morning.

We also got the Institute of Supply Management’s Index of the nation’s service sector yesterday with it coming in at 59 for August and down from July’s 60.3 nut July’s was a record high and unsustainable. August’s index came in at expectations and was digested by the market with no fanfare.

Everyone, everywhere is focusing in this morning on Employment Situation Report looking for direction on what the Fed will do regarding an interest rate hike. The Fed will not only focus on the “headline” piece of data, the unemployment rate we’re all so familiar with, but average hourly earnings. The latter data point is key to wage inflation and a rise in this number will most definitely will give the Fed reason to “lift off.”

The risk off continues around the globe for although China’s Shanghai is closed the other major Asian bourses, Japan’s Nikkei 225 and Hong Kong’s Hang Seng, closed lower with the former materially so being down 2.15%. The angst has spread to Europe with red everywhere with Germany’s DAX leading the way down off 1.97%. The U.S. economy may be performing the best in the world right now but the losses occurring around the world are making the bull’s yoke just too heavy and Dow futures are down 142 points this morning, which is better than the negative 169 earlier.

Oil

Oil prices caught a little bit of a bid yesterday primarily driven by Mr. Draghi’s comments of more QE and, hopefully, its intended effect of stimulating demand with WTI closing up 50¢ at $46.75 and Brent up marginally, 18¢, at $50.68. It’s worthy to note that oil prices have risen 5 out of the last 6 trading sessions. The Saudi’s have cut their price to Asian buyers of its crude by 30¢/bb, to Europe by 50¢/bbl and to the U.S. by 60¢/bbl. Looks like they’re backing up their rhetoric of maintaining market share with action.

This morning WTI is moribund being literally unchanged from yesterday’s close, which is actually impressive being that equities are materially lower.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices popped 7.7¢ closing at $2.725 primarily on short covering, a little boost in the cash market and a bullish EIA storage report. Temperatures have been much above normal in the upper Midwest and Northeast which is supporting the cash market. Regarding the storage report, the EIA reported an injection of 94 Bcf which at first blush is bearish being market expectations were for a 90 Bcf injection. However, 8 Bcf of gas was categorized from base to working gas so the actual amount of molecules injected was 86 Bcf which was less than expectations hence bringing in the buyers. The combination of the higher demand due to the cash market and the bullish EIA storage report and the fact we’ve been trading for two weeks near the two month low and the bears couldn’t push it lower, the path of least resistance was to the upside.

This morning natty continues chopping around in a tight range being down 4.6 ¢.

Elsewhere

With the plethora of campaigns to be the next president of the United States under way, I thought it appropriate to discuss President Atchinson. I bet you’re scratching your head right now and pulling up Google thinking, “Who the heck is President Atchinson?”. It was 1848 and James Knox Polk had just finished a pivotal one term as president and chose not to seek a second term. This set the stage for the election that year with the Whigs nominating “Old Rough and Ready,” General Zachery Taylor, and the Democrats choosing Lewis Cass. Well we all know how that election turned out and President-elect Taylor made preparations to take over the reins of the government in March 1849. However, there was a problem. Inauguration day, March 4, 1849, fell on a Sunday and the President-elect was a very religious man. As a strict Episcopalian, Taylor refused to conduct any business on Sunday, and that included being sworn in as president.

At noon on March 4, 1849, the terms of office of James Polk and his Vice President, George Dallas, ended. With Zachery Taylor unavailable and per the constitution, the speaker of the house is next in progression for the presidency and at noon on that day David Rice Atchinson ascended to the presidency. Speaker Atchinson’s presidency lasted all of 24 hours for at noon on Monday, March 5, 1849 Zachery Taylor was sworn in as our “official” 12th president. Apparently David Atchinson wasn’t upset in having to give up his scepter of power for when asked what he did with the rare opportunity of being president for a day, he replied, “I went to bed.”

Have a great holiday weekend.