Equities and the Economy

The rally is in full force however yesterday it wasn’t Santa Clause who brought the present, but it is someone with white hair: Janet Yellen. And the present was the strangest form, an interest rate hike. So how can this be?! Especially when the Fed said the hike was a tentative beginning to a “gradual” tightening cycle. The answer is that the interest rate hike present was wrapped in dovish language. The Fed went out of its way to assure the markets that this would not be a traditional tightening cycle. Folks, the Federal Reserve just embarked on what will be the loosest tightening in its history! They central bank said the economy is expected to continue to perform well and a slight increase in the fed funds rate was appropriate while it recognized that even after this hike monetary policy remains accommodative. Interpretation: the Fed gave savers a little bit more interest, investors a little bit more confidence in the economy, and businesses a little bit more expectation of inflation. Speaking of inflation, the Fed said that in deciding its next move it would put a premium in monitoring inflation. This is somewhat in contrast to what it was primarily keying on previously which was the unemployment rate.

Immediately upon the announcement of the interest rate increase the Dow, which had been trading in the green all day, fell 110 points and into the red. That literally lasted about a second for 7 minutes later it was trading 180 points higher! At the final bell the Dow was up a big 224 points, 1.28%, at 17,749, the S&P 500 gained 30, 1.45%, to 2,073 and the Nasdaq closed once again over 5,000 at 5,071, up 76, 1.51%. Volume was strong at 8.48 billion shares, above the average of 7.2 billion for the last 20 sessions.

Although all eyes were on the Fed, there were some economic reports of note. The Commerce Department reported that housing starts rose very robust 10.5% in November from October to an annualized rate of 1.7 million homes. This was way above forecasts of 1.10-1.14 million starts. It was South and Midwest which saw big increases and it was in the multi–family sector. As good as the housing report was, industrial production was poor. The Fed reported industrial production fell 0.6% in November, the largest decline in 6 months. Analysts were expecting a decline of 0.2%.

This morning Dow futures are up 66 points. The Asian markets closed materially higher today and the European markets are currently hugely up. For example, Germany’s DAX is trading 3.24% higher.

Oil

After rising for two days oil prices got hammered yesterday with WTI falling $1.83, 4.9%, closing at $35.52 and back toward 11 year lows. Brent didn’t fare any better losing $1.26, 3.3%, settling at $37.19. WTI prices were looking pretty good in the morning, and then 9:30 CST came around. It was at that time when the DOE released its weekly crude and products report stating crude inventories rose 4.8 million barrels last week, way over expectations. In fact, analysts were expecting a decline of 1.4 million barrels in stocks. Although expected, the Fed raising interest rates didn’t help which strengthened the U.S. dollar. Remember, a stronger dollar is bearish of commodities priced in the greenback.

It appears global oil supplies continue to grow. Russia’s Rossat, the official Russian government statistical office, reported yesterday that it produced 448 million tonnes of oil and condensate in the January through November period which is 1.3% higher than the same period last year. Platt’s is reporting that with Iraq’s crude production increasing OPEC is not producing 31.17 million bpd, up from October’s 31.08 million bpd.

This morning oil is quiet with WTI down a nickel. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

The weather continues to heavily weigh on the natural gas market with natty falling 3.2¢ closing at $1.790 dropping to a fresh 14 year low. Today the EIA releases its weekly storage report which just about always gets natural gas traders excited. The market is expecting a withdrawal of an anemic 30 Bcf.

The weather forecast is a repeat of yesterday’s and continues to show extremely warm weather with much above temperatures, 15-20 degrees above normal, in the east through the last day of December. I’m seeing some shorts take profits this morning ahead of the storage report with natty up 3.2¢ as I write.

Elsewhere

Looking for that special holiday present? How about a ghost town?! Yep, you can buy an entire South Dakota ghost town, complete with its own watering hole. You’ll get the town of Swett which is roughly 6 acres and includes a tavern, three bedroom house and a former tire shop. All for the rock bottom price of $250,000, down from $399,000. You’ll also get a brand new town sign, courtesy of the state of South Dakota. The old one needed to be replaced because it was riddled with bullet holes.

Back in the 1940’s Swett was a thriving metropolis with 40 residents and it had a post office and grocery story. It’s most recent residents include town owner Lance Benson, his wife and dog, who put up the community for sale last year before losing it to the bank.

There’s been several written offers, including one from a Russian movie production company that wanted to film there, but none closed. Swett is located only about 100 miles southeast of Rapid City. Heck, with the wide open roads there you could commute!

The Energy Blog will not be published tomorrow for the author is taking a day of vacation.