Equities and the Economy

Good morning. U.S. equities closed mildly lower yesterday with the Dow closing down 42 points at 17,581, the S&P 500 down 5 to 2,066 and the Nasdaq falling 5 to 5,030. Chatter. Fundamentally, the Conference Board reported yesterday its index of consumer confidence fell from a downwardly revised 102.6 in September to 97.6 in October, and coming in less than Wall Street was expecting. Clearly disappointing. Durable Goods for September was also reported falling 1.2% from August. The good news here (always the glass is half full!) is expectations were for a larger decline, 1.5%. Disconcertingly, orders for nondefense capital goods excluding aircraft, a category viewed as a proxy for business investment plans, fell 0.4%.

Ok, now for the positive news. Standard and Poor’s reported yesterday its Case-Shiller 20 city home price index rose 5.1% y-o-y in August coming in at expectations. The housing market continues to show its improving. Finally, Markit reported its index of service sector economic growth fell from 55.1 in September to 54.4 in October and yes, although that is lower, the index is still above the all-important “50” number indicating growth.

It’s starting out as another choppy day with Asian markets closing wildly mixed. The Nikkei closed up 0.67% but the Hang Seng and Shanghai lost 0.80% and 1.72%, respectively. Fortunately the major European indexes are trading green, albeit marginally, which is translating to green U.S. equity futures, although also marginally with Dow futures up 38 points.

All the world will be watching the FOMC which ends its two day meeting today. No press conference is scheduled for this meeting so everyone will be parsing the post-meeting communique at 1 PM CDT. Bring on the English majors! The market is not expecting an interest rate increase but, as seems to be their mode of late, leave the door open for a rate increase in December, the next scheduled meeting. Why should the Fed raise interest rates when the ECB is looking to expand QE, Japan continues its QE program and China lowers interest rates and reserve requirements?! Even Sweden is expanding QE which has pushed its Krona to 2 month lows. I keep telling you, it’s a race to zero by central banks (other than the U.S.). Who can get their currency the cheapest!

Oil

Oil prices remain under pressure with WTI falling 78¢ yesterday closing at $43.20. Brent lost 73¢ settling at $46.81 to two month lows. Oil has chalked up 3 days of losses with Brent, the world’s oil price benchmark, now having fallen 13.4% from its recent peak on October 3rd. Ample global supply and warm weather forecasts have been bringing out the bears.

Yesterday the Obama Administration surprised the market announcing a proposed sale of oil from the Strategic Petroleum Reserve beginning in 2018 until 2025. The sale was part of a larger budget deal reached Monday night. The proposed sale equates to more than 8% of the 695 million barrels held in reserves and are to begin at an annual rate of 5 million barrels rising to 10 million barrels by 2023 totaling 58 million barrels by the end of the period. The U.S. government is the worst trader I’ve ever seen. Although the DOE says the average price of the reserves are $29.70/bbl., per ClearView Energy Partners, an energy research firm, after inflation the cost is $74/bbl. Buy high, sell low. This morning WTI is up 72¢ with some of the bears short covering ahead of the DOE weekly crude and products report at 9:30 CDT.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas finally found a bid yesterday, albeit a small one, closing 3¢ higher at $2.092/MMBtu. It was a very volatile day with natty trading down 11.4¢ to $1.948 overnight but finding buyers at those ridiculously low levels. Today the November Nymex contract expires setting the price of both unhedged natural gas and electricity prices for next month. Additionally, one leg of many, many swaps will be set.

The bulls are getting absolutely no help from the weather forecast with very, very mild temperatures forecasted for the next 2 weeks in the eastern 2/3rds of the country. Expiration day is beginning weaker with natty is giving up its gains from yesterday being down 3.7¢.

Elsewhere

You just can’t stop the “fruit” company. Apple reported earnings yesterday stating it recorded its biggest annual profit in corporate history, $53.4 billion in the last 12 months, driven by record iPhone sales. That’s over a billion dollars a week amigos! The world’s largest company surpassed the $42.5 billion made by ExxonMobil in 2008 on the heels of its latest smart phones which increased profits 31% in Q4. The company sold 48 million iPhones in Q3 2015, an increase of 22%. That’s 521,739 iPhones, a day!

Have good day.