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Europe: +44 (0) 207 198 1634 Good morning. Continuing my chess analogy, Mr. Obama and the West called “check” and Mr. Putin went into defense with Russia announcing it ended military exercises near Ukraine soothing investors nerves and sending equity prices materially higher. With the sabre rattling ending, at least for now, the Dow shot 186 points, 1.13%, ending at 16,554, the S&P 500 added 22, 1.15%, to 1,932 and the Nasdaq rose 36, 0.83%, to 4,371. The rally marked the best one-day performance for the Dow and S&P since March 4th spurring the major indexes to modest gains for the week (Dow and Nasdaq up 0.4%, S&P up 0.3%).
U.S. airstrikes against ISIL in Iraq drove bond yields lower as money fled to safety with the 10 year Treasury note falling to 2.424% which is the lowest since June 2013. Additionally, Germany’s 10 year bond fell to another record low closing in on 1%.
Photo: Chess Pieces by Alan Light
Licensed under Creative Commons Attribution-Share Alike 3.0 Unported license.
Regarding economic news in the States, the Labor Department on Friday reported worker productivity rose 2.5% in Q2 which was better than the street’s consensus of 1.5% and tremendously better than the abysmal and confusing Q1 number of -4.5% (yes, negative!).
The Asian market all closed higher on the coattails of Friday’s action here in the U.S. with the always volatile Nikkei closing up a huge 2.38%. All the major European indexes are also trading materially higher with Germany’s DAX up 1.77%. The momentum is somewhat being carried here to the States this morning with the Dow up 40 but that is lower than when I came in and futures were up 83. The market today is going to have to look overseas and for corporate news today for there is not one single significant economic report slated for release today.
On news of the airstrikes in Iraq, one of the world’s biggest oil producing countries (at least when not in civil war), oil skyrocketed sending WTI prices up over $1.00. However, traders viewed that as a selling opportunity and WTI ended up only 31¢ at $97.65 and Brent actually ended 42¢ lower at $105.02. Both Brent and WTI prices fell to multi-month lows last week on weak fundamentals (amply supply) despite tensions along the Ukrainian border and violence in the Middle East. Not helping the bulls, the U.S. dollar pushed higher as the U.S. economy continues to show improvement. Helping the bears, OPEC released a report showing the cartel’s production rose back above 30 million bpd in June for the first time since February on higher output from Libya and Saudi Arabia. This morning WTI is up 66¢ flowing equities higher.
Natural gas rose 8.6¢ on Friday settling at $3.962. It’s risen from $3.724 on July 29th, an 8 month low, to almost $4.00 now. Makes sense to me. It’s all about the weather and the natural gas burn in the electric generation sector. This morning mild conditions will prevail in the eastern half of the nation for the 1-5 day period but will transition to normal and then above normal in the 11-15 day period with peaking plants kicking on during the latter time frame. This morning natty is down 2.9¢ Have a good day.
