Equities and the Economy:

After months of calm volatility has returned to the U.S. stock market. Following the big drop on Friday, primarily due to dovish Boston Fed President Rosengren’s hawkish comments regarding interest rates, equities jumped yesterday, albeit by not as much as they fell, also on Fed speak. Yesterday it was dove Fed Governor Ms. Lael Brainard coming out with dovish comments in a planned speech to the Chicago Council on Global Affairs that gave the market a resuscitative breath stating that while the economy is improving it would be wise for the Fed to keep monetary policy loose. Her words carry weight for she is a voting member of the FOMC. Buyers came in on her words and when the bell rang ending yesterday’s session the Dow posted a nice, hefty gain of 240 points, 1.32%, finishing at 18,325. The S&P 500 added 31, 1.47%, to 2,159 and the Nasdaq really popped closing up 1.68%, 86 points, at 5,212. The S&P is up 5.6% for the year.

I hate to keep laboring on interest rates but that is what investors are focusing on currently, especially on a day like yesterday when there were no significant economic reports. By the way, the market is pricing in only a 25% chance of a rate hike at next week’s FOMC meeting. I haven’t mentioned this in a while but CNN’s Fear & Greed Index, which was in the Greed to Extreme Greed areas the last few months, has dropped to Neutral. This may seem like a funky index to you but it really is a good indicator of what the herd is doing.

This morning is not starting out so well. The Dow is down 171 points. It’s not the European markets for they are trading on either side of unchanged. With the lack of any other data sellers are taking their que from oil which is trading lower.

Oil

Oil prices rose yesterday on higher equities and a softer dollar, but not nearly as much as equities rose. In fact, oil prices started lower on the day but rallied with WTI ending up 41¢ to $46.29 and Brent rising 31¢ at $48.32. As mentioned above, oil prices are under pressure this morning being down $1.32 on the IEA’s, not our EIA, report yesterday warning in its latest monthly report that the current oil glut will last longer than previously expected and likely persist well into 2017. Further feeding the bears was the agency adding that Q3 oil demand growth dropped to 800,000 bpd, down from Q3 2015 demand growth of 1.5 million bpd.

Yesterday OPEC revised expectations about U.S. production growth next year forecasting growth where previously they were forecasting a decline. It appears they’ve capitulated on the strategy of “capturing market share” which was essentially waging a price war with the U.S. shale producer. Let me remind you that the rig count is up 9 of the last 10 weeks.

Quite frankly, this morning I’m not sure if equities are driving oil prices or vice versa, but there definitely is a correlation today.

Courtesy of MDA Information Systems LLC

Natural Gas

On the heels of a strong cash market coming out of the weekend natural gas prices popped with the October Nymex contract closing materially higher at $2.915, up 11.8¢. Yesterday morning when trading began the cash market was 7¢ over futures bringing the bulls in. When I was trading I always looked to and took direction from the cash/futures spread. Looking down the curve, the January and February contracts are currently trading at the hefty price of $3.31. Now those two months are usually the most expensive of the year, but $3.31 is strong.

The summer heat continues to linger elevating A/C load and demand, but that will wane as the month progresses. In fact, the Midwest and northeast should have some fantastic weather at the end of the month.

Last Saturday, September 10th, was the statistical peak of the hurricane season. So far the “season” has been benign. With the exception of Hermine, which was more of a nuisance than anything else, the season has been moribund, which was contrary to forecasts. With the El Nino over, tropical storm activity was expected to increase relative to last year. We still have exposure, particularly through October 20th, but we’re on the downside.

This morning natty is quiet down 2.0¢. Chatter.

Elsewhere

Lesson on life from Satchel Paige:

You win some. You lose some. Some get rained out. But you got to dress for all of them.