Equities and the Economy:

• Stocks continue to set record highs.
• Corporate earnings and merger talk drivers.

Pushed by positive corporate earnings reports and merger (actually mega-merger!) talks the primary stock indexes closed at record highs yesterday. While the Dow and S&P 500 posted marginal gains it was enough to set new records. The Dow closed up 9 points at 23,548 and the S&P rose 3 to 2,591. The Nasdaq, which has been on fire this year, advanced 22 points to 6,786. This is the 26th time this year simultaneous records have been set by the indexes, as well as the most ever records in a year.

As has been the case of late, corporate earnings and continued progress toward tax cuts have been the primary drivers. Regarding corporate earnings, 400 of the 500 S&P companies have reported and average earnings are up 8% compared to forecasts of 5.9%. Tax reform continues to move through Congress. The House unveiled its plan last week and the Senate is expected to release its version of the bill this week.

Yesterday investors were enthused on the announcement by Qualcomm’s offer to buy rival smartphone chip supplier Broadcom for $103 billion which would make for the largest-ever acquisition in the tech sector. M&A activity is positive for stocks because it shows companies are willing to take on risk which means they’re positive about economic conditions.

This morning the U.S. stock indexes are chopping around with the Dow up 17 points. Japan’s Nikkei closed today at its highest level since 1992 and Australia’s primary stock index ended the day at its highest level since 2008.

Oil

• Prices surge higher.
• Geopolitical events driver.

U.S. oil futures surged yesterday marking their best single-session rally in nearly a year. WTI closed up $1.71 at $57.35 posting its highest settlement since June 30, 2015 and its sharpest daily gain since November 30, 2016. Brent popped a huge $2.20 to end at $64.27 logging it biggest daily gain since December 1, 2016.

Oil prices have been in a decided uptrend the last few month on the fact that OPEC’s production agreement is, coupled with growing global demand, is actually working on balancing world oil supplies. Additional price support has come over the last month from what appears to be a done deal to extend the agreement until the end of 2018. Over the weekend more fuel was added to the bull fire with the Saudi King consolidating power, under the auspices of an anti-corruption background, arresting numerous princes, businessmen and government ministers. Also, on Saturday Yemen fired a missile at Riyadh and the Saudis responded by closing all air, sea and land crossings. This is a big deal because its viewed as an escalation of conflict between Middle East heavyweights Saudi and Iran, the latter which is backing the Houthi movement in Yemen.

This morning WTI is taking a respite unchanged from yesterday.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices pop on cold weather forecast.
• Highest settlement since September 18th.

A fundamental, primary driver of natural gas prices has always been the weather, more specifically, the weather forecast, and the forecast lately has been driving prices higher. After a couple of weeks of extremely warm temperatures, the forecast has flipped much colder with the 1-5 day forecast showing temps in the Midwest plunging. Chicago and Cincinnati will see temperatures 15 degrees below normal on Friday with highs of about 35 degrees. That’ll burn some gas! Yesterday the December contract surged 15.0¢ settling at $3.134, its highest settlement since September 18th. The calendar 2018 strip also popped closing up 6.2¢.

It appears this will just be a “cold snap” for the 6-10 day time frame shows temps returning close to normal and most of the cold weather may be priced in now with natty this morning flat to yesterday’s close. The next significant event will be Thursday’s storage report.

Elsewhere

How many boxes of crayons did you go through growing up?! Me, dozens. More than 100 billion crayons have been produced so far. The first crayons consisted of a mixture of charcoal and oil. In the early 1900s, cousins Edwin Binney and Harold Smith developed a nontoxic wax crayon. Binney’s wife, Alice, attached the French word for chalk, craie, with “ola,” from oily, to form the Crayola brand name. Their first box of Crayola crayons were sold for a nickel in 1903. The first Crayola crayons came in a box of eight colors: black, blue, brown, green, orange, purple, red and yellow. By 1957, 40 new colors were introduced. Today there are more than 120 crayon colors, including Atomic Tangerine, Blizzard Blue, Mango Tango, Outrageous Orange, Laser Lemon, Screamin’ Green and Shocking Pink. Over 5 billion crayons are produced each year.