Good morning. It’s absolutely amazing to me what one single report can do! On the coattails of a blowout jobs report Friday U.S. equities jumped, bond prices fell, the U.S. dollar leapt and gold got whacked. The Dow and S&P 500 hit new highs on an intraday basis but lost traction in the afternoon backing off those levels but still closing higher than Thursday. The Dow closed up 52 points at 17,952, the S&P was up 2 to 2,074 and the Nasdaq ended 9 points higher at 4,778. The Dow got within 10 points of the 18,000 level at around noon eastern time but then backed off. Last Friday marked the 7th consecutive week the Dow and S&P closed higher. The Nasdaq actually fell for the week, down 0.2%.

Returning to the jobs report, although the unemployment rate stayed at 5.8%, which was due to more of the unemployed returning to the pool of those looking for jobs, one of the most positive statistics was hourly earnings which rose 0.4% in November and nearly twice what economists were forecasting. This is the rough equivalent of another several hundred thousand jobs! The strong November jobs data represented the biggest gain since early 2012 and extends the strongest streak of hiring in several decades. Virtually every industry sector was hiring and many of the new jobs were higher paying ones.

The jobs report effect was not only to boost stocks but U.S. bond prices dropped with the yield on the two year Treasury hitting its highest level since May 2011 as investors priced in an interest rate hike by mid-2015 which is a little earlier than previously thought. The spread between the 5 year note and the 30 year bond fell to its lowest level since January 2009. Lenders, i.e. banks, aren’t going to like that for they always lend long term and borrow short term. There’s nothing banks like more than a steep yield curve! Basically free money!

The U.S. dollar rose against a basket of currencies to its highest level since March 2009. Specifically, vs. the yen it hit a 7 ½ year high. As the dollar rose gold fell with the bullion falling nearly 1%.

The Asian markets all closed higher really as a catch up from the performance of Friday’s price action here in the States but all the major European bourses are materially lower which is carrying over to U.S. equities with Dow futures down 52. Pushing European stocks lower was a report out of Germany today showing industrial production in Europe’s biggest economy coming in less than expected in October. Output rose by 0.2% with the forecast at 0.3%. Additionally, ECB policy maker Ewald Nowotny warned a massive weakening in the eurozone is occurring weighing on European equities.

Amongst the euphoria surrounding the jobs report there was another report which is quite disconcerting. New orders for U.S. factory goods fell for the 3rd straight month in October which hasn’t happened since 2012. So how important is that bit of data? Back then when factory orders fell for 4 consecutive months the Fed reacted by introducing Q3.

As I’ve said previously, it’s early and let’s see how the U.S. markets close for in bull markets stocks can open lower but close higher. In bear markets, which we saw in the Great Recession, the markets opened higher but closed on their daily lows.

Oil continues to struggle. Last Friday WTI closed down 97¢ at $65.84 and Brent settled at $69.07, down 57¢ at $69.07. It’s bad when you get a very strong jobs report and equities pop and crude can’t rally. Of course, the stronger dollar sure doesn’t help. WTI has now fallen for 9 of the past 10 weeks and Brent has ended lower for 14 of the past 17 weeks. We’re still trading above the $63.72 low we saw early last week but I’m sure “they” will test that low. The price curve continues to wax bearishly with the average WTI and Brent front month year spread (Jan ‘15/Jan ’16) now $4.17 contango. One month ago that was $2.78 contango and two months ago it was only 28¢.

The bears are out again this morning piling on the shorts with WTI down $1.36. And you U.S. producers should feel good about that for Brent is down $1.95 to a new 5 year low. This could get really ugly for oil and gas producers. Morgan Stanley came out with a report saying Brent prices could fall as low as $43/bbl in Q2 of next year!

Natural gas staged a big rally on Friday jumping 15.3¢. The market was down all week on the warm weather forecast with the boat heavily listing to the short side and when the noon forecast came out showing some colder weather in the 11-15 day time frame the weak shorts started scrambling to get flat for the weekend. Well that noon forecast didn’t verify for this morning’s forecast continues to show El Nino like weather conditions with lots of orange and red across the Midwest in the 6-15 day time frame. Although not influencing natural gas prices, the west coast will continue to get precipitation which is another characteristic of an El Nino. On today’s forecast natty is giving back almost everything it gained on Friday being down 13.3¢ as I write. And unlike equities, I don’t expect a rally of any sort today in natural gas.

Courtesy of MDA Information Services LLC

So the pundits of oil prices are debating whether we’ll see $50/bbl oil. Well folks, it’s already here! That is if you are producing oil in the Bakken shale in North Dakota. What’s not transparent to the average person is the discounts or premiums oil producers receive for their oil which is dependent on quality and transportation to the market. Bakken production has been transportation constrained for years for the pipeline infrastructure has lagged oil production. Oil producers have come to rely heavily on the rail system to get their product to market but it’s still not alleviated the problem. Hence, oil producers in the Bakken are getting about $15 less than the published Nymex price at Cushing, OK. As I sit, this puts their price at the well head at $49.65. I said this last week and I’ll say it again. If the Nymex WTI price stays at these levels for the next 6 months 90% of the rigs will be “laid down,” i.e. not working, in the Bakken. Have a good day.