Equities and the Economy:

• Equities meandering.
• Yellen strongly implies one more rate hike coming this year.

U.S. stocks have been meandering of late including yesterday. The Dow slipped 12 points yesterday closing at 22,284 and while this is the Dow’s 4th consecutive day of posting losses, the loss has only been 0.6% since it’s recent high last Thursday. The S&P 500 closed flat to Monday at 2,497 and the Nasdaq advanced 6 points to 6,380. Yawn.

Regarding the fundamental economic news, the Commerce Department reported that new home sales fell 3.4% in July to an annualized 560,000 units which is the lowest level in 8 months. The Department postulated sales were down due to Harvey and Irma. Inventory rose 3.6% m-o-m to 284,000 units with the median sales price rising 0.4% on an annual basis to $300,200.

However, the big news yesterday came from the Fed Chair. In her 37 page prepared speech yesterday to the National Association for Business Economics, Federal Reserve Chairwoman Janet Yellen said the Fed may have “misspecified” its models for inflation, and “misjudged” key facts like the underlying strength of the labor market. Further she said, “Without further modest increases in the federal funds rate over time there is a risk the labor market could eventually become overheated, potentially creating an inflationary problem down the road….” Easy interpretation. Another rate hike is coming, and probably in December. At the beginning of the month the market was pricing in a 35% probability of an interest rate hike in December. Yesterday that jumped to 70%. Although the FOMC meets in November the rate hike will most likely be in December for the former does not have a post meeting press conference scheduled and the latter does, and the Fed historically makes moves on meetings that have press conferences.

This morning equities are up with the Dow 37 points in the green.

Oil

• Prices ease slightly.
• Traders eyeing Turkey.

After hitting a 26 month high WTI prices eased a little yesterday closing 34¢ lower at $51.88. Brent fell 58¢ to $58.44. Brent rose 3.8% on Monday closing at its highest front month contract level since July 2015. Evidence the 1.8 million bpd OPEC cut is succeeding to balance global supply and demand has supported prices and then over the weekend Turkey’s threat to close a pipeline moving oil from Iraq’s Kurdistan to its port and potentially taking 500,000-600,000 bpd of oil off the market pushed prices even higher. The results of the Kurdish independence referendum will be announced later this week but indications are a comfortable majority voted in favor of independence. The Kurds have wanted independence for decades while Turkey views the Kurds as terrorists. If you recall, Saddam Hussein gassed the Kurds when he was in power. Things are always “fluid” in the Middle East.

Yesterday after the close the API released its crude and inventory report which was price neutral. While crude inventories fell by 760,000 barrels last week vs. a forecast of a build of 1.8 million barrels gasoline inventories rose by 1.5 million barrels vs expectations of a decrease of 1.1 million barrels. Looks like the refineries are back up and running after Harvey.

This morning WTI is up 19¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Very quiet day.
• October Nymex contract expires today.

It was a very, very quiet day for natural gas yesterday. The October contract closed virtually unchanged down 0.1¢ at $2.918. Today the October contract “rolls off the board” and is up a hefty 6.1¢. LNG just keeps coming. Cheniere Energy requested FERC give it authorization to place its Sabine Pass Train 4 into commercial service immediately. It stated the commissioning tests have all been successfully completed. This equates to another 0.8 Bcf/d in demand. LNG export feedgas is now at 2.2 Bcf/d. A year and a half ago it was virtually zero.

Elsewhere

We’ve all heard and read the nightmare stories about people who had airline tickets but got bumped off their planes with the worst story (and video!) being the doctor literally being dragged down the aisle. With all the negative publicity the airlines have changed their policies and are offering higher payments for folks to voluntarily give up their seats. One Georgia woman recently scored big. Earlier this month Tracy Smith boarded a flight from Atlanta, Georgia destined for South Bend, Indiana with her husband and son to see the Georgia verses Notre Dame football game. She became aware the flight was overbooked when she arrived at the gate. The family boarded the plane, buckled in and that’s when a flight attendant got on the speakerphone and the fun began. The opening offer for a person to give up their seat was $1,500 in vouchers. It didn’t take long for the price to rise. $2,000. $2,200. $2,500. And still no takers. It got to a whopping $4,000 and without a flinch Tracy pressed the flight attendant button. She said the competition was anxious and fierce with the guy right behind her pressing his button a hair after her. Smith said she exited the plane feeling “like I was on a game show… everybody was clapping and cheering and smiling” calling the event a “fun, pleasant experience. The icing on the cake. She caught a later flight and made the football game!