Equities and the Economy

As I suspected, U.S. equities did nothing yesterday closing ever so marginally lower with investors waiting for today’s Labor Department’s Employment Situation report for October.  The Dow fell a meaningless 5 points to 17,863, the S&P 500 closed down an also meaningless 2 to and even 2,100 and the Nasdaq lost 14 closing at 5,128.  Let’s just jump to today because the aforementioned report was just released, and it was stellar!  Companies added new jobs in October at the fastest pace in 2015 knocking the U.S. unemployment rate to a seven year low of 5.0% from 5.1%.  Additionally, more people entered the labor force in search of work, a sign jobs are available.  The economy generated 271,000 new jobs, with all but 3,000 coming in private sector beating economists’ forecasts of 180,000 jobs created.  A key statistic the Fed watches, the average hourly wage, jumped big in October rising 0.4% posting the strongest 12 month gain since 2009.  From October 2014 to October 2015 hourly wages rose 2.5%, the best y-o-y gain since the U.S. exited recession in June 2009.  This was all good news. This will most assuredly give the Fed the justification to raise Interest rates in December.

So how are equities taking the data?  Investors are trying to figure out what it means.  It’s bad for equities for interest rates to rise, but the fundamentals of the economy are pretty good.  Additionally, the trend has been up and November and December have traditionally been good months for equities.  So we have a push-pull and Dow futures are down 70.  The close is much more important, especially because it’s Friday and we’ll get a weekly settle for the charts.

Oil

Oil prices continued their retreat yesterday after falling precipitously on Wednesday.  WTI lost $1.12 closing at $45.20 and Brent fell 60¢ settling at $47.98.  After hitting 6 year lows in August WTI has spent more than 2 months pivoting around the $45.000level as traders weigh large U.S. inventories, record Russian production, a rising U.S. dollar vs. expectations of declining U.S. production associated with a declining rig count.  Speaking of that, Baker Hughes will be releasing its rig count report this afternoon after the market closes.  The U.S. dollar hit a 2.3 month high yesterday against a basket of major currencies, and is stronger this morning on the jobs report.  The stronger dollar and lower equities is putting pressure on WTI with it trading down 91¢ this morning.

Courtesy of MDA Information Systems LLC

Natural Gas

You may not have noticed but natural gas prices popped yesterday with the December contract closing 10.2¢ higher at $2.364.  The primary driver was a bullish EIA storage report showing 52 Bcf was injected into U.S. storage fields last week with the market expecting something closer to 59 Bcf.  Additionally, natty was oversold, due to the current weather, and the boat was listing a little too much to the short side and the storage reported brought in short covering bringing the boat to a more normal position.  That being said, prices have now risen more than 20¢ in a little more than a week to a two week high near $2.40.  A couple of weeks ago natty sold off hard on the weather forecast that we’re now in the middle of and traders are seeing a forecast which although is still above normal, is not as anomalous as what’s going on now.  This morning natty is down 3.5¢ to $2.320.  December gas, $2.32. Cheaaap.

Elsewhere

Blow baby, blow!  I’m talking about wind, and specifically wind in Texas.  Over a period of about 5 weeks this fall electric generation from wind set 3 records in ERCOT in Texas.  The first was on September 13^th at 11,467 MWs, the second on October 21^st at 11,950 MW, which was extremely short lived because the next day the all-time record of 12,238 MWs was set.  Substantial additions of new wind generating capacity, coupled with strong wind conditions amid unseasonably warm early-autumn temperatures, drove the recent generation records. During these recent peaks wind generation in ERCOT was running at 75% to 81% utilization of total generating capacity.  Because of seasonal wind patterns (spring and summer typically see the highest amount of wind generation) and new capacity the record will probably be broken next spring.

Have a good weekend