Equities and the Economy:

• Stocks post worst daily performance in 8 months.
• Investors deleverage on belief President Trump’s pro-growth agenda delayed.

Ugly. Very ugly. “Black swan” events are by definition unforeseen and yesterday’s came from the political arena. After marking record highs as recently as Monday, the U.S. major indexes got obliterated yesterday posting their worst daily performance in 8 months as investors deleveraged. Since the day Donald Trump got elected investors have been buying stocks on his pro-growth, market friendly, infrastructure spending and tax reform policies. However, after a second damaging story in as many day about President Trump investors came to the realization that it’s extremely unlikely his pro-growth agenda will be implemented this year and “ran for the hills” selling stocks, booking profits and buying safe haven assets. The Dow lost 336 points, 1.6%, ending at 20,645, the S&P 500 fell 38 points, also, 1.6%, ending at 2,362 and the Nasdaq, which closed at a record for a 2nd consecutive session on Tuesday, lost 138 points, 1.3%, to 6,031.

You regular readers know I’ve been talking about how low volatility has been of late (decades low) but that all changed yesterday with the VIX, aka fear index, popping a huge 43% (that’s not a typo), it’s largest move since the day after the Brexit vote last September.

As bad as yesterday was let’s take a breath and keep things in perspective. The S&P is still up 5.3% for 2017 and yesterday’s S&P price action was just the second day the bellwether index has lost 1% or more this year. This puts the index on pace for the fewest 1% moves since 1964.

The only economic report of significance yesterday was the Fed’s report on household debt which rose 1.2%, or $149 billion, breaking the pre-recession peak set in 2008. This is a bullish economic indicator for it means that households believe they can manage more debt.

This morning the bulls are pushing back with the Dow up 46 points. The Nasdaq is up 43 points. Investors are still in love with Big Tech.

By the way, yesterday Russia’s President Vladimir Putin offered to turn over to Congress records of President Trump’s discussions with Russian diplomats stating there was nothing stated in the conversations that would jeopardize U.S. national security. I’m sure the word of the ex-KGB leader will carry a lot of weight with Congress.

Oil

• Oil prices close near 3 week highs.
• EIA report shows U.S. inventories fell for 6th consecutive week.

Oil prices rose yesterday on the EIA’s report that U.S. crude stockpiles fell by 1.7 million barrels which was the 6th straight week of declines. WTI closed up 41¢ at $49.07 and Brent added 56¢ settling at $52.21. Although inventories fell, they fell much less than the market was expecting, hence the muted rise in prices. Traders were looking for a drop of 2.3 million barrels. Additionally, gasoline inventories fell by 400,000 barrels, less than expectations of a drop of 800,000 barrels. U.S production has now grown 10% since mid-2016 to 9.3 million bpd.

Supporting all commodities priced in U.S. dollars is the fact that the dollar has fallen 2% over just the past 5 days and is at a 6 month low vs. a basket of currencies.

OPEC begins its big meeting exactly a week from today.

This morning WTI is flat up a nickel.

Courtesy of MDA Information Systems LLC

Natural Gas

• June natural gas off 3.8¢.
• Front month price down 7% in a week.

After pushing to a 4 month high last week just below $3.450 prompt month prices have pulled back 7% including yesterday’s 3.8¢ decline closing at $3.192. Of note, the calendar strips didn’t fall at all yesterday. I always pay close attention to the calendar strips because that is where forward natural gas and electricity prices are set, which is what we really care about.

Traders are getting set up for this morning’s weekly EIA storage report. The market is looking for a 62 Bcf injection. This week last year we saw a 71 Bcf injection and the 5 year average is 87 Bcf.

It’s all quiet pre-EIA report with natty up 0.5¢. Chatter.

Elsewhere

OK. Our stock portfolios got knackered yesterday. But it could be a lot, lot worse. You could be Tsutomu Yamaguchi. During WW II Yamaguchi was on a business trip. On August 6th he was about to leave the Japanese city he was visiting and looked up and saw a lone bomber overhead. He then saw two small parachutes sail down and before hitting the ground unleash a “great flash in the sky” knocking him to the ground. Mr. Yamaguchi was in Hiroshima. At the time of the explosion he was only 3 kilometers from where the bomb exploded, He was temporarily blinded, his ear drums were ruptured and part of his body was severely burned. He quickly recovered and scrambled to an air-raid shelter.

The next day and after receiving treatment he returned home to his native city and despite his injuries went to work. In the late morning he was in a meeting talking to a director of the company about the Hiroshima bombing. In the middle of the discussion the landscape outside suddenly exploded accompanied with an iridescent white flash. Yamaguchi was in Nagasaki. He dropped to the ground just seconds before the shock wave hit shattering office windows and sending debris careening through the room.

Unlike many others, Yamaguchi recovered and became famous for the man who survived two atomic bombs. Lucky, or unlucky? .