Equities and the Economy:
U.S. equities retreated marginally from record highs set on Friday (S&P and Nasdaq). The Dow closed off 14 at 18,529, the S&P 500 lost 2 points to 2,181 and the Nasdaq finished down 8 at 5,213. Total chatter. And actually pretty darn good being we’re at record highs and P/E ratios are pretty frothy. No doubt investors are convinced the Fed, ECB, BoJ and BoE have their backs. Volume has been light recently on a combination of this being August which means Europe is on its usual holiday and the Olympics catching the world’s attention. The only economic report yesterday was the Labor Market Conditions Index which moved back to positive territory rising to 1.0 from an upwardly revised -0.1. This is the first time this index has been in positive territory this year. I mention this index because it is one of Dr. Yellen’s favorite data points. This index was introduced by the Fed in March 2014 and is a macro-index which consolidates a number of traditional measure of unemployment to create a cohesive picture of the labor market. Think of it as a broader gauge of the labor market compared to unemployment numbers. The index increases as unemployment decreases. It usually ranges between + or – 10 but hit -35 in the depths of the Great Recession. Thus, the fact the latest index is positive indicates the labor market is improving. Remember, one of the Fed’s two mandates is to “ensure maximum employment.” The other is to control inflation.
Moving on to today, the Asian markets closed mixed with no big moves and the European markets are looking good with the major indexes up between 0.36% and 0.93%. Here in the States we’re getting some love from European equities with the Dow up 44 points.
Short covering continued in the oil market yesterday with WTI rallying a hefty $1.22, 2.9%, to $43.02 and Brent closing up $1.12, 2.5%, at $45.39. Both oils are on a 4 day “winning” streak closing yesterday at their highest level in 2 weeks and posting a 9% gain over that term. Some traders are short covering on word from OPEC President Mr. Saleh al-Sada confirming there will be a meeting in late September to discuss caps on production. As Yogi Berra said, this is “déjà vu all over again.” Nothing is going to happen despite Venezuela, Ecuador and Kuwait clamoring for production limits, which of course they will ignore. Saudi Arabia is not going to go along because they don’t want to give up their market share to their arch enemy Iran. Additionally, the Russian energy minister stated that a production freeze is unnecessary because prices are more or less at a normal level.
Oil prices continue to edge higher this morning with WTI up 37¢. We could see a WTI rally into the $45.00 – $45.35 and it still could be nothing but a corrective short covering.
Courtesy of MDA Information Systems LLC
Natural gas slipped 2.4¢ yesterday closing at $2.748. The bears came into the market after reading that U.S. dry production hit 73 Bcf over the weekend which is a multi-month high and ½ Bf/d greater than last week’s average. That being said, natty has spent the last 2 months waffling around $2.75 with the market balanced between record power burns in the electric generation sector on the bull’s side and ample production, high storage levels and us coming into a shoulder month on the bear’s side. Natty is looking to continue its slide for a 4th consecutive day with it being done 6.3¢ this morning.
It’s very hot in Texas right now and air conditioners are running 24/7 putting a record demand on the electricity grid. ERCOT announced yesterday afternoon a new system wide peak demand was set yesterday at 70,169 megawatts between 4 and 5 PM. The previous record was set on August 10th last year. 5,000 MW’s of wind generation contributed to the supply mix.
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. Give a man someone else’s fish and he’ll vote for you for life.” A famous Chines proverb, slightly modified.