Stocks rallied on Friday fueling the Dow’s biggest monthly gain since February. The Dow gained 19 points on the last trading session of the month closing at 17,098 and capping a 3.2% rise in August. The S&P 500 rose 7 points to 2,003 posting a very nice 3.8% gain last month. It was exactly a week ago when the S&P closed over 2,000 for the first time. The Nasdaq added 23 points ending at 4,580 and up a whopping 4.8% for August (extrapolate that on an annual basis!). Putting this in perspective, the market has tripled in a little over 5 years! The economy is expected to grow 1.5% this year and 3.4% in 2015 according to the Congressional Budget Office. One reason is companies are hiring at the fastest pace in 8 years. Boosting stocks is the Fed’s position, or more specifically Janet Yellen’s, to favor inflation over employment meaning they’ll continue an accommodative monetary policy (low interest rates) until they are convinced the labor market is in good shape. Low interest rates are great for stocks. They lower borrowing costs for consumers and businesses and hold down interest payments on bonds making stocks look more attractive.

Photo: Bull Market by Simon Cunningham / Licensed under CCBY 2.0

This morning the Asian markets closed mixed but Japan’s Nikkei 225 skyrocketed closing up 1.24% on rumors the government’s massive pension fund will skew their investment policy more toward equities relative to bonds. The European market are also trading both red and green with Germany’s DAX up 0.3%. Germany has been hit hard recently because of Russia’s involvement in Ukraine and Germany’s trading relationship with Russia. It looks like traders and investors are starting the week off a little tentatively with the Dow down 35.

As equities are rallying gold is getting whacked. The shiny stuff fell to its lowest level in 2.5 months in trading today. Also, the dollar hit a one year high vs. the euro. The ECB is meeting this week (Thursday) and there’s been lots of talk of some sort of monetary accommodation coming from the bank. Inflation has all but disappeared in the euro zone and remember, inflation gives central bankers nightmares, but with deflation they don’t even sleep!

Oil leaped Friday with WTI jumping $1.41 closing at $95.96. Brent added less, $0.73, to close at $103.19. WTI had been getting hit pretty hard and a bounce before the weekend with traders worried about what might unfold in Ukraine and not wanting to be short. Even with the gain on Friday August was a bad month for the bulls with WTI down 2.25% and Brent off 2.67% for the month. This morning WTI is giving back a sizeable portion of its gains on Friday being down a material $1.11.

The Kurds continue to push crude on the market which will pressure the Brent/WTI relationship. There have been at least 10 cargos of Kurdish crude loaded aboard tankers and put on the seas looking for buyers. The Kurds are motivated sellers for they need any and all cash to finance their war effort against ISIL. What oil the Kurds can sell is effectively free money for them for they now control oil fields formerly controlled by the government in Baghdad and have just about a zero cost basis.

Natural gas was quiet all day Friday and ended up 2.1¢ at $4.065. The cash market has been supporting futures prices being driven by higher CDD’s and the need for natty for electric generation in peaking plants. Natty hit a low of $3.73 a few weeks ago and rallied as the forecast warmed up. It got additional support when a weather forecasting service closely followed by the natural gas trading community released their winter forecast showing below normal temperatures for the Dec-Feb time fame in the Midwest.

This morning all the shorts that covered last week have reinitiated their positions because natty is down 11.8¢ as I write. Tropical Storm Dolly is in the western Gulf of Mexico posing no threat to the U.S. or the oil and gas production areas in the U.S. Gulf. She’s going to be a big rain maker for northern Mexico. We’re exactly 8 days from the statistical peak of the hurricane season and other than Dolly there is absolutely nothing in the Atlantic, Caribbean of the Gulf. Have a good day.