Equities and the Economy:

• Dow and S&P log new highs.
• Goldilocks conditions.

Although gains were modest, they were enough to send the Dow and S&P 500 into record territory. Yesterday the Dow rose 26 points to 22,118 marking the blue-chip’s 9th consecutive record close. The S&P added 4 to 2,481, also a new high. The Nasdaq also closed higher, up 32 points to 6,384, but well below its record high of 6,423. That being said, yesterday’s market was the biggest one-day gain for the Nasdaq since July 19th. It’s been a very good year so far. The S&P is up 11% in 2017 and the Nasdaq is up 18%. It’s been a Goldilocks environment with low inflation, low interest rates and excellent corporate earnings. Still, P/E ratios are at historical highs and daily volatility has been extremely muted of late. Specifically, in the last 13 sessions the S&P hasn’t moved more than 0.5%, which is an abnormally long time for such low volatility. That’s a sign investors aren’t seeing the kind of risk that could lead to a correction, but at the same time they’re seeing few reasons to pour new money into the stock market.

Regarding the fundamental economic news there was only one report of significance released yesterday and that was from Gallup who reported that consumer spending on a daily basis rose to new multi-year highs at $109/day and to the highest level since May 2008. If spending rises just a few more dollars it will surpass the all-time high made in early 2008. The significance here? The consumer is feeling pretty darn good right now!

I know it’s early but the Dow’s streak of record highs is in jeopardy with the Dow down 32.

Oil

• Prices end little changed.
• OPEC concluding two day technical meeting today.

Oil prices ended little changed on anemic trading volume. WTI closed down 19¢ at $49.39 and Brent fell a nickel to end at $52.37. Total chatter. Traders are looking to Abu Dhabi where OPEC and “friends” are concluding their two day meeting today. The meeting is more of a technical conference than a full-fledged meeting. The purpose of the meeting is 1) to discuss how to improve compliance (for example, the UAE has been producing above their quota. Ironic that this meeting is in the UAE!), and 2) discuss bringing Libya and Nigeria into the production cut agreement. The two countries were exempt from the agreement and have been producing near peak levels. It’s estimated that the two African nations are pumping 590,000 more bpd than last October, which was the baseline of the production cut agreement. That’s a lot of additional oil on the market!

The significant news overnight was that Saudi Arabia announced they will cut sales to Asia (that would be China) by 10% in September. That obviously is bullish of prices. Unfortunately for those bulls, China reported today its imports were 8.18 million bpd in July. The smallest this year! However, imports are still 12% more than year ago.

This morning nobody cares about the overnight news. WTI is up a meaningless 10¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices finding support.
• U.S. net exporter first time ever in 3 months in Q1.

After falling to near a 5 month low prices have found support around $2.80 where they’ve traded now for more than a week. Yesterday the September contract closed up 2.7¢ at $2.801. On the bullish side we have record exports, a 9% y-o-y storage deficit to last year and elevated consumption in the electric generation sector. On the bearish side the weather has been extremely mild, and we’re closing in on the end of summer.

Regarding exports, the EIA reported that in February, April and May of this year the U.S. exported more natural gas than it imported. If this trend continues and if the U.S. becomes a net exporter for 2017 it will be the first time this has happened in 60 years. As you all know, U.S. shale natural gas production has been ramping up resulting in the need to import less from western Canada. At the same time, exports to Mexico are at record highs for the first 5 months of 2017 averaging 4.04 Bcf/d. In addition LNG exports set a new record in May at 1.96 Bcf/d, and are growing with current exports over 2.0 Bcf/d. I fully expect this trend to continue.

This morning not much has changed, including the weather forecast and natty is down 1.1¢. Chatter.

Elsewhere

It makes sense that the U.S. Department of Defense is the largest purchaser of explosives in the U.S. The second largest? Walt Disney World. Every night at its two Disney Parks there’s a fireworks display with additional pyrotechnics used in various shows and rides. This makes Disney the largest consumer of fireworks in the world.