Equities and the Economy:

• Stocks slip.
• Disney weighs on Dow.

U.S. equities slipped for a second day with the Dow closing down 37 points at 22,049, the S&P 500 off a point to 2,474 and the Nasdaq falling 18 to 6,352. Walt Disney Company, who announced they are going to end their distribution deal with Netflix and start their own streaming service, was the biggest weight on the Dow with its stock price falling 3.9% on the day. Geopolitical concerns, specifically North Korea, are also giving investors an excuse to take some profits especially after coming off 10 days of gains. That being said, the Dow and S&P are still near record highs. As I’ve previously mentioned, volatility is extremely low. On Monday the S&P’s trading range was just 0.2%, the 3rd smallest range in 20 years. Additionally, the S&P has gone 15 sessions without a change of 0.3% or more. This means investors are complacent. Maybe it’s the summer doldrums. Remember, Europe basically goes on vacation in the month of August. Quite frankly and although we don’t like it, we need a pullback. It’d be healthy.

Turning to the fundamental news, the major report was from the Commerce Department showing wholesale inventories rose 0.7% in June. I mention this because the big driver in the number was automobile inventories which rose a stout 1.4% for the month. It’s a good time to buy a car. I bet there’s some great deals out there right now!

Globally stocks are pulling back with the European markets on the defensive with London’s FTSE down 1.1% and Germany’s DAX off 0.8%. This is dragging down U.S. stocks with the Dow down 67 points.

Oil

• Prices continue climbing.
• Crude oil inventories decline for the 6th consecutive week.

Oil prices continue grinding higher with WTI logging a gain yesterday of 39¢ closing at $49.56. Brent rose 56¢ settling at $52.70. The DOE released its weekly crude and products inventories report yesterday showing that crude stockpiles fell for the 6th consecutive week falling 6.5 million barrels, double forecasts of a 2.5 million barrel decline. Similar to Tuesday’s API report, the agency stated gasoline inventories rose 3.4 million barrels, counter to expectations of a 1.5 million barrel decline. So these two data points fairly offset each other. That being said, it does appear that after many months and much later than OPEC and Saudi Arabia forecasted, the global oil market is rebalancing.

As you can see in the data, refiners have been working overtime turning crude oil into gasoline. Yesterday’s DOE report showed refiners have boosted utilization to 96.3% of capacity, the highest in 12 years. Gasoline demand has been very strong this summer, but the driving season is going to end in about 3 weeks so we’ll have to see how this translates.

This morning WTI breached the $50 level earlier but backed off and is currently up 15¢.

Courtesy of MDA information Systems LLC

Natural Gas

• Return to normal weather supporting prices.
• EIA storage report today.

Since late last week with weather forecasts showing a return to normal weather natural gas prices have been climbing. Yesterday the September Nymex contract tagged on another 6.1¢ to close at $2.883. As the weather goes, so go natty prices, at least in the short term. For example, last Monday natty got crushed on a weather forecast of below normal temps for the Midwest and East for the first half of August. How have actual temps come in? Way below normal. Through yesterday temperatures across the U.S. have averaged 75.5 degrees, almost 2 degrees lower than the 5 year average. In the Midcontinent they’ve averaged 3 degrees below normal and 7 degrees below last week. The biggest deviation is in Texas where temperatures have averaged 5 degrees below normal and 6 degrees below last August. All this has resulted in a 3.7 Bcf/d decline in gas consumed for electric generation compared to last August. However, temps for the second half of the month are forecasted to return to normal which will boost gas consumption, and as stated in the first sentence, boost prices.

Today the EIA releases its weekly storage report. Forecasts are for a 36 Bcf injection. If true, this would be the 5th consecutive below average storage injection.

This morning natty is back above $2.90 up 1.8¢.

Elsewhere

I’m not sure you’ve heard about this but the Great Lakes are being threatened by a fish called the Asian carp. The fish are voracious eaters and can rapidly reproduce pushing out, and even eating, the indigenous fish species seriously threatening the Great Lakes’ $7 billion fishing business

The fish was first introduced in the U.S. in the 1970’s when Southern states used it to feast on algae in ponds and wastewater treatment lagoons. However, when those ponds flooded the carp escaped into various waterways in the lower Mississippi River and began travelling north.

The threat is so serious the Army Corps of Engineers just completed a 400 page study recommending several new technological fortifications at a lock and dam in Will County outside Chicago. The technologies suggested include a new electric barrier, complex noise generators, water jets, an engineered channel and a flushing lock. The Corp estimated total construction costs at more than $275 million. You may be laughing at the idea of an underwater electrical fencing system (nonlethal) but one already exists constructed in 2002, 37 miles upstream of Lake Michigan.

The situation is so serious that last week that Michigan Governor Rick Snyder issued the “Invasive Carp Challenge,” an international competition that will award up to $700,000 in cash prizes for creative solutions to halt the carp’s expansion.

The carp also has an attribute that is particular bothersome to the $16 billion boating industry. It can launch itself several feet into the air terrorizing boaters. Per Tammy Newcomb, senior water policy advisor with the Michigan Department of Natural Resources, “People don’t want to get hit by a flying 50 pound fish.” Ya think?!