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Europe: +44 (0) 207 198 1634 Good morning. Yesterday equities ended pretty flat with M&A news offsetting data on the housing market. The Dow rose 22 points to 16,983, the S&P 500 gained 1 to 1,979 and the Nasdaq fell 5 to 4,445. The big merger news was Dollar Tree Inc.’s offer to buy rival Family Dollar Stores Inc. and Zilla’s bid for Trulia Inc. I wish I owned Family Dollar. The stock rose an incredible 25% yesterday! On the other side of the coin, the Census Bureau reported that new single family homes fell 8.1% and it revised March, April and May data lower showing slower growth than previously reported. The median price of a new home has risen 5.4% over the past year and the average new home price is now around $300,000. This is stretching buyers with the data showing purchasers just don’t have the resources to buy these homes.
Photo: A former Rite Aid, now Dollar Tree on E Colfax Ave in Denver, Colorado, by Xnatedawgx / Licensed under the Creative CommonsAttribution-Share Alike 3.0 Unported licensed.
lThe FOMC begins its two day meeting today and as always, traders and investors will be watching closely. There will be no post meeting press conference so after the meeting all one will have to go on is the written communique. Don’t expect any changes. It will reiterate it will end its QE program in October and leave interest rates unchanged.
Overnight the Asian markets all closed higher with Japan’s Nikkei hitting a 6 month high, Hong Kong’s Hang Seng finishing at levels not seen since November 2010 and China’s Shanghai Composite closing at a 7 month high. That euphoria is spreading to Europe with all the major bourses trading materially higher. Here in the U.S. the Dow is up, 29 points, but on a percentage basis much less than overseas markets. It’s early. Let’s see if we can rally during the day. Technically, we’re hitting some resistance around Dow 17,000 and the S&P near 2,000. “Big numbers” always act as resistance.
Oil is shrugging off geopolitical conflict with WTI ending down $0.42 at $101.67 and Brent closing at $107.57, down $0.82. WTI is near a 2 week low. Putting pressure on WTI is a strengthening U.S. dollar which is now trading at 6 week highs. So this morning equities are higher, the fighting is more intense in Gaza and not looking to diminish (Israel’s Prime Minister Netanyahu told his constituents today to be prepared for a prolonged engagement) and sanctions appear to be increasing against Russia. And what is WTI doing? Falling. Down 96¢ this morning. If there’s a fear premium build into Brent and WTI, it’s not much.
Natural gas ended down 3.4¢ at $3.747 which is near an 8 month low. The extremely mild weather the east and particularly the Midwest has experienced this summer is killing demand for natural gas in the electric generation sector making the bull’s yoke just too heavy to bear. Today the August natural gas contract expires setting the price of not only a ton of derivative products but the electricity and natural gas prices for next month for those of you yet to fix your rate. This morning on expiration day natty is flat to yesterday’s closing price.
We’re beginning to get into the “meat” of the hurricane season and we’ve got a “disturbance” between Africa and South America with the NOAA giving it a 70% chance of developing into a tropical depression over the next 48 hours.
Here’s a sad example of what conflict can do to a country’s oil exports. Libya’s oil reserves are estimated at about 48 billion barrels which ranks them 9th in the world. In comparison, the U.S. has about 26 billion barrels of reserves which ranks us 13th. Last year Libya was producing 1.5 million bpd but due to tribal fighting it is now only producing about 0.25 million bpd now making Libya the smallest OPEC producer, even smaller than little Ecuador. Putting this in perspective, Libya’s production is currently only one fourth of what North Dakota alone produces on a daily basis. Sad indeed.
