Equities and the Economy:

Yesterday U.S. stocks closed mostly flat to Friday with the Dow posting a 22 points gain to 18,869, the S&P 500 closed flat to Friday at 2,164 while the Nasdaq lost 19 points ending at 5,218. Of note, the Dow closed at another record high. The Dow has performed phenomenally recently posting a 5.48% gain off its recent low on November 4th. But since the election not all sectors are “seeing the love.” There’s been a huge rotation in the market with money pouring into the Dow companies at the expense of technology stocks. The sector that’s performed the best are the financial stocks on the expectation that inflation is coming with Trump’s fiscal policy which means higher interest rates which benefit banks. Speaking of interest rates, it’s widely expected the Fed will raise the interest rate at its December 13-14 meeting to the order of 90%.

With the expectation of inflation coming bonds have been getting massacred, not just here in the U.S. but globally. The benchmark 10 year U.S. Treasury bond yield hit a new high for the year yesterday at 2.20% and the 30 year T-bill is up to 3.0%.

Yesterday there was no economic reports of consequence so let’s move on to today, which is a mixed bag being the complete opposite of the recent trend. The Dow is down 30 points while the Nasdaq is up 49. But all-in-all this is all chatter.

Oil

After a multi-week shellacking with oil prices closing at two month lows prices stabilized yesterday with WTI closing down a meaningless 9¢ at $43.32 while Brent lost 32¢ settling at $44.43. With OPEC producing at record levels and traders doubting the ability of OPEC to come to an agreement on a production cut traders have been selling it hard. Additional pressure is coming from the FX market with the dollar hitting an eleven month high yesterday vs. a basket of other currencies.

This morning WTI is getting a nice pop being up $1.70 on a couple of factors. First, the word on the street is that Iran is close to its pre-sanction production level of 4.0 million bpd and is considering freezing its production at that level. Additionally, the market was materially oversold with the boat listing way too heavily to the short side and some covering is coming in. It wouldn’t surprise me if we rally into November 30th, the OPEC meeting. Here’s how I see this playing out. Prior to the November 30th meeting OPEC announces they have an oral agreement to cut production. It’s put in writing and everyone gleefully signs it. And everyone, sans for maybe the Saudis, cheats. One thing history has shown us over four decades is that OPEC’s members cheat. Further, they cheat more when prices are low than when prices are high because they need the cash flow. And there’s an extra incentive to cheat in today’s oil environment because any market share that OPEC, or Russia, give up as a result of cutting production will be gladly absorbed by the U.S. producer and you know that is completely unacceptable to OPEC’s members.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices flew higher yesterday closing at their highest level in a week with the December Nymex contract posting a hefty 13.0¢ at $2.749. This was the December contract’s highest close since November 7th. A combination of high storage levels and bearish weather has pounded natty prices. Ok, I’m putting a flag in the ground. The prices we saw last week are going to be the low for the winter. Why? Call it 30 years of trading intuition. Everything is bearish, but prices are going up, not down. Now I’m not a raving bull, I’m saying we’ve seen the low of the winter.

This morning’s weather forecast has turned marginally bullish with the below normal temperatures in the southeast expanding for the 6-10 day term with normal temps for Appalachia east in the 11-15 day time frame. This morning natty is up 6.3¢.

Elsewhere

Did you see it Monday night or last night? If not, don’t fret. You’ll get another chance tonight. I’m talking about the moon. You say “What?! I see it most every night.” But right now it’s different. It’s a “supermoon.” At 5:23 AM on Monday the moon passed within 216,486 miles of the Earth, about 22,000 miles closer than average creating the largest, brightest full moon in 68 years. The moon appeared 14% bigger and 30% brighter than usual. The term “supermoon” is used to describe a full moon that occurs during the moon’s closest point of orbit to the earth. The best viewing of a supermoon is at moonrise when the moon begins to sneak above the horizon in the eastern sky. This is indeed a rare event. The last time a supermoon occurred was 1948 and the next time will be November 2034.