Equities and the Economy:
U.S. stocks had a moderately lousy day with all three major indexes closing lower. The Dow lost 66 points, 0.25%, finishing at 18,481, the S&P 500 lost 11, 0.52%, ending at 2,175 and the Nasdaq closed down 42, 0.81%, at 5,217. The indexes are at their lowest levels since early August. Investors unloaded health care shares with Mylan Inc. in the negative spotlight over the pricing of its EpiPens which put pressure on the broader market. Still, moves in market have been tepid and the indexes are not far off their record highs. As has been the case for most of August, yesterday’s volume was low.
Turning to the fundamental data, existing home sales were in complete contrast to the new home sales on Tuesday which was amazingly strong/bullish. Yesterday existing home sales were reported falling 3.2% in July from June and below economists’ forecast. The median price of an existing home fell to $244,100 in July but is still 5.3% higher than last July. Although the months of supply increased from 4.5 to 4.7, it’s still a tight market for the National Association of Realtors considers anything less than 5.0 months of supply a tight market. The Millennials will have to remain in their apartments or parent’s basements.
The job market continues to be healthy with few people being laid off. The Labor Department just released its weekly first time jobless claims report noting claims fell by 1,000 to 261,000 remaining near post-recession lows. We’ve now had 77 consecutive weeks with claims below 300,000 which is the longest streak since 1970.
The market is continuing its meandering ways this morning with the Dow down 7 points. Chatter. I don’t expect much to happen today with everyone anxiously awaiting Fed Chairperson Janet Yellen speaking tomorrow at Jackson Hole.
WTI fell $1.33 yesterday closing at $46.77. Brent lost 91¢ settling at $49.05. The driver of the price drop was the EIA’s weekly crude and product report showing U.S. crude inventories rose by 2.5 million barrels last week counter to expectations of a drop of 100,000 barrels. Also hurting the bulls was that gasoline inventories rose by 36,000 barrels and they too were expected to fall by 1.5 million barrels. Distillate (primarily diesel) stocks rose by 120,000 barrels and below expectations of an increase of 400,000 barrels but that data point was not enough to stop the bears from feeding. U.S. crude inventories are now at 2.1 million barrels. Putting this in perspective, last year at this time the U.S. had 1.98 million barrels in storage and the 5 year average is 1.84 million barrels so current inventories are 6% greater than last year and 13% greater than the 5 year average.
Selling pressure also came in on data that crude imports into China dropped 2% in July from June and y-o-y is down 61,000 bpd.
This morning WTI is bouncing marginally being up 12¢.
Courtesy of MDA Information Systems LLC
Natural gas price closed marginally higher yesterday adding 3.5¢ to $2.796 posting near a 3 week high of $2.80. Natty has rallied 25¢ over this term. Forecasts of extended above normal temperatures with the associated elevated A/C load has brought out the bulls. However, this will change in about a month as power demand for A/C will rapidly diminish as we head into autumn. Speaking of autumn, I saw our private forecasting service’s autumn forecast yesterday. You folks in the north look like you just might have an Indian Summer and a beautiful fall.
It’s Thursday and you regular readers know what that means: EIA natural gas storage report day. The market is looking for an extremely small injection of 16 Bcf. This compares to last year’s injection for this week of 63 Bcf and the five year average of 66 Bcf.
The tropical disturbance southeast of the Turks and Caicos Islands (Invest 99L) is slowly gathering strength producing gale force winds. The National Hurricane Center forecasts a 50% chance of it developing into a tropical storm over the next 48 hours.
Continuing yesterday’s theme of alternative energy sources, here’s one I bet you have not heard about: osmotic power generation (Beam me up Scotty!). Osmotic power generation, also known as Blue energy, describes the method of producing electricity by molecules moving through a semi-permanent membrane from a region of lower solute concentration into a region of higher solute concentration. Now although you may not be familiar with Blue energy, it isn’t a new concept. This method of producing power was first uncovered in the 1970’s by professor Sidney Loeb. So how does this whole thing work? Loeb’s experiment had a tank with a polymer semi-permeable membrane separating freshwater on one side and salty, mineral-rich seawater on the other. The membrane only allowed water molecules to pass through it. The large difference in the solute concentration resulted in water molecules rapidly moving from the fresh water side to the seawater side causing an increase of pressure on the seawater side of the tank. That pressure can be turned into electricity by having it turn the turbines of a generator.
In 2009, the first osmotic power plant was built in Tofte, Norway producing a whopping 4 kilowatts of power, enough to run a clothes dryer for one cycle. However, a recent breakthrough may change everything. A few weeks ago an international team of scientists published an article in Nature magazine stating they have successfully tested a minuscule prototype of another osmosis plant and this one shows considerably greater power generation potential. In this plant the membrane only allowed ions to pass through which created an electric current. Now here’s why the research is so groundbreaking. The scientists contend that only one square meter of this new membrane can generate one megawatt of electricity. That’s enough to power 50,000 energy saving light bulbs. Of course there’s a very wide chasm between a test lab and commercial applications including the ability to mass produce robust nanopore-filled membranes of adequate size. That being said, the global push toward achieving a low carbon economy, especially in Europe with its Roadmap 2050 project which includes more clean energy, will provide an incentive to further develop this technology.