Equities and the Economy:
After rising on Monday on the lowest volume of the year, U.S. equities retraced a bit yesterday with the Dow falling 49 points closing at 18,454, the S&P 500 off 4 to 2,176 and the Nasdaq down 9 to 5,223. The market has been in a pretty tight range since the middle of July albeit we are at the upper of that range currently. Turning to the economic data yesterday, the Conference Board reported that its consumer confidence index had a healthy rise from 96.7 in July to 101.1 in August which is the highest level in the past 11 months and well above expectations. Consumer confidence is extremely important to the economy. When consumers are “confident” they feel they have job security and a brighter economic future, and they spend. ~70% of our economy (GDP) is based upon consumer spending.
Standard & Poor’s/Case-Shiller released its 20 city composite housing index which rose 0.8% in June from May and up 5.1% from a year ago. Although prices are up, very high end real estate is in a decidedly bear market. Prices are down 7% in San Francisco and in Aspen, CO the average price per square foot has dropped 22% this year. Sales of luxury condominiums in Miami (over $1 million) are down 44% this year compared to last and inventory is up a whopping 48% from last year. People are looking for reasons and one is the stronger dollar. Many of the super high end homes are paid for with cash by foreign investors and the stronger dollar is making homes more expensive for them. Outside of the very high end, the housing market is doing well with strong demand and higher prices as a lack of inventory limits choices for buyers. Chevys are selling, not Cadillacs.
The big report today is ADP’s private sector employment report which just came out noting 177,000 private sector jobs were added in August. This came right in at economists’ expectations of a rise in 175,000 jobs. More on this manana. The market is taking it in a ho-hum fashion with the Dow down 19 points.
The stronger dollar, which hit a 3 week high, is weighing on oil prices pushing WTI down 63¢ yesterday closing at $46.35 and Brent falling 89¢ settling at $48.37. Yesterday after the bell the API released its weekly crude and products report noting a build of 1.0 million barrels of crude oil and a 3 million build in distillates (mostly diesel). This was somewhat offset by a drop in in gasoline stocks of 1.6 million barrels. Let’s call the report mildly bearish. Losses were limited on comments by Iraq’s oil minister who said he would support a production freeze (which ain’t gonna happen!).
I haven’t mentioned this in a while but watch it every day and that is the WTI price curve. The average of the WTI and Brent one year spread (Nov ‘17/Nov ’18) has been creeping out. A week ago that spread was $3.82. Yesterday it was $3.96. Today $4.10. Crude is bidding more aggressively for storage which means more vs. less supply.
This morning WTI is down 41¢.
Courtesy of MDA Information Systems LLC
After trading up almost 5¢ yesterday morning on really no news, the October Nymex contract spent its first day closing down 6.9¢ at $2.827. People are trying to gauge where fair value should be as we enter the shoulder season. Weather forecasts show warm temperatures in the 6-15 day time frame which will support prices at least in the short term. After this warm spell power load is going to precipitously drop off as we enter autumn, which is when all the discussion will begin about what kind of winter we’re going to have. It looks to me for now that the institutional money is playing natty from the long side right now and natty is up 2.7¢ this morning. The recent high is just below $3.00 which was at the end of June.
A very strange thing happened in central Norway recently. Hikers came across a group of 323 wild reindeer, including 70 calves, scientists believe were killed by of all things, lightening. The Norwegian Environment Agency released eerie pictures of a jumble of reindeer carcasses scatted across a small area on the Hardangervidda mountain plateau. The agency said there was a lightning storm last Friday and although it’s not uncommon for reindeer or other wildlife to be killed by lightning strikes, this was an unusually deadly event. It’s known that reindeer tend to huddle very close to each other in bad weather and it is believed that is why so many were killed. A spokesman for the agency said it all happened in a moment. The agency is now discussing what to do with the dead animals. Normally they’re just left where they die and nature takes its course, but this is obviously a very unusual situation. Thousands of reindeer migrate across the barren Hardangervidda plateau as the seasons change.