Equities and the Economy

Yesterday, the Dow, S&P 500 and Nasdaq closed at 16,337, 1,913 and 4,504, respectively. Let’s see how this compares to last Friday’s closes which is when we had our last Blog data. Last Friday the Dow, S&P 500 and Nasdaq closed at 16,466, 1,940 and 4,614, respectively. So we’ve little ground over the last three sessions, about 2%. Nothing that can’t be made up in a couple of sessions. Actually, over the last two weeks we’ve range traded between 1,859 and 1,940 basis the S&P. The low on January 20th has held and we’ve had higher daily lows which is good technical sign, but we’re not out of the woods yet. We need more time to determine if this is simply a correction higher in a bear market (from the fall from the highs in November and December) or if we really have put in the low.

There were two reports released yesterday of fundamental importance. The first was the ADP Research Institute’s private sector report noting 205,000 new jobs were added in January which was better than economists’’ forecast of 195,000. The ADP report is closely monitored by investors for ADP is the nation’s largest private payroll processing company and is viewed as a prelude to the Labor Department’s monthly employment situation report which is released tomorrow. I’ll classify ADP’s report as “nice.” It’s not stunningly impressive but is “nice” miss to the “good” side.

The other report that was released was the Institute of Supply Management’s index for the nation’s service sector. The January index came in at 53.5 falling from December’s 55.8. January’s number is the lowest in the past two years and was mildly lower than forecasts. That being said, the index is still well above “50” which is the demarcation between expansion and contraction. The news was disappointing, but no bleak.

This morning with the oil/equity relationship continuing the Dow is up 89. The Asian markets closed mixed today the European markets are trading the same.

Oil

Oil prices rallied sharply yesterday with WTI gaining $2.40, a huge 8%, closing at $32.28. Brent’s rally was equally strong closing up $2.32, 7.1%, settling at $35.04. Two factors pushed oil prices higher. The first was the gaining momentum of the discussion of a meeting of both OPEC and non-OPEC (Russia) countries to meet to discuss the low oil prices and possible production cuts. There was an announcement yesterday that the number of countries that are in talks about meeting has grown to six. The ever hawkish Venezuela is the country making all the announcements so we need to take it all with a small grain of salt. That said, it does appear momentum is increasing. Now no meeting has yet to be scheduled but there definitely seems to be momentum in that direction. We are a long way from actually having production cuts, and even if cuts are announced, the only country that has ever curtailed production has been Saudi Arabia for every other country talks cuts but egregiously cheats. That being said, the discussion of a meeting is all things being equal bullish which brought in buyers. If nothing else, all this news has “talked” oil prices higher.

At least equally supporting oil prices yesterday and fundamentally bullish was the U.S. dollar’s precipitous fall yesterday relative to other currencies. For example, the greenback fell 2.3% vs. the euro yesterday. Now this may not seem like much but in the world of currency exchange a 5% annual move is a material change. So as you can see, a 2.3% daily move is huge! As we all know, a falling dollar is bullish of commodities priced in U.S. dollars and being oil is one of them, buyers came in. WTI continues to have legs this morning being up $1.07.

Courtesy of MDA Information Systems LLC

Natural Gas

Last Friday the March natural gas Nymex contract settled at $2.298. Over the last three sessions it has gotten destroyed falling 11.3%. And that includes yesterday which was an “up” day gaining 1.3¢ settling at $2.038. Since Friday the weather forecast in the 11-15 day time frame, which is the new news, turned markedly warmer with today’s forecast showing above normal temperatures across just about the entire U.S. for the middle of February. There’s no better way to slay a bull in the winter than to throw above normal temperatures at him. The electric power generation sector is basking in this low temperatures sucking up record amounts of natural gas, at the expense of the coal industry.

Today the EIA releases its weekly storage report at 10:30 EST and the market is looking for a withdrawal of 145 Bcf. This is materially larger than last year’s withdrawal for this same week which was 112 Bcf but materially below the 5 year average of 165 Bcf. This morning natty is down 4.1¢ and below the insanely low $2.00 level.

Elsewhere

Clockwork Orange. A classic for the ages. But what I bet you didn’t know was that Mick Jagger was initially targeted as the character, Alex. Anthony Burgess, the author, wanted to sell his novel rights to Mick Jagger for a few hundred dollars. Luckily for the sale of the film industry Stanly Kubrick took over and Malcom McDowell got the main part and Kubrick directed what is considered to be the most controversial movie of all time. By the way, most of the “unknown” words, like “droogs,” are taken from the Russian language. Time magazine listed the book as one of the best 100 English language novels written since 1923.