Equities and the Economy:

• Dow closes at record high.
• Fed raises interest rates.

As almost universally expected, the Fed raised the overnight lending interest rate (Fed funds rate) a ¼% yesterday marking its 3rd rise in 2017 to 1.5%. The increase was baked into the markets and the equity action was choppy yesterday. The Dow rose 81 points ending at a new high of 2,585 and the Nasdaq also posted a gain rising 13 points to 6,875 but the S&P 500 ended technically lower, a point, to 2,663, but I call that “flat.” Kudos to the Fed for doing a great job of communicating their intentions to the financial markets and thus not surprising, not causing shockwaves, in the market. Regarding next year, the Fed stuck to its earlier forecast there will be three rate increases in 2018. In Fed Chair Jane Yellen’s final press conference she stated the central bank expects the job market to remain strong, but the pace of job growth should decelerate as the Fed continues to tighten monetary policy.

Turning to the fundamentals, the consumer price index jumped 0.4% in November. ¾ of the increase was due to higher gasoline prices. Core prices, which strip out the more volatile food and energy, rose a much smaller 0.1%. The Fed focuses much more closely on core inflation rather than overall inflation and I’m sure they weren’t happy about that low core inflation number. That being said, they place more weight on wage inflation, which is the primary driver of inflation, and they see a tightening labor market, and expect that to continue in 2018, hence they’re raising interest rates now.

Yesterday congressional Republicans said they have reached a deal on tax legislation (remember, it’s in conference committee to work out the differences between the House and Senate bills) increasing the chances a bill will be on President Trump’s desk before the end of the year. Congress must of course vote on it before sending it to Trump, and the vote will be extremely close in the Senate. Senate Republicans lost a seat on Tuesday to Democrats in the special election in Alabama and yesterday Senator John McCain (AZ) went back into the hospital for cancer treatment.

This morning the bulls are trying to reestablish the momentum. The Dow is up 36 points.

Oil

• Prices hit low for the week.
• U.S. crude production continues to climb.

In a whippy day oil prices closed lower with WTI ending down 54¢ at $58.60 and Brent off 90¢ to $62.44 with prices for both oils ending at a weekly low. Brent’s price pop earlier in the week due to the outage of the Forties North Sea pipeline system has evaporated.

A couple of important fundamental reports were released yesterday. First, the EIA released its regular weekly crude and products report. While the crude data was very bullish showing inventories fell by 51 million barrels last week and greater than expectations of a 4.0 million barrel decline, gasoline inventories rose much more than the forecast of 1.6 million barrels with an actual increase a big 5.7 million barrels. The crack spread continues to work for refiners.

The other report was OPEC’s monthly production report which stated the cartel’s production in November fell by 133,5000 bpd to 32.45 million bpd. That’s the lowest in 6 months. However, that bullish news was offset with the report also stating that U.S. production is rising faster than expected. Their forecast for non-OPEC supply growth (that’s primarily U.S. production folks) was increased by 120,000 bpd for 2018 to 990,000 bpd. This data combined with the EIA saying yesterday U.S. crude production rose 73,000 bpd to 9.78 million bpd, a fresh weekly record dating back to 1983, brought out the bears.

This morning the bears are pressing with WTI off 49¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices bounce marginally.
• Storage report today.

After multiple days of getting hammered, natural gas prices managed a small bounce yesterday with January Nymex gas closing up 3.7¢ at $2.715. That price is so low, and not a good omen for the bulls. Normally, January and February Nymex gas prices are the highest prices for the year! But you never know. I’ve seen December gas prices be the lowest of the year as well as summer prices be the highest of the year. The market is not going to make itself that predictable. Not that easy to trade!

Prices have fallen nearly 57¢, 18%, since the December Nymex contract expired at the end of November, despite some generally supportive weather, well, at least in the 11-15 time frame. The 6-10 day period is downright bearish with above normal temperatures forecast for basically the entire country, but the 11-15 period shows some very cold weather in the upper plains. Now that cold is just west of the major gas consuming areas which is the upper Midwest (Chicago) and the mid-Atlantic and northeast states, but if that cold mass moved just a little bit further east there would be a big jump in natural gas consumption for space heating.

Today the EIA releases its closely followed storage report. Traders are looking for a 60 Bcf withdrawal, which is below average. Last year for this week we saw a whopping 132 Bcf withdrawal and the 5 year average is 71 Bcf.

This morning natty is chopping around down 2.8¢.

Elsewhere

Netflix. Who hasn’t watched it?! And along with that, binge watched Netflix has compiled some data for 2017. Here you go.

• Biggest streaming day of the year: January 1st.

• Country with the most members watching Netflix every day: Mexico.

• Average total number of hours watched per day globally: 140 million (= 1 billion hours per week).

• Average number of movies a member watched in 2017: 60 (1 every 6.08 days).

• One member watched Pirates of the Caribbean: The Curse of the Black Pearl 365 days in a row.

• A user in Antarctica binged through Shameless.