Equities and the Economy

Good morning and happy National Fresh Breath Day. U.S. stocks closed mostly higher yesterday although the Dow was unable to shake off a weak performance by Disney (down 9%,ouch!) and, once again, energy shares. After flipping between gains and losses yesterday the Dow ended off 11 at 17,540 while the S&P 500 added 7 points to 2,100 and the Nasdaq closed 34 higher at 5,140. Apple finally caught a bid, albeit small, closing up 76¢. Apples’ recent declines have wiped out nearly $100 billion of Apple’s market value. That’s about as much as fellow Dow components Boeing and McDonald’s are worth in total. CEO Tim Cook’s, with his 950,000 shares, worth declined $18 million over the last 11 days. He’s still worth $109 million but that’s gotta sting. I’m a little surprised U.S. stocks performed as well as they did because the closely watched ADP National Employment Report was disappointing showing private employers added 185,000 new jobs in July which was well below forecasts of 215,000. Also, this was much lower than June’s 229,000 jobs gain. Offsetting this report, however, was the Institute of Supply Managements index for the service sector for July which rose from 56.0 in June to 60.3 in July. Putting this in context, this is the highest this index has ever been since it began 7 years ago. Anything above 50 indicates growth so and the Street was looking for a 56.5 so this indeed was a very, very good number. This all leads us up to tomorrow’s Labor Department Employment Situation Report for July.

When I came in this morning equities Dow futures were up 19. Things have deteriorated since then though with the Dow down 90 currently.

Oil

Oil prices just continue to get whacked with WTI closing down another 59¢ closing at $45.15. Brent fell a little less, 40¢, closing at $49.59. Not only is oil feeling the weight of global over supply but exacerbating the situation is the U.S. dollar which continues to strengthen putting downward price pressure on all commodities priced in U.S. dollars. The grains are feeling it. Even gold is feeling it. Yesterday the DOE released its important weekly crude and products report. Upon its release the market became immediately bullish, and was wrong. Exciting the bulls was the always first looked at data point which was crude inventories which fell a whopping 4.41 million barrels with a draw of only 1.8 million barrels expected. However, gasoline and distillate inventories actually rose with draws in each product expected. The bottom line was that on an aggregate basis crude and product inventories fell 2.89 million barrels with traders expecting a decline of 4.9 million barrels going into the report. It took only a minute or so for traders to pick up on this and then the selling came in. The contango in both WTI and Brent is steep meaning crude is bidding aggressively for storage.

This morning WTI continues to purge with it down 74¢. Support is around $42 which was 6 year low we saw in March and resistance is around $48.

Courtesy of MDA Information Services LLC

Natural Gas

Natural Gas was quiet yesterday with the September Nymex contract closing 1.4¢ lower at $2.798. Natural gas burns are alive and healthy in the power generation sector, and Texas is doing its part. Yesterday with temperatures over 100 degrees in many parts of the state ERCOT demand hit a new all-time peak load record at over 68,459 MW. The previous peak was in 2011. This record may be short lived for forecasts are predicting even hotter weather next week and the 70,000 MW level may be broken. ERCOT has the generation capacity available to meet this demand, but any unplanned outages will likely result in big price spikes and may trigger Demand Response (interruptible) resources being called.

It’s Thursday and you regular readers know what that means. EIA storage report day. The market is looking for an injection of 39 Bcf which way below last year’s 83 Bcf injection and the 5 year average of 53 Bcf. This may be the smallest injection of the summer for its not as hot this week as last in the northern part of the country and the forecast for the 6-15 day period averages normal in that same region.

Elsewhere

Today is the one-year anniversary of Russia’s ban on Western agricultural products which was in response to sanctions from the West. To “celebrate” this anniversary President Vladimir Putin ordered the destruction of illegal western food imports. More than 250,000 Russians signed a petition urging the Kremlin to give the contraband food to the poor instead of destroying it. The Kremlin ignored the public outcry stating they hope the food destruction will stem the flow of banned products by raising the costs for those involved in the contraband. How benevolent.

There is another anniversary today. 70 years ago today the atomic bomb was dropped on Hiroshima.