Equities and the Economy:
Yesterday was yet another soggy day for U.S. equities with the Dow falling for the 4th consecutive session closing down 16 points at 18,456, the S&P 500 up 3 to 2,170 and the Nasdaq finishing 15 points higher at 5,155. After posting a sharp rally in June and early July the S&P has been in a tight range for 10 straight sessions. The Nasdaq has had a very good week driven higher by earnings from Apple and Facebook with the index now just 1.2% from its record close set on July 20, 2015. The Dow was dragged down by the automakers with Ford reporting disappointing earnings on weak sales in China and surprisingly declaring the U.S. auto industry’s long recovery was at an end. One positive for the overall market is that the longer the market trades sideways without a pullback after hitting new highs, the greater the odds of another move up. It’s like an army bivouacking after a big advance. Supply lines must be reestablished.
Turning to the economic news yesterday, the Labor Department noted that first time jobless claims rose last week by 14,000 to 266,000 which was slightly more than economists were expecting but still we’re still waffling around the 265,000 level where we’ve been for months. Today we’ll see 2nd quarter GDP reported. Q1 GDP rose an anemic 1.1%. Economists are forecasting a number double that for Q2. Something in the 2.6% neighborhood.
This morning the European markets are trading flat to marginally higher, unfortunately the love has not spread to the U.S. with Dow futures down 42 points.
Oil prices continue to tumble. Yesterday WTI lost another 78¢ closing at $41.14 and Brent fell 77¢ settling at $42.70. The WTI price is now off 20% from its high of $51.67 hit on June 9th on fears of oversupply and weak demand. Evidence of this is that the U.S. currently has 31.5 days of cover (days of U.S. consumption) compared to 26.5 days cover a year ago. Additionally, gasoline inventories hit record highs last week for the month of July while East Coast stocks reached all-time peaks. With today being the last day of trading in July, both oils are poised to end the month down 15% which for WTI is the largest monthly loss since July 2015 and December 2015 for Brent.
This morning WTI is down 16¢. Oil is due for a corrective bounce.
Courtesy of MDA Information Systems LLC
Can you say short squeeze?! After hitting a recent high on July 1st of $2.998 traders have been grinding natural gas prices lower hitting a recent low of $2.625 on July 21st. Well those sellers got whomped yesterday when the EIA reported in its weekly storage report that an anemic and shockingly low amount of gas was injected into storage last week, 17 Bcf. The market was looking for an injection of 26 Bcf. In the South Central region of the country (Texas, Louisiana and Oklahoma) storage operators actually withdrew 17 Bcf which set a couple of records. First, the salt dome operators withdrew 13 Bcf which was 4 Bcf greater than the previous record for weeks ending in July and, second, the non-salt dome operators withdrew 4 Bcf which was the first withdrawal ever reported for those facilities in July.
After the EIA storage number was released natty prices skyrocketed and at the closing bell the September contract posted a gain of a whopping 21.3¢ settling at $2.873. Folks, that’s an 8.0% jump in one day. That’s like the Dow posting a single day gain of 1,476 points! 225,000 futures contracts were traded yesterday. Well over the 100,000 that were traded Wednesday. Lots of Maalox was drunk yesterday.
Wounds are being licked this morning and traders appear not to be interested in trading with natty up 0.7¢. Weather forecasts are pretty much unchanged from yesterday with the Midwest and east seeing some above normal temperatures in the 6-10 day time frame bookended by normal temps.
It’s the time of year where everybody in Houston complains about the heat and humidity and I was hearing all last week from my colleagues in Stamford, CT about how blasted hot it was there. I think we all need to take a deep breath and put this in perspective. Last Thursday the temperature in Mitribah, Kuwait hit a blistering 129.2 degrees and on Friday in Basra, Iraq, the mercury soared to 129.0 degrees. If confirmed, these incredible measurements would represent the two hottest temperatures ever recorded in the Eastern Hemisphere, according to Weather Underground. It’s also possible that Mitribah’s 129.2 degree reading matches the hottest temperature ever reliably measured anywhere in the world. Death Valley, CA currently holds the record for the world’s hottest temperature of 134.4 degrees set on July 10, 1913 but Weather Underground does not believe it is a credible measurement because the area was not having a heat wave at the time. If you discard the Death Valley measurement, the 129.2 degree reading in Mitribah would tie the world’s highest known temperature which was also observed in Death Valley on June 30, 2013 and in Tirat Tsvi, Israel on June 22, 1942.
As bad as this seems, there’s worse. Locations along the much more sultry Persian Gulf and Gulf of Oman have experienced the most oppressive combination of heat and humidity. In Fujairah, on the east coast of the United Arab Emirates, the dew point – a measure of humidity – reached 90 degrees which combined with an air temperature of 97 degrees computes to a heat index of over 140 degrees. This combination of temperature and humidity is so extreme that it’s beyond levels the heat index is designed to measure. The heat index, developed by R.G. Steadman in 1979, is actually only intended to compute values up to about 136 degrees. In Bandar Mahshahr, Iran last Thursday the air temperature soared to 106 degrees which combined with a dew point of 86 produced a heat index over 140, also over the limit. The same city on July 31st of last year posted a heat index of (drum roll please) an opressive165!
In the much more arid Basra, where the temperature hit 129 degrees last Friday, the dew point was in the 30’s while the relative humidity was a bone-dry 3% yielding a heat index actually lower than the air temperature, about 115 degrees. The ultra-dry air increases evaporation making it feel not as hot.