Equities and the Economy

The big news affecting the market yesterday was what the FOMC would say in its post meeting communique at 2:00 PM EST. As a matter of background, the message the Fed was sending in December 2015 was there would be multiple (4?) interest rate increases in 2016. Then oil prices and equity markets fell hard (oil prices hitting 12 year lows) so investors were wondering, actually anticipating, a move to a more accommodating/dovish monetary policy. And that’s exactly what they got. As expected, the Fed did not raise interest rates. The Fed’s communique in December stated their views on the economy going forward were “balanced.” This key word was removed from their statement yesterday and they reinserted language about their concern about global economic circumstances that had been taken out of their December ’15 statement. They even went further saying they were no longer “reasonably confident” about reaching their 2% target rate for inflation.

Upon the release of the communique the market U.S. dollar held steady and U.S. stocks rose with investors deducing that a shift to a more accommodating monetary policy is good for equity prices (we’ve learned that equation over the last 7 years!). But the strength was ephemeral and from that point on stock prices traded lower with the Dow closing down 223 points, 1.38%, at 15,l944, the S&P 500 off 21, 1.08%, to 1,883 and the Nasdaq falling an even hundred points, 2.18%, to 4,468. Interestingly, stock prices fell even though oil prices rose. Note the S&P is still above the 1862-1869 support level.

Other than the FOMC’s post meeting communique the only other fundamental economic report was the Commerce Department reporting that new home sales rose a very robust 10.8% in December to an annualized rate of 544,000. The was well above expectations. For all of 2015 new home sales were up 14.5% to 501,000 while the median price of a new home fell 4.3% from the same period one year ago to $288,900. Don’t take the lower price as an indication of weakness. It’s builders targeting Millennials, many who’ve been left behind as home prices have increased over the past number of years.

This morning U.S. stock futures are higher with Dow futures up a nice 140 points. Nasdaq futures are performing a little better, up 1.39%, with Facebook posting strong earnings. Asian stocks closed mixed. China’s Shanghai continues to get just bludgeoned closing 2.92% lower and down a portfolio crushing 49% from its June 12, 2015 high. The Shanghai is made up mostly of retail investors, the Chinese citizen, and being a communist country where the government dictates everything, they view it as the government’s role to support the stock market. They are very unhappy right now! European stocks are painting red being flat to down 1.08%.

Oil

As mentioned above, oil prices rose yesterday with Brent making the bigger move closing up $1.30, 4.1%, at $33.10. This is the second day that Brent has closed over $33/bbl. WTI settled 85¢ higher, 2.7%, at $32.30. Prices move higher despite a bearish DOE weekly crude and products report showing crude and gasoline inventories increasing greater than expectations although distillate inventories dropped greater than forecast. I think a lot of this was already built into the market on the bearish API data from Tuesday. Also, on the FOMC’s dovish communique the U.S. dollar fell supporting all commodities priced in the greenback.

This morning WTI is coming out of the gate strong up $1.34 on a news report of Russian Oil Minister Alexander Novak stating there are meeting ongoing to discuss possible moves to coordinate oil production levels with OPEC. That’s the ying. Here’s the yang. Russia reported today that the country’s oil production in January climbed 83,000 bpd to a new post-Soviet record at 10.89 million bpd. I’m sure that the higher oil price is pushing equities higher. That correlation didn’t hold yesterday afternoon but an investor or trader is not going to abandon a trading strategy that has worked for weeks on one event that didn’t confirm the correlation

Courtesy of MDA Information Systems LLC

Natural Gas

The 2016 February Nymex natural gas contract’s final day of existence was yesterday with it expiring at $2.189/MMBtu, up $0.009, setting the price of those with unhedged natural gas and heat rate electricity supply agreements. Very uneventful for a contract expiration day. Yesterday concluded a run of 6 out of 7 days of higher natty prices. The overnight weather forecast is little changed from yesterday with above to well-above normal temperatures expected across the East in the next 5 days followed by a shift to normal to below-normal temperatures in the east. Although cold weather remains the now prompt contract March is down 5.2¢. Winter over?

It’s Thursday and you know what the means. EIA natural gas storage report time. The market is looking for a very hefty withdrawal of 210 Bcf which compares to this week last year of 112 Bcf and the five year average of 170 Bcf.

Elsewhere

On January 16th the town of Elkmont, Alabama hosted a half marathon just like so many other cities and towns have done. However, this one had an unexpected and unregistered runner, Ludivine. Now this is not unique in itself for people are always crashing races but this one was crashed by a runner with four legs. You see, Ledivine is a two year old bloodhound who was let outside for a quick bathroom break. The canine managed to escape her backyard and decided to join the Elkmont Trek Half-Marathon. The dog joined runners at the starting line and followed the runners as the race began. An hour and a half later and Ludivine finished the race, and got a medal, for she finished in seventh place! Ludivine’s official time was 1:32:56, a pretty impressive feat for a dog described by her owner as “actually really lazy.” Racers who ran alongside Ludivine say she actually ran further. Per Tim Horvath, a race participant, “One time she went over and met another dog next to the course. Later on, she went into a field with some mules and cows. Then she’d come back and run around our legs. I wondered if she was going to get tired or go back wherever her home was.” April Hamlin, Ludivine’s owner, was unaware her dog was running the race. She only learned about it from friends who recognized the dog in the race. Ludivine’s feat will go down in history for the race has been renamed the “Hound Dog Half.”

Ludivine was not the first dog to accomplish this feat. He joined Dozer from Maryland who also ran a half-marathon in 2011. But the grand champion of all may be Arthur. Arthur was a South American stray who attached itself to a participating team during, are you ready, a 430 mile extreme race. A Swedish team in the final stages of the 430 mile Adventure Racing World Championship gained the mascot after their team captain fed the stray a meatball. Arthur followed the team for six days through extreme obstacles including jumping in and paddling after the team as they departed on a 36 mile kayaking trip. The captain of the team adopted the stray, naming him Arthur, and took him back to Sweden with him.