Equities and the Economy:

Boy has this market been choppy lately. One day up. One day down. Yesterday was the former. The Dow closed up 113, 0.62%, at 18,281, the S&P 500 gained 9, 0.43%, finishing at 2,160 and the Nasdaq rose 26, 0.50%, to 5,316. As I mentioned previously, this market has been range bound since early July trading between 18,000 and 18,700. On the positive side, this range is at record highs. Possibly (hope!) equities are just bivouacking preparing for the next leg up, which may be after October. October has historically been a notoriously bad month, although not always. So being we’re just chopping around between support and resistance, let’s move on to the economic data of the day.

The big report of the day was ADP’s private employers report. It noted 154,000 jobs were added in the private sector in September which was less than economists’ were forecasting. This data continued the mantra of “bad news is good news” with investors believing it sends the signal to the Fed to not be as aggressive on raising interest rates. However, Fed policymakers have made it clear they expect job growth to slow at this stage of the recovery cycle. Also, the September number has tended to be quite volatile over the course of the past several years as Detroit’s model years have shifted. On a positive note, in its commentary ADP said that job openings are at all-time highs and layoffs near all-time lows.

The Institute of Supply Management’s Non-Manufacturing Index was lights out rising sharply in September coming off 2010 lows to a high for the year at 57.1. Bottom line is that the economic reports yesterday were positive for equities.

The ying-yang continues this morning with the Dow down 85. It’s early. As I’ve often said, closes are more important than opens.

Oil

Oil prices have been rocking! Yesterday they continued their march higher with WTI closing up a hefty $1.14, 2.3%, encroaching on 50 bucks closing at $49.83. Brent rose 99¢, 2.0%, settling at $51.86. These are the highest prices since early June. The recent rally began on OPEC’s announcement of an agreement to freeze production (implementation details forthcoming at next month’s OPEC meeting) but yesterday’s up move was on fundamental data. Refreshing your memory, the API released a bullish crude and products report on Tuesday evening. Yesterday the EIA released its report reinforcing the API report. The EIA stated that last week in aggregated (crude, gasoline and products) inventories fell a big 6.0 million barrels with the crude component falling 4.5 million barrels. This is the 5th consecutive week of inventory declines. I guarantee you traders have not missed that statistic.

Regarding OPEC’s agreement to freeze production, I’ve said it before and I’ll say it again. I’m very skeptical. OPEC’s coffers have been draining due to low oil prices and the need to fund their social programs and they, including Saudi Arabia where oil revenues are about 90% of the country’s budget, need every dollar they can get. Additionally, the U.S. producer will be happy to fill in for any drop in OPEC or Russian production. It won’t happen overnight but the rig count will rise and production will increase.

Venezuela is a total mess. I’m surprised we haven’t seen a revolution or coup there. There’s no food in the grocery stores and lines for everything. Here’s how bad it’s gotten. Airlines flying to the U.S. won’t accept the bolivar, the Venezuela currency. The bolivar has become so worthless that it’s now cheaper to use as a napkin then buy actual napkins!

This morning WTI has breached the $50 level trading $50.26 as I write.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas broke the $3.00 level again yesterday closing up 7.7¢ at $3.041. Prices popped on the Natural Gas Supply Association’s (NGSA) report it expects this winter to be cold enough to increase natural gas demand by 3.6% to a record 92.3 Bcf/d. Careful here. The NGSA is the trade group representing natural gas suppliers so I’m sure there’s bias. Traders are really keying in on the cash market which has been supportive. I won’t say resilient, but supportive.

Today is Thursday and you regular readers know what that means. EIA storage report day. The market is looking for an injection of 68 Bcf. Anything close to that continues the trend all summer of lower than average injections. Last year for this week we had a 96 Bcf injection and the 5 year average is 95 Bcf.

Hurricane Mathew’s track along the southeast coast will bring pretty close to normal temperatures in the region but the 6-15 day forecast, especially the 11-15 day, is very warm. If it materializes, the east and particularly the Midwest will have some amazing weather into the 3rd week of October. In gas trading parlance, “no load.”

Elsewhere

Power to the woman! Ever heard of Ching Shih? My bet, no. Born in 1775 and once a prostitute, she became one of the most powerful pirates to have ever sailed. In the early 1800’s she commanded one of the most formidable fleets in all of China, known as the Red Flag Fleet, with hundreds of ships under her command. She began her life as many women at the time did. She got married and the man she married happened to be the leader of the Red Flag Fleet. When her husband suddenly passed away she took his position as leader of the fleet putting her in charge of over 40,000 fearsome pirates. Quiet and thoughtful, Lady Ching remarried taking her late husband’s right hand man, Cheng Pao, as her partner. After marrying, Pao was appointed as the captain of the fleet by his wife. Pao was uneducated and illiterate, unlike Lady Ching, and she easily manipulated him. Although Pao was officially the leader of the fleet, he was consistently guided by Lady Ching who installed many strict policies. The policies were often unforgiving and gruesome including that any attack made without Lady Ching’s approval would result in beheadings, all loot must be distributed by the leaders of the fleet and if a female captive was raped her assailant faced decapitation.

Ching’s powerful leadership made the Red Flag Fleet unrelenting and unstoppable. No other fleet in the world could compete with the men under the power of the woman. The sheer power of the fleet grabbed the attention of the Chinese and Portuguese governments, who then joined forces in an attempt to stop the pirates and dismantle the fleet. The Chinese government released what were known as “suicide boats” to destroy the pirate ships; these suicide boats were loaded with explosives which were intended to explode near enough to the Red Flag ships so that they would be damaged beyond repair. The plan failed, and with quick work the members of the fleet were able to take control of the damaged suicide ships, and after some repairs, the ships were taken in under the Red Flag.

After consistent attempts from the government to destroy the Red Flag Fleet, Lady Ching got tired of her pirate endeavors, and retired to avoid more trouble. The government cancelled all warrants for her arrest, and she spent the rest of her life running a brothel and a gambling den, becoming extremely wealthy before her death in 1844 at the age of 69 years old. Eventually, with the help of Chang Pao, the government did eliminate the Red Flag Fleet, leaving Ching’s old empire in ruins.