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Morning Energy Blog – December 9, 2016

Equities and the Economy:

• U.S. stocks continue to log record highs.
• World stocks are at 16 month highs.

I bet you didn’t realize this but something happened in the stock market yesterday that hasn’t happened in 20 years. 5 major stock index benchmarks finished at record highs on the same day. The Dow closed up 65 points at 19,615, its 13th record finish since the election. The S&P 500 closed up 5 at a record 2,246. The Nasdaq ended up 23 points at 5,417 its first record since November 29th. The Russell 2000 index, a broad index of small cap stocks, also closed at a record 1,386 and the Dow Jones Transportation Average extended its climb to new heights ending at a fresh record of 9,421. The Dow has now posted gains in 19 of the past 23 sessions. You can now go check your 401K. Equities have been on a record–setting run on the belief that President-elect Trump will implement pro-business policies and increase fiscal spending boosting the economy.

The euphoria is not limited to the U.S. World stocks are at 16 month highs and set for their best week since February. Helping European stocks yesterday was the ECB’s announcement they were extending their QE bond buying program to December from March which was 3 months longer than analysts were forecasting. Talking about central banks, our FOMC will have its December meeting on Tuesday and Wednesday with everyone expecting them to raise interest rates by a quarter percent.

The most important economic data point yesterday was weekly initial jobless claims which fell 10,000 to 258,000 last week. This is the 92nd consecutive week claims have been under 300,000 below which is a healthy jobs market.

Here’s an interesting economic data point: orders for heavy trucks. Heavy trucks are expensive. They are not bought on a whim. They are heavy-duty pieces of capital equipment that are bought when and only when business activity warrants the purchase. Well, for the first time in two years the number of heavy duty trucks bought in November rose y-o-y. Now that in itself is positive, but the magnitude of the increase is stunning! November’s orders for heavy trucks was a huge 41% over October’s. Y-o-y the increase is 18%! Folks, the economy is doing better. Much better.

Overnight Japan’s Nikkei Index posted a 1.2% gain closing at its highest level since last December. In Europe stocks are marginally higher as they are here in the U.S.

Yesterday I mentioned you should be cautious about getting long here. Here’s another reason to be cautious. Call option volume on the S&P 500 hit a record high yesterday exemplifying the bullishness of the market (buying calls is a bullish play). Here’s where the cautious note comes in: S&P 500 put options volume (a bearish play) hit a record high back on August 21, 2015, which nearly marked the bottom of the stock market.

Oil

• WTI price rebounds $1.07 closing at $50.84.
• OPEC oil output increases for 6th consecutive month in November

After settling at their lowest level in a week on Wednesday oil prices rebounded yesterday with WTI closing up $1.07 at $50.84. Brent added 89¢ settling at $53.89. According to a S&P Global Platts survey released yesterday OPEC oil production rose by 320,000 bpd in November from October to a record 33.86 million bpd. This marks the 6th consecutive monthly increase. OPEC recently agreed to cut production to 32.5 million bpd beginning in January so it looks like the cartel has some work to do before next month.

This weekend OPEC members meet with non-OPEC “allies” in Vienna hoping to get cooperation on production cuts from the latter. Russia, and perhaps Mexico, are the most important countries. So far 8 of the 14 non-OPEC countries have agreed to attend. Game theory suggests that individual country incentives to keep to any agreement made are low.

Ahead of the Vienna meeting traders are pushing WTI higher by 61¢.

weather-12-9-2016
weather-bar-image-for-blog
Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas posted 9.2¢ gain yesterday closing at $3.695.
• EIA released weekly storage report stating 42 Bcf withdrawn from storage last week. Storage levels remain above last year and 5 year average.

After posting a marginal loss on Wednesday the bulls were stampeding once again with the January Nymex contract climbing 9.2¢ yesterday closing at $3.695. The price gain was in the face of a bearish EIA storage report. Whereas a withdraw of 47 Bcf was forecasted, only 42 Bcf was actually withdrawn. As of the report, storage levels are 51 Bcf, 1.6%, above last year and 254 Bcf, 6.9%, above the 5 year average. But this is all going to rapidly change with this week’s cold weather which is sucking hard on storage gas. Traders don’t want to short the “Arctic Bomb” hitting the Midwest this weekend and into next week (it’s cold in Houston!).

The weather forecast map continues to show lots of blue and purple on it and the 6-10 day forecast is just down-right nasty. On Wednesday Chicago is forecast to be 29 degrees below normal with a high of 11 degrees and on Wednesday Cincinnati is forecast to be 21 degrees below normal with a high of 27. No fun! With the Artic Pig upon us and settling in traders are taking natty higher this morning by 6.4¢.

Elsewhere

A hero died yesterday: John Glenn. A man made of “the right stuff.” John Glenn, who passed away yesterday at the ripe age of 95 (hope I make it to that age!) was most famous for being the first U.S. astronaut to orbit the Earth back in 1962. John Herschel Glenn Jr. had two major career paths that often intersected: flying and politics. He soared in both of them.

Before his famous orbit he was a fighter pilot in two wars as well as a test pilot where he set a transcontinental speed record. He later served 24 years as a U.S. Senator from Ohio. His long political career enabled him to return to space in 1998 at the age of 77 on board the shuttle Discovery. He still holds the record for the oldest person in space.

More than anything, Glenn was the ultimate and uniquely American space hero: a combat veteran with and easy smile, a strong marriage of 70 years and nerves of steel.

We desperately need more John Glenns.

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