Equities and the Economy:

• Dow ends 5 session advance.
• Equities moving on tax bill news.

The Dow broke its 5 session, 4 record high advance yesterday closing down 77 points at 24,509. The S&P 500 fell 11 points, 0.41%, to 2,652 and posting its largest daily percentage drop since November 15th. Don’t panic amigos. Tuesday the index hit a record high. The Nasdaq dropped 19 points to 6,857. Equities recently, and even more so this past couple of weeks, are knee-jerking based upon every news report on the progress on the tax reform bill passing. Investors have taken equities to record highs betting the bill will pass, but are on edge about it. Yesterday the uncertainty of it passing increased with Senators Marco Rubio (FL), Mike Lee (Utah) and Bob Corker (TN) not yet coming out in support of the bill. Rubio actually came out in opposition expressing his displeasure because the bill left out an expansion of the child care credit. Senate Republicans can only afford to lose two votes and still pass the bill.

The economic data was mostly positive yesterday. Sales at U.S. retailers climbed 0.8% in November coming in at double the forecast. The flash U.S. manufacturing PMI for December rose to 55.0 from 53.9 in November. On the bearish side, the flash U.S. services activity index fell to 52.4 from 54.5 for the same months. However, the most important thing is that both indexes are well over 50.0 indicating growth

This morning is starting off well with the Dow up 89. With the holiday approaching volume will begin to fall which could lead to a choppy market.

Oil

• Prices stabilizing.
• IEA production report mixed.

After coming off 2 ½ year highs oil prices are stabilizing. After falling on Wednesday, prices bounced yesterday with WTI closing up 44¢ at $57.04 and Brent gaining 87¢ settling at $63.31. At the macro level prices are supported by the OPEC and Russia cuts of 1.8 million bpd through at least June as well as the shut-in of the North Sea Forties pipeline. On the bearish side, the U.S. oil production juggernaut continues. Yesterday the IEA, not our EIA, said they expect a 200,000 bpd global oil surplus in the first half of 2018 reverting to a deficit of about the same amount in the second half of the year stating that the market will be “closely balanced” for the year. They also said they forecast U.S. oil production to increase by 870,000 bpd next year, up from its November forecast of 790,000 bpd.

Per Reuters, investors are still pouring cash into shale producers. Hedge funds and private equity firms have given producers a range of new and traditional financial levers they can pull as needed to keep shale rigs running.

It’s chatter this morning with WTI up 22¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• EIA storage report bullish.
• Prices flat.

The EIA released its weekly storage report yesterday stating 69 Bcf was withdrawn from U.S. storage fields last week. This was more than forecasts of 60 Bcf. However, the number wasn’t enough to get the bulls excited. January gas settled 3.1¢ lower at $2.684. Intraday January gas fell as low as $2.643, the lowest intraday level since the second half of February. The price action though was all in the first 2 months with all the other months, including the calendar strips, virtually unchanged.

Current storage levels are now 201 Bcf below where they were last year at this time and 27 Bcf below the 5 year average.

I’m not seeing much change in the weather forecast. The very cold weather remains just west of the major gas consuming regions of the country. Natty is up 1.8¢. Chatter.

Elsewhere

Yesterday the FCC in a 3-2 vote killed internet neutrality. On one side you had AT&T, Comcast and Verizon and the other side the likes of Google’s parent Alphabet and Facebook. The primary fear is that ISP’s will limit what you see by prioritizing one content provider over another or slowing a certain content providers internet speed down. ISP’s say they won’t block or throttle legal content but have stated they will engage in paid prioritization. They argue that the largely unregulated internet functioned well in the two decades before the 2015 order. Consumers are unlikely to see any changes, at least in the short term, but the smaller start-ups are worried the restrictions will drive up costs or their content being blocked.

Here’s one thing for sure. There will be protracted legislation. Those challenging the ruling will point to a law called the Administrative Procedure Act which says an agency like the FCC can’t be arbitrary or capricious, meaning that the FCC of 2017 will have to explain why it disagrees so completely with the FCC of 2015. The 2015 FCC put internet providers under the same “telecommunication services” regulatory framework as phone companies. The Title II rule gave the FCC clear authority to create net-neutrality protections. Over the last decade of net-neutrality politics, only one group has consistently done well: telecom lawyers.