Equities and the Economy:

• S&P 500 has biggest one-day drop in almost 3 months.
• Dow falls for 3rd consecutive day.

Just as I talk about a lack of volatility, wham! The stock market gets whacked! Yesterday the Dow fell for the 3rd consecutive day losing 205 points, 0.93%, closing at 21,844. The S&P 500 had its worst day since May 17th losing 36 points, 1.45%, ending at 2,438. The more volatile Nasdaq finished down 2.13%, 135 points, at 6,217. All the news rags attribute this week’s decline to the increase in tensions between the U.S., i.e., President Trump, and North Korea, but I’m “selling” that theory. Yes, it might have been an “excuse” to sell but the stock market was losing momentum, and when momentum is lost, traders are at the ready to take it in the other direction, in this case down.

The sabre rattling between the U.S. and North Korea has nothing to do with economics. Yes, if a war breaks out that’s a different matter, but no shots have been fired. There’s no housing crisis. Household debt has increased but is at acceptable levels. The global economy is steadily improving like a plow horse in the farmer’s field. The bull run we’ve been in for years is one of the longest in history and by many measures stocks are fully valued, if not over-valued in many cases. We’re due, we need, a pullback. We don’t like it because we like our portfolio and 401 K to keep increasing in value, but that’s not the way markets work. A pullback would be very healthy.

The most interesting economic report yesterday was the report showing producer prices fell in 0.1% July from June and are up 1.9% for the 12 month period. Core CPI, which excludes the volatile food and energy components, also fell 0.1% and is up 1.8% annualized. The significance here is that this is inflation data and the Fed uses it for monetary policy. In this case the data supports the argument for the Fed to delay an interest rate increase.

This morning when I sat down at my desk the Dow was in the red but has bounced back trading up 25 points.

Oil

• Oil prices fall amongst the risk-off mode.
• OPEC report both demand and supply increasing.

It’s really hard for any globally traded commodity to increase in price on a day when equities get whacked and such was oil yesterday. WTI fell 97¢ to $48.59 and Brent lost 80¢ settling at $51.90. Not helping the bulls yesterday was the report from OPEC forecasting global demand to grow by 1.37 million bpd in 2017 which is an upward revision of 100,000 bpd. A big “however” here. Buried in the back pages of this same report OPEC said production grew by 137,000 bpd last month with Nigeria and Libya leading the way. Interestingly, Saudi Arabia also increased production up to 10.01 million bpd which is still below its quota of 10.058 million bpd. As I’ve said previously, this is not alarming to me because the kingdom’s demand for oil materially increases in the summer to satisfy A/C demand. The key will be what happens in September and October.

This morning WTI is down 42¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Bullish EIA storage report.
• Prices close at highest level since July 20th.

The EIA released its weekly natural gas storage report yesterday stating 28 Bcf was injected into U.S. storage fields last week. This was materially less than traders were looking for which was 36 Bcf. In fact, the South Central (Texas and Louisiana) and the Pacific regions actually had net withdrawals. The bullish number brought in buyers who pushed the September contract a material 10.2¢ higher to $2.985, its highest level since July 20th. Looks like we’re back to that black hole $3.00 level. All the action is in the front end of the curve for the calendars 2019 and beyond strips ended little changed. Also supporting natty yesterday was the noon update weather forecast which showed above normal temps to hit the Midwest and East in the 11-15 day time frame.

Regarding storage, levels are currently 8% below last year at this time and 2% above the 5 year average. For the record, the “injection season” ends at the end of October.

NOAA updated its 2017 Atlantic Hurricane forecast yesterday predicting 14-19 named storms this year with 5-9 of them becoming hurricanes and 2-5 evolving into major hurricanes. They are also saying there’s a 60% chance of an above-normal hurricane season. The statistical peak of the hurricane season is September 10th.

Elsewhere

Per Wikipedia, déjà vu occurs when your brain tries to apply a memory of a past situation to your current one, fails, and makes you feel like it’s happened.