Equities and the Economy:

• Stocks close lower on Friday.
• Dow and S&P log second consecutive down week.

U.S. equities closed out the week on a down note with the Dow shedding 100 points to 23,358, the S&P 500 posting a loss of 7 points to 2,579 and the Nasdaq sliding 11 points to 6,783.  Both the Dow and S&P posted a second consecutive week of losses with the former down 0.3% and the latter down 0.1%.  The Nasdaq bucked the trend gaining 0.5% last week.

Investors continue to focus on corporate earnings and tax reform.  On Friday there was nothing stunning on either subject but on Thursday the House Republicans passed their version of a tax bill.  The Republican-backed legislation has a long way to go with the Senate’s version being very different than the House’s, but with the fractious House Republicans coming together the odds now look to be better and even a bill will eventually be sent to President Trump for signature.  Republicans want (need!) to send something to Trump by Christmas.

Fundamentally, U.S. home building jumped to a one-year high in October surging 13.7% to a seasonally adjusted rate of 1.29 million units per the Commerce Department.  That is the highest level since October 2016.  September’s rate was revised up 8,000.  Groundbreaking activity in the South, which accounts for almost half of U.S. residential construction, soared 17.2% in October after plummeting in September due to Harvey and Irma.

This morning stocks are pointing to a muted open with the Dow up 20 points.

Oil

• Prices rebound on Friday.
• Post first weekly loss in six weeks.

On Friday oil prices rebounded but not enough to avoid posting a loss for the week.  WTI closed up $1.41 at $56.55 and Brent added $1.36 to $62.72.  For the week WTI lost 0.3% and Brent was off 1.3% posting their first week of loss after 5 weeks of gains.  Losses were driven by concerns of a surprised build in U.S. inventories last week and an increase in U.S. production to a record weekly level.

Not helping the bulls, on Friday the American Petroleum Institute reported that U.S. crude oil production rose 7% in October y-o-y to average 9.4 million bpd, the highest since October 1972.  Production has now held above 9.0 million bpd for 9 consecutive months.

Baker Hughes on Friday released its regular rig count report noting the U.S. aggregate rig count rose by 8 to 915 with the entire 8 being natural gas directed.  The oil rig count was flat week on week.

Last Thursday the Keystone pipeline leaked about 210,000 gallons of oil in northeast South Dakota.  Keystone carries 590,000 bpd of oil from Alberta’s oil sands to market in the U.S.  This is really, really bad timing for TransCanada, the pipeline owner and operator.  The state of Nebraska is schedule to vote today whether to approve the Keystone XL.

This morning WTI is on the defensive this morning down 63¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Short covering on Friday.
• Prices down for the week.

After trading at a 5 month high last week just below $3.25 prices and prices falling all week, short covering came in on Friday with December natural gas closing up 4.4¢ at $3.097.  Prices have fallen about 20¢, 6%, from that high despite weather which is price supportive.  Prices have been capped by increasing U.S. production which is up 400,000 MMcf/d in 2017 relative to 2016 with demand slightly down this year compared to last year.

The Monday morning weather forecast is almost always a market mover in the winter and this morning’s is oh, so slightly warmer for the eastern half of the U.S. compared to Friday’s which is bringing in some bears with natty down 6.0¢.  For the last couple of weeks and looking through the end of the month the jet stream has been firmly entrenched cutting the country in half with a ridge in the western half of the country resulting in above normal temperatures there and a deep trough in the east allowing cold Canadian air to flow down to the Gulf of Mexico with temperatures consistently being below average.

Elsewhere

At an event last week Elon Musk announced the launch of an electric semi tractor-trailer.  Like all electric vehicles, the challenge to the truck is that it’s limited to 500 miles, far less than a diesel truck can travel, and takes much more time for the batteries to recharge than it takes to refuel a diesel truck.  Following that announcement the crowd got a surprise.  Elon showed off Tesla’s new version of its roadster.  The vehicle will be the first production car to go from 0 to 60 mph in less than 2 seconds.  Musk is looking for 1,000 buyers who will put down a $50,000 deposit for the $250,000 vehicle, which you won’t get delivery until 2020, at the earliest.  I have no doubt he’ll get the 1,000 very quickly.