Equities and the Economy

Good morning. Yesterday started out very shaky with all the indexes trading in the red at the open but closing with the best session in 3 weeks boosted by sizeable gains in energy and recovering about half its losses from last week. The Dow jumped a huge 238 points, 1.38%, to 17,483, the S&P 500 was the big winner of the day popping 30, 1.48%, ending at 2,053 and the Nasdaq added a material 57 points, 1.16%, to 4,985. Equity markets around the world opened on panic trading reacting to the deadly attacks over the weekend in Paris but the more steady hands, the more professional, deep pocketed hands, came in buying the dip. U.S. oil prices, which like the stock indexes, opened marginally lower but rallied and the big gainers on the day were Chevron which climbed a whopping 4.38% and Exxon Mobil which added 3.59%. That being said, Chevron’s stock price is down 32% over the past year and 4 months and pretty much representative of the sector.

Regarding economic reports, the Fed released its Empire State index yesterday for November which tracks manufacturing in the New York region and to say it wasn’t encouraging is an understatement. The index came in at a negative 10, the 4th consecutive month the reading has been -10 or lower and the Fed added comments that there was few signs of improvement.

Global macroeconomic data is exceptionally light this morning and non-eventful. The Dow is trying hard to take up where it lefty off yesterday being up 55 points this morning pulled up primarily by European stocks which are bouncing back from panic selling yesterday. France’s CAC 40 index is up 2.23% and Germany’s DAX and London’s FTSE are up 1.8%.

Oil

As mentioned, oil prices rallied yesterday not so much on an increase in geopolitical risk, but on 1) OPEC released a report showing its production fell 120,000 bpd and 2) technically WTI was down on support and when no sellers showed up to push it through that support and equities rallied, the shorts started covering. At the closing bell WTI was up an even buck on the day settling at $41.74. Interesting to me, Brent did nothing rising only 9¢ to $44.56 closing the Brent/WTI spread to $2.82. My instinct would have been for Brent to rise relative to WTI due to the attacks in France. Fundamentally, the oil market remains under pressure on weak supply/demand fundamentals such as the report yesterday that oil inventories in developed nations are at record levels. The FX market isn’t helping the bulls with the U.S. dollar stronger today hitting a 7 month high against a basket of currencies and by now you should know that all things being equal, a stronger dollar puts downward price pressure on commodities traded in the greenback.

This morning WTI is beginning the session very sedately being down 48¢.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas added 2.4¢ yesterday to its 10.1¢ gain on Friday with the weather forecast shifting materially colder from much above temperatures to normal to below normal temps for the 6-15 day time frame. Technically it’s winter time and that means every weather forecast will be traded and this morning the weather forecast is showing a slight warm up for the 11-15 day time frame in the east and traders are reacting predictably selling it and natty is down 4.9¢ as I write. The El Nino is having its effect in California where the drought ridden state is finally starting to experience some precipitation. That being said, the drought has been so severe there that it’s going to take more than one El Nino winter, even as strong as this El Nino is, to bring the state out of a drought. However, not being Debbie Downer, more precipitation is better than less.

Elsewhere

With the horrific attacks in Paris over the weekend and with ISIS taking responsibility, I thought this is an appropriate time to discuss the militant group’s name. Is it ISIS, or ISIL, the Islamic State, or Daesh? As the international fight continues against the Islamic extremists and their goal of establishing a caliphate in Iraq and Syria there’s confusion and controversy on what to call the group. Islamic State group fighters would like to be known as the Islamic State because the name brings to mind the group’s recognition of a caliphate, as state led by a supreme religious and political leader knows as a caliph. The name ISIS comes from the group’s invasion of Syria. ISIS stands for the “Islamic State in Iraq and Syria,” or “Islamic State of Iraq and al-Sham,” an archaic Arabic term for the region.

Last week the French government announced they would call the group “Daesh.” Daesh is short hand for the full Arabic name of the Islamic State group, al-Dawla al-Islamiya fi Iraq wa ash-Sham. It is sometimes spelled DAIISH or Da’esh.

President Obama has continued to call the militants ISIL, or Islamic State of Iraq and Levant. The Levant is a historical term for the region around Syria and includes Lebanon, Israel, Palestine and Jordan. White house officials have said that “Levant” is a better translation for part of the Arabic name, al-Sham, which refers to a chunk of the western Middle East near the Mediterranean Sea.

Many news organizations prefer the term Islamic State group because the word “state” implies a system of administration and governance. The AP recently decided to use the Islamic State group to avoid phrasing that sounds like they could be fighting for an internationally recognized state.

So as you can see, no truly universal name has been applied to this militant group and time will only tell which name gets adopted.

Take 5 minutes and click on the following link to see what a quagmire Syria is. https://testtube.com/tt-editors-picks/syrias-complex-civil-war-explained-in-5-minutes