Equities and the Economy

Good morning. Make that the last 5 out of 6. I’m talking about the number of days U.S. stocks have traded lower. The Dow closed down 79 points, 0.48%, at 16,201, the S&P 500 fell 7, 0.34%, to 1,932 and the Nasdaq was off 18, 0.38%, ending at 4,734. My friends, as much of a bummer as it was yesterday with stocks closing once again lower, we dodged a big bullet for it could have been a lot, lot worse. At around 1:00 PM EDT panic hit the market and at 1:26 EDT the Dow was down a crushing 264 points from Wednesday’s close. Interestingly, the Dow traded right down to short term short at 16,058, which was the close on 9/1/15, and bounced hard off that level. Weighing on stocks yesterday was Caterpillar’s announcement they were laying off 10,000 jobs by the end of 2018 citing weakness in the mining and energy sectors.

There were three important economic reports released yesterday. First was the weekly initial unemployment claims which rose by 3,000 from the previous week but rose less than expectations. Durable Goods was also released and although “bad” with orders falling 2%, it was less than forecasts. The very important statistic, orders for nondefense capital goods excluding aircraft, which is a proxy for business investment, fell 0.2% which was marginally negative. Call it a flesh wound. Good news came in the Commerce Department’s new home sales report showing sales rose 5.7% in August to an annual rate of 522,000 units. The Street was expecting something closer to 515,000 so this indeed was positive. The median price of a new home rose 0.3% to $292,700. Bottom line, the housing market continues to show strength.

Let’s move on to this morning, and I’m very happy to say U.S. stocks are popping mightily with the Dow up a very nice 161 points. Thank you Janet Yellen! Last evening her speech at the University of Massachusetts at Amherst was very hawkish stating the U.S. economy “remains solid” and that baring some surprising event it should remain so. Additionally, she stated the labor market is strengthening and, this is possibly the most important thing she said, she expects an interest rate hike “this year” and expects the Fed will “continue boosting short term rates at a gradual pace thereafter. Immediately after that’s words left her lips the U.S. dollar began to strengthen. Dow futures gapped higher when they began trading at midnight EDT continued to climb while you were sleeping. A word of caution. As I mentioned, the Dow is up 161 points but this is significantly off from when I began writing this Blog when Dow futures were up 210 points.

Oil

Oil prices rose marginally yesterday with WTI closing up 46¢ at $44.91 and Brent ended up 42¢ at $48.17. Oil prices initially popped on data from private research firm Genscape suggesting stocks at Cushing dropped by 625,000 but had the ball and chain of lower equity prices which stopped prices from rising more. Looking at the forest and not the trees, WTI prices have been pivoting around $45.00 for WTI and $48.00 for Brent for the better part of a month. Expectations of declining North American production is keeping a bid under $45. This morning WTI is riding the coattails of equities and is up 73¢. Oil prices are also getting support from a Chinese report that refined fuel (gasoline and diesel) inventories fell there in August.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its weekly natural gas storage report yesterday stating 106 Bcf was injected into storage last week. This was materially more than the expectations of 98 Bcf. Prices immediately moved lower trading as low as $2.521 but buyers came in with technical support between $2.443 and $2.550. Interestingly, the back end of the price curve, the deferred contracts, got bid up with the calendar 2016 strip closing 4.3¢. This type of price move is anomalous so I need to do some research on what’s going on here. It usually occurs when a big hedge hits the market. This morning natty is giving up what it gained yesterday with the October contract down 3.5¢ and calendar 2016 off 3.1¢.

Natty is not getting any help from the weather. Although the 6-15 day forecast has moved a tad cooler from above normal temperatures to normal, there’s still minimal load. As I’ve stated previously, if the above normal weather continues into November and December it will weigh on natural gas prices.

Elsewhere

The date was January 8, 1815. The British army had assembled eight thousand battle seasoned troops on the outskirts of New Orleans. They were facing a hodgepodge force of Americans led by Andrew Jackson. The British were overwhelming confident as they assembled just below the city to attack the motley crew that General Jackson called an army. On that day Sir Edward Pakenham led his redcoats in a frontal attack against the Americans. Awaiting the advance was a polyglot collection of Tennesseans, Kentuckians, Creoles and even pirates. The British training and resources were no match for Jackson who had placed his troops in well-protected environs. Making good use of artillery and rifles, the Americans held their fire as each British wave attacked sending deadly volleys at close range. Finally, after losing two thousand men, including Pakenham, the British gave up and retreated. The American losses: eight killed and thirteen wounded. A clear and convincing victory for the Americans.

Sadly, not one man need be killed or wounded at the Battle of New Orleans because two weeks earlier, on December 24, 1814, the peace treaty between the United States and Great Britain had been signed. The opposing forces at New Orleans had no idea the war of 1812.