Good morning. Equities closed lower yesterday but, as the black knight said to King Arthur, “Tis but a scratch!” The Dow fell 42 points to 17,080, the S&P 500 lost 3 to 1,997 and the Nasdaq dropped 12 to 4,557. If one must rationalize these losses blame it on the escalation of the conflict in Ukraine. Prior to the last couple of days worries over tensions abroad had largely receded form Wall Street with the major indexes seeing few negative days over the past two weeks and the Dow and S&P both hitting record highs. This week though Ukraine’s government said the border town of Novoazovsk and other areas in the country’s south and east had fallen under the control of Russian and rebel forces. This news hammered European stocks, who all have more trade with Russian especially Germany, with the contagion hitting U.S. equities.

Photo by Alberto P. Veiga / Licensed under CC BY 2.0

I wouldn’t be surprised if we see a pullback in equities from here. Stocks have been on a tear the last 3 weeks and we’ve lost momentum the last 4 days so maybe a retreat to 1,925 to 1,945 basis S&P is in order. We’d still be in a bull market but folks, markets don’t go straight up or straight down (except for the last 3 weeks!)

There was some economic news yesterday. The government revised Q2 GDP, for the 2nd time, up to 4.2% from 4.0%. While this data is old, the revision (you regular readers know I place a lot or stock in the direction of revisions) was for the better. Yesterday was the release of weekly jobless claims and they came in as expected. The Pending Home Sales index was also released rising to 105.9 from June’s 102.7 which itself was revised very slightly for the better. The increase was 3.3% which was nicely better than the most optimistic forecast. The only “bad” number yesterday was the Kansas City Fed’s Manufacturing Index for August coming in at 3 and not only below July’s 9 but well below expectations of 7. Agricultural prices have been very weak in the Midwest (the growing season has been better than ideal and a record corn crop is expected) is starting to weigh on the business psyche there.

This morning U.S. stocks are very quiet in pre-holiday trading waffling on either side of unchanged. Asian markets closed mixed. The European markets are all trading lower with Germany’s DAX taking it the hardest because they have the most trade with Russia.

Oil chopped around yesterday with WTI adding 67¢ to $94.55 and Brent falling 26¢ to $102.46. As I’m sure you’ve noticed via gasoline prices, oil has been lower the last month but we’ve really been range bound for quite a while. For example, for 13 consecutive months Brent has traded in a $10 range from $102 to $1112. This price stability has been remarkable compared with the volatility seen as recently as 2 years ago when Brent ranged from $125 in March 2012 to as low as $95 in June 2012. While OPEC supplies have fallen since June 2013, primarily due to unplanned supply disruptions cause by political unrest in Libya and Iraq, supply growth over the past 2 years in the U.S. and Canada has offset the decrease. Thank you horizontal drilling and fracking and George Mitchell, the father of fracking!

This morning WTI is trading 61¢ higher. Blame it on Ukraine.

As the first day as the prompt month October natural gas climbed 4.1¢ closing at $4.044. The cash market is supporting prices being driven by forecasts for higher temps in the eastern U.S (see below) diverting natural gas targeted for storage, to make up the storage deficit, to peaking generation units. It appears the heat is diminishing and normal temperatures will be returning by the middle of September killing A/C load. Now before you bears come out of your caves making a whole bunch of ruckus, don’t forget September and October are also the time when nuclear power plants go through refueling taking baseload generation off line needing to be replaced by natural gas fired generation.

The EIA released its weekly storage report yesterday stating the U.S. injected 75 Bcf into the ground last week. This was marginally bullish with the market looking for a 75 Bcf injection. This is the 2nd week in a row the report has come in slightly bullish and is one of the reasons natty prices have risen 10% higher over the last week and a half. Storage levels are currently 16% less than last year at this time and 17% below the 5 year average. It looks like natty traders are starting the holiday weekend early being October is up a totally meaningless $0.004 with some of the deferred contracts not even having traded. Have a great holiday weekend and see you in September!