Equities and the Economy:

U.S. stocks closed pretty much flat to Thursday on Friday. While the Dow rose 39 points to close at 18,138 the S&P 500 and Nasdaq didn’t or barely moved with the former closing flat to Thursday at 2,133 and the latter finishing up a single digit at 5,133. On the positive side, the Dow was up as much as 150 points intraday. It’s been a couple of rocky weeks though for the S&P fell 0.91% for the week, it’s second consecutive losing week.

Regarding fundamental data, on Friday the Labor Department reported that its producer price index for September rose 0.3% in September after being unchanged in August. Core sales, which excludes the more volatile energy and food components, rose 2.5% y-o-y which is the slowest pace of gain since November 2015. That being said, inflation is close to the Fed’s target of 2% and the market is looking for an interest rate hike in December (60% probability). Retail Sales were reported on Friday and came in solid rising 0.6% m-o-m and beating The Street’s estimate of +0.4%. Again, a solid report. On the slightly negative side October consumer sentiment came in at 87.9, well below economists’ forecast of 92. Analysts are blaming the forthcoming election.

As I mentioned last week, it’s earnings season and investors are most definitely tuned in, and this is going to be a busy week. More than 80 S&P companies are scheduled to report.

This morning the world is in a wait and see mode. Asian markets closed mixed and the European markets are currently trading the same. The Dow is down 36. It’s early.

Oil

Similar to equities, oil prices closed almost unchanged on Friday with WTI down a meaningless 9¢ at $50.35 and Brent off 8¢ to $51.95. For the week both WTI and Brent were little changed. That being said, we’ve seen a massive rally, 25% since early July. However, things were getting a little frothy there and WTI has been in retreat since October 10th when it hit a high of $51.35, a level we hadn’t seen since July 13, 2015. You can see it in the numbers. On Friday the CFTC released it’s positions report showing that last week money managers, basically hedge funds, had the biggest long position on since July 2014. The boat was listing too heavily to the long side.

If you’ve been following oil and natural gas prices you’ve been well aware that both have rallied materially, Here’s how those higher prices translates. Last week Baker Hughes reported in its closely monitored rig count report that the U.S. rig count rose by 15 last week. Not only has the rig count now increased 13 of the last 14 weeks, last week’s was the largest gain in any of those weeks. Interestingly, 11 of that 15 increase were rigs exploring for gas.

As you well know, OPEC and Russia have been talking of a production freeze. Well I guess their trying to get their numbers up so a country’s freeze quota is not too low. Evidence: new data shows OPEC produced a record 33.6 million bpd in September.

The combination of that OPEC data and the rig count are setting in. WTI is down 44¢ this morning. Certainly not helping oil, and other U.S. dollar priced commodities, is that the U.S. dollar is at its strongest level since early March ’16.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices rallied big on Thursday, 13.1¢, on the heels of a very bullish EIA storage report hitting a 22 month high above $3.350. Profit taking came in ahead of the weekend on Friday with natty dropping 5.6¢ closing at $3.285. This rally has been driven by the winter forecast that came out earlier and while it showed November and December to be warmer than normal in the primary gas consuming regions of the country, it also showed January through March to be below normal. This spooked the market bringing in buyers. That forecast is now built into the market. Today’s forecast sure isn’t supporting higher prices. For the next couple of weeks most of the east and mid-west are predicted to have above normal temps. That forecast is somewhat weighing on the market this morning with natty down 4.1¢.

Elsewhere

As everyone everywhere knows climate change is a hot topic globally. One of the claimed drivers of climate change, specifically, raising global temperatures is rising carbon dioxide levels. Well if indeed this correlation is true the U.S. is doing its part to help mitigate climate change. Per our EIA, U.S. energy related carbon dioxide emissions totaled 2,530 metric tons in the first 6 months of 2016. That is the lowest level for the first 6 month of the year since 1991, 25 years. For the entire year the EIA forecasts that energy associated CO2 emissions will fall to 5,179 million metric tons. That’s the lowest annual level since 1992.