Equities and the Economy:
The day began in a lackluster fashion but didn’t stay that way for long. About an hour after the opening investors came in buying and continued to do so throughout the session with the financial sector leading the way. The Dow closed up 108 points, 0.58%, at 18.503. The S&P 500 climbed 11, 0.52%, finishing at 2,180 and the Nasdaq posted a gain of 13, 0.26%, ending at 5,232. The market is understanding that the Fed will indeed raise interest rates, even if it’s not sure when, and financial institutions make more money in a higher interest rate environment because the spread between their borrowing rate and what they charge widens. The bottom line is that this is a “buy the dip” market and until that changes we’re going higher, even as we scale the “wall of worry.”
Turning to the economic data here in North America, the Commerce Department reported that consumer spending rose 0.3% in July which was spot on expectations. The same Department reported that Personal Income rose 0.4% for the month which also came in at forecasts. Commerce also reported that the Personal Consumption Expenditures Price Index was unchanged in July from June. The PCE index was up 0.8% on an annual basis and Core CPE, ex food and energy, rose 0.1% for the month and 1.6% for the year. Importantly, the CPE is the Fed’s preferred measure of inflation. The 1.6% will give the Fed fodder not to raise interest rates in September. Remember, 2% is their target.
This morning is beginning like yesterday which is quietly with the Dow down 58. Let’s see if we can get a repeat of yesterday.
Oil prices have been chopping around the last couple of days. On Friday WTI gained 31¢ and yesterday it lost 66¢ closing at $46.98. Brent lost the exact same amount settling at $49.26. That being said, both WTI and Brent have rallied ~$10.00 over the first 3 weeks of August to six week highs with the rally turning around an egregiously oversold market when Saudi Arabia said it would meet with other nations next month to discuss a production freeze (which ain’t gonna happen!) Iran and Venezuela are leading the call for a production freeze with Iran adding the caveat that it wants its production level increased. Saudi Arabia will never agree to that. The kingdom has no intention of allowing its hated rival to take any of its market share. This is more than just economics. This is Sunni vs. Shi’ia.
The dollar is hitting 2 week highs vs. a basket of currencies finding support on the recent statements by Fed Chairperson Yellen and her colleagues which is adding to the bull’s yoke. WTI is chattering around this morning down 36¢.
Courtesy of MDA Information Systems LLC
The September Nymex natural gas contract “went off the board” yesterday in a muted fashion closing down 1.8¢ at $2.853 setting the cost of your gas for next month for those of you with Nymex + Basis products. Interestingly, cash prices at Henry Hub, LA, the Nymex contract physical delivery point, pushed to a 15 month high yesterday trading $2.95. Prices got bid up due to 0.4 Bcf/d of offshore gas being shut in due to the tropical storm activity and increased feed gas to Cheniere’s Sabine Pass LNG terminal. Speaking of the tropics, tropical depression 9 sits on a line between the tip of the Yucatan Peninsula and Florida’s Key West. It’s forecasted to move northeast east over Florida missing the oil and gas fields in the Gulf.
Natural gas consumption in the power generation has and continues to set records this summer. And it looks to continue with Platt’s Bentek Energy forecasting September consumption to average 30.6 Bcf/d, a new record and nearly 1 Bcf/d greater than the previous record. That’s 30 Bcf which won’t go into storage.
This morning is the October contracts first day as the prompt month and it literally is trading flat to its close yesterday which was $2.896.
Yesterday was the 11th anniversary of Hurricane Katrina making landfall in Louisiana and Mississippi. 1,836 lives were lost, 1,577 from the New Orleans area. While most areas have fully recovered the damage from Katrina is still afflicting those who remain in the 9th Ward. Per the Huffington Post, beyond the abandoned structures that have yet to be repaired or leveled, there are also disease carrying vermin that have taken up residence and air that spreads toxic mold, mildew and the stink of decay. While some in the neighborhood have received assistance, several more have gone unaided with litigation stalling the process for many residents. And last month Louisiana got hit with the devastating rains and floods which claimed 13 lives and damaged an estimated 60,000 homes resulting in what the Red Cross stated was the worst natural disaster to hit the U.S. since Hurricane Sandy in 2012. Got to feel sorry for those folks.