Equities and the Economy

I hope everyone had a wonderful holiday. Let’s get to last Wednesday and Friday (yes, the market was open for an abbreviated session on Friday) and get it over with. The trading was light and nothing really happened. On Wednesday the Dow and S&P 500 ended virtually unchanged to Tuesday and the Nasdaq gained 13 points. On Friday it was more chatter with the Dow closing down 15, the S&P up one and the Nasdaq up 12. For the week the Dow fell 0.1% and the S&P was flat, however, this followed equities biggest weekly gain of 2015.

Of note, last Wednesday The Labor Department noted in its weekly unemployment claims report that first time unemployment claims fell by 12,000 to 260,000 in the week before the Thanksgiving week indicating the labor market continues its steady path to recovery.

All that information is now ancient history so let’s move on to this morning. The Asian markets closed mixed and not giving investors any direction, however, the European markets are trading higher, especially Germany’s DAX which is up 1.12%, and are presently near 3 month highs. I think today’s strength is front running the ECB meeting this Thursday on expectations of additional stimulus (QE). This morning the Dow is up 25 following the European bourses. Investors will be keying in on the retail sales data for this past weekend, including today, Cyber Monday. Early indications are overall sales are good. Brick and mortar sales are down 10% but on-line sales are up 14%.

It’s going to be a big week for investors for this week will be packed with fundamental data including the aforementioned ECB meeting, today’s Chicago PMI and Dallas Fed manufacturing reports and pending home sales, Janet Yellen speaking Wednesday and then testifying before the Joint Economic Committee on Thursday, and OPEC meets this Friday for its regular bi-annual policy meeting. We’ll also have on Friday the most important report of the week which is the Labor Department’s employment situation report for November.

Oil

Oil fell last Wednesday and even more on Friday closing on the latter day with WTI at $41.70 which is $1.34 lower than Wednesday’s settle. Brent closed at $44.86 down $1.31 from Wednesday. Both oils have fallen 10% in November. After getting hit the last two sessions WTI is finding a bid being up 75¢ on stronger equities.

I mentioned, OPEC will be meeting on Friday. Recently Saudi Arabia rhetoric has been more bullish expressing that it will cooperate with OPEC and non-OPEC nations. However, traders are selling that rhetoric believing Saudi Arabia will continue its policy of maintaining market share.

With gasoline prices cheap gas guzzlers are back in vogue. According to the Financial Times SUV’s account for the greatest percentage of market share than ever before comprising a third of all U.S. vehicles. Demand for GM’s Hummer is at an all-time high. I’m sure you’re saying, “GM doesn’t make the Hummer anymore!” and you’re correct. Demand for second-hand hummers is what’s hot.

Courtesy of MDA Information Systems LLC

Natural Gas

The December natural gas contract expired for the month last Wednesday up a meaningless 0.6¢ at $2.206. Pretty darn cheap for December gas my friends! Also on Wednesday the EIA released its weekly storage report, a day early, noting 9 Bcf was injected which was bearish because the market was expecting a 4 Bcf injection. The storage report didn’t push prices that much lower because natty prices are already low enough to displace coal fired generation in parts of the southeast, northeast and even Texas.

As I’ve said frequently this month, temperatures have been above normal for the month of November and it’s showing up in demand data. Residential and commercial demand is 8.4 Bcf/d less than November 2014.

The strong El Nino theme remains with the morning’s forecast very warm for the next 2 weeks, however, natty is hanging in there being up 2.1¢. The cash market is supporting the market a little with unities coming in a little short over the holiday weekend, which is not uncommon. With demand being lower on holiday weekends and without a threat of cold weather they tend to error on the short side.

Elsewhere

I came across an interesting bit of information regarding home ownership over the weekend. According to CoreLogic, as of last summer the percentage of American home owners who are still “under water” on their homes has fallen to only 8.7%. This is down materially from 21% at the end of 2011. That is a very good thing and it should translate into a better economy such as through greater retail sales. However, what’s interesting is that 27% of the nation’s homeowners still believe they are under water on their home, down by only 1% over the same period. Perception is reality. If 27% of the nation’s homeowners are convinced they are under water, they’ll not act like homeowners that are even marginally above water but shall continue to act as if they are deeply in debt. This is a drag on the economy by negatively impacting consumer spending. Indeed, perception is reality.