Good morning. We came in from a holiday weekend yesterday and were greeted with some really good economic data. The Institute of Supply Management reported that its Manufacturing Index rose from 57.1 in July to 59.0 in August which is the highest level since March 2011. Additionally, the actual number came in much better than Wall Street was forecasting so this was really quite good and a strong showing. The Commerce Department reported that construction spending rebounded well in July from June going form a 0.9% decrease to a 1.28% rise to $981.31 billion. This is the highest level of spending on construction spending in more than 5 years. Unfortunately, I guess investors were melancholy having to go back to work after the last summer long weekend for the good economic news did not translate into higher equity prices. The Dow fell 31 to 17,068, the S&P 500 lost a digit to (but still over 2,000) to 2,002 while the Nasdaq managed to fight the current closing up 18 at 4,598. What the good data did do though was drive the U.S. dollar to its highest level of the year against the yen while the euro fell to a 12 month low.

Photo by Jack Mallon / Licensed under CC BY 2.0

This morning Asian and European stocks are on fire with the former major indexes closing materially higher (Hong Kong’s Hang Send closed up 2.30%. That’s equivalent to 393 points on the Dow!) and all the European markets are way up to, especially Germany’s DAX. Pushing Asian stocks up was a report that China’s Service Sector’s Purchasing Managers Index rose a good deal more than expected from 54.2 in July to 54.4 in August. Now this doesn’t seem like much but the market was expecting 54.1. European markets are rallying this morning on reports of a cease fire between Russia and Ukraine (Ukraine says there’s an agreement. Russia says there’s not a truce but instead had discussed the peace process). This is especially helping the DAX being Germany has so much trade with Russian. I’m sure we’re in for a lot of volatility resulting from events in Ukraine for conditions there are, as political strategists phrase it, “fluid.”

Here in the U.S. equities are riding the coattails of the good news around the globe with the Dow up 81 points. Nothing more to say here.

Yesterday oil just got taken out behind the woodshed and whipped like a misbehaving 19th century schoolboy. WTI got crushed falling a huge $3.08, 3.2%, settling at $92.88 to a 7 month low while Brent didn’t do much better losing a very material $2.45, 2.4%, closing at $100.34 and a 16 month low. Brent is getting pressured by worries about slowing demand growth in China and Europe as well as fears that further sanctions against Russia will hurt demand. WTI’s yoke is even heavier having to carry the weight of the strong U.S. dollar.

On stronger global equities and rumors of the cease fire WTI is bouncing $1.21 higher.

Despite the current heat and strong cash market yesterday natural gas traders came in a very bearish mood hammering natural gas with the October contract losing a huge 17.5¢ closing at $3.890. Traders are putting to test the $3.88-$3.90 level that held well last week. Heat will continue to prevail this week in the east keeping A/C loads up but the above normal temperatures will wane to normal in the northeast in the 6-15 day period. That being said the southeast will continue to need gas for peaking generation to cool and dehumidify offices and homes. Natty is down 2.5¢ this morning with the calendar 2015 strip basically unchanged.

For all of my 30+ year career in natural gas I’ve witnessed natural gas supplies move from the Gulf Coast and the Rockies to the Midwest and northeast. Thousands of miles of big diameter pipe have been laid to move gas from Texas, Louisiana, Oklahoma, Colorado and Wyoming to consumers in Illinois, Ohio, Pennsylvania, New York and east and north. But my, oh my how things are changing. With the incredible development of the Marcellus and Utica shale formations the interstate pipeline system is going through a major re-plumbing. Example, yesterday Dominion made an announcement proposing to build a $5 billion pipeline form Harrison County, W. Va. through Virginia and North Carolina to Rebeson County near the South Carolina border. For you directionally challenged, that’s south! This comes after Rockies Express announced last month it wanted to move gas west from eastern Ohio. These once so-called “premium markets” by producers and suppliers are now rapidly becoming “supply basins” with the premium markets now becoming California, Florida and, get this, Henry Hub, Louisiana. A Goldman Sachs report in June said that while 85% of the growth of U.S. natural gas production in the next four years will come from Appalachia, 60% of the growth in demand for it will come from the Gulf Coast! Amazing! Just amazing! Have a good day.