Equities and the Economy

Good morning.  U.S equities snapped their seven day winning streak with the Dow and S&P 500 finishing marginally lower.  The former fell 50 points to 17,082 and the latter 14 to 2,003 (but importantly above support of 2,000).  The Nasdaq took it on the chin, however, falling 42 points, 0.87%, to 4,797 pulled lower by, once again, the biotech sector which lost 3.2%.  The IBB, the main biotech ETF, is down a huge 25% from its 52 week high.

Stocks were dragged lower on the report yesterday from China that both imports and exports shrunk, the formerly materially.  The big number was that imports fell 17.7% in September from August and that is on top of August falling 14.3%.  The Chinese are really trying to move from an economy totally dependent on exports to one driven by consumption by a middle class.  This shows they’ve got some work to do.  On the positive side, the merger between InBev and SABMiller which followed by a day the announcement of Dell buying EMC is market supportive.  As I’ve mentioned before, this is positive for stocks because it shows companies are willing to put capital at risk which reflects a positive sentiment about the economy.

Asian stocks closed lower this morning but those markets have been following, not leading, the western markets of late and their poor performance was the aftermath of U.S. equities falling.  More importantly,  the European markets are flat to weaker, albeit not overwhelmingly with London’s FTSE down 0.83% and Germany’s DAX down 0.80%.  Actually this is better than it may seem because all three major bourses opened materially lower and have been fighting to get back all day to yesterday’s closes.  Here in the states we’re beginning the day like we did yesterday with all the indexes literally trading unchanged.

The key data out today, besides the continuing release of corporate earnings, will be the release of retail sales

Oil

Oil prices fell again yesterday although much less than on Monday’s 5% drop with WTI ending the day down 44¢ at $46.66 and Brent off 62¢ at $49.24.  Traders are struggling having to weigh opposing data, both from credible sources.  OPEC is expecting higher prices next year as the current low prices stimulate demand as well as result in less U.S. shale production while the IEA is stating this week prices will be soft throughout 2016.

China’s doing their part for the bulls.  Data today showed that imports into the country in September rose 1.4% year-over-year to 27.95 million tons and a whopping 8.8% year-over-year increase for the first 9 months of the year.  The word is that a lot of this crude is going into storage with China believing current oil prices are a good longer term buy.

Similar to equities, the oil market is pretty quiet with WTI down 32¢.

Courtesy of MDA Information Systems LLC

Natural Gas

After an early morning rally based upon some cool weather in the upper Midwest for the next 5 days and the eastern seaboard in the 6-10 day time frame, natural gas rolled over closing down 3.7¢ at $2.498.  This was the first down day after 7 consecutive, albeit marginal, higher closes.  As I mentioned yesterday, the Commitment of Traders Report is telling me natty is way oversold currently with the number of shorts at a record high.  Now this data is delayed a week so some of the shorts may have covered, but it’s going to take more of a bounce than we’ve seen to flush out more of these shorts.  Now that doesn’t necessarily mean I’m bullish, it just means we’re primed for a price bounce.

If today’s weather forecast actualizes you folks I the Midwest and MidAtlantic are going to have some spectacular weather the last week of October with above normal temperatures predicted.  This morning prices are up 1.6¢ on the combination of the current cool blast and already short market and the fact natty in the absolute sense is just downright cheap right now.

Elsewhere

If you’re selling your home you might want to learn how to say “For Sale” in Chinese, specifically Mandarin.  And they’re paying cash.  A joint analysis by Irvine, California based realty firm RealtyTrac and New Jersey based multicultural marketing company Ethnic Technologies found that 36% of Mandarin Chinese speaking buyers who purchased U.S. homes in the 17 months ending May 2015 paid all cash, more than triple the number paying all cash in 2005.  Overall, Mandarin speakers are the second largest non-English speaking cash-paying group, totaling nearly 18% of all cash deals, second behind those buyers speaking Spanish at 43%.  Foreign cash buyers have helped accelerate U.S. home price appreciation over the past few years given that these buyers are often not as constrained by income as local, traditionally financed buyers.  Indeed, median home values in the U.S. have risen to $180,000, the highest level since mid-2008, up 3.3% in the past year and they’re projected to rise another 2.2% in 2016.

Overall, Chinese buyers spent $22 billion on U.S. housing in the 12 months through March 2014.  That’s 72% more than a year earlier according to the National Association of Realtors.  And they’re buying high end homes.  The median price of a sale is over $500,000.  The most popular location is the Seattle area which makes sense being it’s the closest mainland U.S. city to travel to from Beijing.  Chinese buyers account for almost half of all real estate activity in Seattle’s most expensive neighborhoods and more than three quarters or the real estate deals there are for cash.  I can personally relate to this subject.  The home I sold eight years ago to a Chevron employee was resold last year to a Chinese national, for cash.