Equities and the Economy

Good morning.  U.S. equities experienced small losses yesterday with the Dow off 51 points to 17,868, the S&P 500 falling 7 to 2,102 and the Nasdaq dropping an immaterial 3 points to 5,142.  Total chatter.  I would have actually expected more of a pullback considering how much stocks have gained over the last 5 weeks.  For example, the S&P has rallied 13% in just the last 5 weeks.  If you want a reason for the slight drop point to Jane Yellen’s comments yesterday regarding an interest rate rise in December stating that “December would be a live possibility” for an interest rate increase.  Her statement yesterday was the most affirmative to date of an impending interest rate rise.  It must also be noted that William Dudley, President of the New York Fed and Vice Chairman of the FOMC and most importantly, a voting member, independently affirmed Yellen’s views.  Their statements led strength to the U.S. dollar (3 month high), raised bond yields (2 year bond yield highest in 4 years) and led to some profit taking in equities.  The U.S. might be ending QE but it is in full swing with huge QE programs in full force in Japan, China and Europe.

Wednesday’s economic news was mixed with the Institute for Supply Manager’s services index rising more than expected to its highest level in 3 months.  It appears the U.S. continues to move to a “services” business and away from manufacturing for the spread between the ISM services and manufacturing indexes is the largest in 14 years!  The ADP released its extremely closely watched private sector employment report yesterday showing 182,000 jobs were created in October coming in at expectations.  Investors look at the ADP report to get an indication of what tomorrow’s Labor Department jobs report might look like.

This morning we’re capturing back some of the losses from yesterday with Dow futures up 31.  It wouldn’t surprise me if we see a quiet day today with the jobs report coming out tomorrow.

Oil

After advancing nearly $6 over the past week oil prices got hammered yesterday with WTI losing $1.58, 3.3%, closing at $46.32 and Brent settling down $1.96, 3.9%, at $48.58 and wiping out all the previous day’s gains.  As I mentioned previously, the U.S. dollar rose yesterday which, all things being equal, puts downward price pressure on commodities priced in U.S. dollars, which oil is, and oil felt it hard.  Adding to the bearish sentiment, OPEC released a document yesterday showing weaker demand in the next few years.  The DOE released its weekly crude and products report showing crude oil inventory builds for the 6^th consecutive week, however, product inventories (gasoline, diesel, jet fuel) seriously declined resulting in aggregate inventories coming in at expectations.

Like equities, this morning oil is sedate off 26¢.  Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices meandered yesterday ending the day down 0.9¢ at $2.262.  The deferred months did nothing as well.  Yawn.  That being said, natty is dirt cheap.  I received an update on the longer term forecast yesterday (30 day and 60 day) which showed above normal temperatures for both December and January, with much above temps forecasted for north of the 49^th parallel (for you less geographically inclined, that’s the U.S./Canadian border).  Folks, if we weren’t having a strong El Niño natty would be 50¢ higher.  The weather forecast continues to help the bears but a lot of those bears already have their positions on.  The big heat wave the east is currently having will be ending tomorrow or Saturday with temperatures closer to normal following.  I’m seeing some short covering this morning with natty up 6.0¢.

Elsewhere

We all know how horizontal drilling and hydrofracturing have revolutionized how oil is drilled for and extracted.  Here’s another one of the great benefits to the U.S. economy and its citizens that you won’t hear mentioned by the eco-radicals.  For decades the U.S.’ largest important cost was oil negatively affecting our trade deficit.  Thanks directly to horizontal drilling and hydrofracking crude oil imports are down a whopping 48% from a year ago.  Additionally, back in 2005 (only 1-0 years ago!) U.S. petroleum and petroleum product imports were eleven times exports.  In September of 2015 these imports were only 1.7 times exports and (the next thing I’m about to tell you will shock you) since the start of the year the U.S. is actually running a trade surplus with OPEC!  Booyah!

On another note, as we all know, oil prices are quite low currently and we’re seeing it at the pump.  Where are all the politicians yelling speculators are pushing the price too low?!  Deaf silence!  Really makes me mad.