Equities and the Economy

As stated in my blog yesterday, Tuesday was a tough day on Wall Street. Yesterday was a bloodbath. U.S. stocks sold off with the Dow closing down 252 points, 1.42%, at 17,478, the S&P 500 fell 30, 1.42%, to 2,050 and the Nasdaq was the big loser closing down 1.66%, 85 points, at 5,038. It was the biggest one day sell off in more than two months. Unlike recently, you can’t blame oil prices. This time it was the ECB, specifically Mario Draghi, its president (now you see why I discuss Europe and China) which caused equities in both Europe and the U.S. to tank. The major European indexes had their worst day in three months. Without going into detail, investors were disappointed in the level of enhanced QE. Note I said “enhanced” because indeed the ECB increased QE. However, investors were looking for more.

On the disappointing QE action, the euro screamed higher vs. the dollar marking its biggest one day move, 3.15%, since 2009! The euro was egregiously oversold with the boat very heavily listing and on the ECB action, or lack thereof, a violent unwind of the crowded trade occurred. Not only was there massive short covering or the euro, but sold liquid dollar denominated assets include U.S. stocks and bonds pushing Treasury yields to fresh 5 /2 year highs.

The Labor Department just released its jobs report for November stating the U.S. economy added 211,000 jobs in November and the unemployment rate was unchanged at 5%. This is in line with economists’ expectations. September and October employment gains were revised up 35,000. Hourly wages, a very important data point for the Fed, rose 0.2% in November and while a tad below October, is still a descent number. Folks, an interest rate increase by the Fed this month is a done deal.

After yesterday’s slaughtering and the jobs report, investors are licking wounds and digesting the employment data and doing nothing with Dow futures down 8. Call it deer in the headlights.

Oil

Oil prices got a big boost from the falling dollar with WTI climbing $1.14, 2.9%, and Brent popping $1.35, 3.1%, closing at $41.35. Helping support oil was Saudi Arabia’s comments that it would cut production next year. However, they would do so only if non-members like Russia, Mexico, Oman and Kazakhstan commit to joint action. Good luck with that! Iran’s oil minister quickly chimed in saying they have no intention of curtailing any production. They’re chomping at the bit to raise it! Russia also quickly added they saw no need to cut production. I truly believe this is nothing but an attempt by Saudi Arabia to get some OPEC nations off their back because pressure has been steadily mounting for them to do something. Today OPEC meets in its regular bi-annual meeting. The bet remains that OPEC (that would be Saudi Arabia) will not cut production but continue to emphasize retaining market share.

This morning WTI is giving back a big chunk of yesterday’s gains being down 98¢.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its weekly storage report yesterday showing the U.S. had its first withdrawal last week since last winter which was 53 Bcf. This was slightly greater than expectations and natty found a mild bid closing 1.6¢ higher at $2.181. Let’s call it short covering. With the weather forecast as it has been and is, the bears aren’t very scared. The market has found an equilibrium, for now, trading broadly around $2.20. As I mentioned yesterday, natural gas is being consumed in record amounts in the electric generations sector displacing coal. You can see it in the coal statistics. Yesterday the EIA reported U.S. coal production decreased a whopping 22% to 14.95 million short tons vs. a year ago. Coal carloads on U.S. railroads in the week ending November 28th were 23% below year ago levels. Now in full disclosure, a lot of coal is exported and the stronger dollar has negatively affected exports. This morning natty is moribund up 0.2¢.

Elsewhere

There’s a lot of oil stockpiled right now here in the U.S. folks. As of November 27th the EIA says there is 209.4 million barrels in storage in Cushing, OK and the Gulf Coast. It’s estimated that 70% of capacity is utilized which is only slightly below the record of 71% set in the week of April 24, 2015. These two areas represent 67% of the nation’s total crude oil storage capacity, and this capacity has been growing. Over the past 4 ½ years the Gulf Coast and Cushing have accounted for 85% of the nation’s increase in capacity which equates to 80.7 million barrels, combined. Although inventories and capacity utilization are relatively high, there is still plenty of room left, specifically, 100 million barrels.

Have a nice day.