Equities and the Economy:

• Another record high for the Dow.
• House Republicans unveil tax cut bill.

The Dow yesterday rallied 81 points to close at a new record high of 23,516. This is the 55th record closing high for the blue-chip index this year. Absolutely amazing! The S&P 500 closed flat to Wednesday at 2,580 and the Nasdaq slipped a couple of points to 6,715. The theme continues with the drivers of this market being continued progress toward a tax cut bill and corporate earnings reports. Regarding tax cuts, the House Republicans introduced their much anticipated Tax Cuts and Jobs Act yesterday which is aimed at lowering corporate taxes from 35% to 20% and repealing taxes paid by large states. That being said, the bill has a long way to go and a lot of important details (and bargaining!) needs to be worked out. The other driver has been corporate earnings which have generally come in better than expectations. With more than ¾ of S&P 500 companies reporting earnings are coming in at 7.7% vs. an expectation of 5.9% at the start of October.

Yesterday President Trump nominated Federal Reserve Governor Jerome Powell to head the Federal Reserve. If approved by the Senate he will take over for current Chairperson Janet Yellen in February. The nomination was widely expected by investors and his views on economic policy are believed to be similar to Yellen’s. The news was well received by the financial markets.

Internationally, the Bank of England raised interest rates yesterday by ¼% to ½%. This was the first time the central bank has raised interest rates in more than 10 years..

Today one of the big reports for the month was just released, the Labor Department’s Employment Situation Report for October. The headline is the U.S. economy added 261,000 jobs in October and the unemployment rate fell to 4.1%, the lowest since December 2000. More on this on Monday.

Investors appear to be underwhelmed with Labor’s report with the Dow up 26 points.

Oil

• Prices close at highest level in over 2 years.
• Extension of production cut agreement widely expected.

Although only posting a modest gain 24¢ to $54.54, it was enough for WTI to close at its highest level since July 2015. Brent rose 13¢ to settle at $60.62 and marginally below its 2 year high set on Tuesday. WTI prices are up 23% over the past year and Brent is up 31%.

Prices continue to be driven by two primary factors that are running in concert. First, Saudi Arabia and Russia are in agreement to extend the existing production cut agreement until December 31, 2018. Also, Iraq, which is OPEC’s second largest producer although not included in the production cut agreement, is also on board. Although U.S. production will continue to grow (it’s up 13% since mid-2016), it will not do so at a fast enough pace to offset the increase in global demand with the latter being driven by China and India. Evidence of this is that every week for months now U.S. inventory data from the EIA shows crude, gasoline and distillates (mostly diesel) falling greater than forecasts. OPEC’s goal is to get global inventories to the 5 year average. They’re not there yet, but the amount inventories are above the 5 year average is about half of what it was a year ago.

This morning the trend continues with the bulls firmly in control. WTI is up 25¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Cash market bounces.
• Weather forecast shifts colder.

The December Nymex contract closed up 4.2¢ at $2.935 on a stronger cash market which triggered some short covering. With temperatures across the Midwest and south as much as 20 degrees above normal recently the cash market this past week and a half has just gotten pounded. A bullish driver yesterday was the EIA storage report. Traders were looking for an injection of 71 Bcf. The actual was 65 Bcf which brought in some buying. With the storage injection season (April – October) over, it looks like we’re going into this winter with about 5% less gas in storage than the last 2 years.

This morning natty is up 4.4¢ on a colder weather forecast, particularly for the 6-10 day period. It’s almost like a switch is being flipped. Temperatures in the Mid-Atlantic will be materially above normal over the next 5 days and then be significantly below normal in the 6-10 day period. I’m still keeping my eye on that cold mass in western Canada.

Elsewhere
It’s once again, unfortunately, flu season. During the 6th Century, it was customary to congratulate people who sneezed because it was thought that they were expelling evil from their bodies. During the great plague of Europe, the Pope passed a law to say “God bless you” to one who sneezed. There still are some bizarre laws on the books:

• In Washington state, it is against the law to boast that one’s parents are rich.
• In Maryland, it’s illegal to play Randy Newman’s “Short People” on the radio.
• In Alabama it is illegal to play Dominoes on Sunday.
• In Minneapolis, double-parkers can be put on a chain gang.
• In 1313, King Edward II enacted that “You are forbidden from dying in parliament.”
• An old statute in Kentucky states that men who push their wives out of bed for inflicting their cold toes on them can be fined or jailed for a week.
• A 100-year-old law in Willowdale, Oregon makes it illegal to swear during sex.
• An odd law in Minnesota makes it illegal to hang male and female underwear on the same washing line.
• In Melbourne, Australia it is illegal for men to parade in strapless dresses – but they are allowed to cross-dress in anything with sleeves.