Equities and the Economy

It was a very, very sedate day on Wall Street yesterday with not just the major indexes ending very close to their Wednesday closes but there was also very little volatility. Getting the numbers out of the way, the Dow closed down 4 at 17,733, the S&P 500 fell 3 to 2,081 and the Nasdaq slipped a single digit to 5,074. Keurig Green Mountain jumped 18.2% after the single-serve coffee pioneer posted earnings better than expected. The market took note that United Healthcare, one of the nation’s largest medical insurers, announced yesterday that it might withdraw from offering coverage through the Affordable Health Care Act because the business hasn’t been as profitable as anticipated.

Regarding fundamental economic news, the Labor Department stated in its weekly report that first time unemployment claims report fell by 5,000 to 271,000 and notably the 37th consecutive week claims have been under 300,000. The labor market continues to remain firm. The Philadelphia Fed business sentiment index improved which is positive for the region. The Conference Board reported its Leading Economic Indicators rose again in October marginally beating economists’ expectations. All in all, the data continues to show the U.S. economy is slowly but surely grinding for the better.

This morning is starting out great with the Dow up 155 points. No doubt what the driver is this morning: all the Asian markets closed higher and the European markets are all trading in the green today. Boosting European equities were ECB president Mario Draghi’s comments today reiterating the bank will do what it can to raise inflation “as quickly as possible” if the current policy path proves insufficient. Inflation has been anemic in the eurozone lately. Remember, inflation gives central bankers nightmares, but with deflation they can’t even fall asleep!

Oil

Oil prices ended marginally lower yesterday with WTI slipping 21¢ and very close to $40 at $40.54. Brent actually gained 4¢ closing at $44.18. The U.S. dollar backed off its bullish run of late, up 2.5% so far this month, helping the bulls a tad. Once again WTI dipped below $40/bbl but is finding support at the $40 level although technically support is $37.74 which is the late August low. Any geopolitical risk premium is being overwhelmed by the current supply glut. Although, traders appear to feel the supply glut is more of a short term phenomenon because the spread between the Dec ’15 price and Dec ’16 price is $8/bbl. Here’s an interesting note. Iraq has overtaken Saudi Arabia as the 2nd largest seller of crude to Europe with Russia being in first place. This is a classic example that it’s a free for all in OPEC with everyone not to be undercut by the other. This morning the pressure continues with WTI down 50¢.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its weekly storage report (in its new format: 5 regions now vs. 3) noting 15 Bcf was injected last week. The number was quite bullish considering the expectation was for a much larger 24 Bcf injection. Prices immediately popped when the number was released but then the noon weather update came out warming the previous forecast and the bears come in in mass selling and at the closing bell we were 7.1¢ lower at $2.276. It’s also not helping the bulls that the cash market is trading materially below futures prices, there’s a record amount of gas in storage (an even 4.0 Tcf) and the weather forecast is showing very warm conditions in the 6-10 day time frame followed by normal to marginally above temps in the 11-15. The shorts continue to show no fear with natty down 6.2¢.

Well it’s official. This week NOAA released its data for the Pacific Ocean temperatures for the week of November 9th showing temperatures hit a new high meaning the El Nino we’re currently experiencing is the strongest on record surpassing the one in 1997. Last month, October, average temperatures over land and ocean surfaces were the highest since record keeping began in 1880. Here in the U.S. we had our warmest October since 1963 and the 4th warmest since 1895. In Europe, Denmark has its driest October since 1972 and Latvia has its driest on record. Australia had its warmest October since record keeping began in 1910. In other parts of the world the opposite is happening. Parts of Argentina set new monthly record low temperatures and eastern Europe and areas of western Russia had cooler than average temperatures.

Elsewhere

We just had a 100 year anniversary! I’m talking about the iconic Coca-Cola bottle. It was in 1915 that the Coca-Cola rolled out the famous design. It all began with the company’s effort to fend off copycat brands and strengthen its brand. It issued a creative challenge to a handful of U.S. glass companies with the directive to develop “a bottle so distinct that you would recognize it by feel in the dark or lying broken on the ground.” The winning design was created by the Root Glass Company of Terra Haute, Indiana. The Coke bottle became the first commercial product to make the cover of Time magazine which happened in 1950. The bottle design has worked so well that a century later Coca-Cola is still using that basic concept to market its signature brand.

Have a good weekend.