Equities and the Economy:

For a second consecutive session U.S. equities closed higher yesterday. The Dow closed up 41 at 18,203, the S&P 500 rose 5 to 2,144 and the Nasdaq added 3 to 5,246. A combination of rising oil prices and earnings releases supported the market. The former will be discussed below. With respect to the latter, according to the Financial Times, a highly respected financial newspaper, out of the 57 companies listed on the S&P 500 that have disclosed third quarter figures, more than 80% have logged earnings per share that have beaten Wall Street estimates. We need more of this for the market to go higher. As I’ve said more than once, S&P P/E valuations are high based upon historical averages making investors cautious about buying at current levels.

Turning to the economic data as I normally do at this time, the Fed released its Beige Book yesterday. The Beige Book, formally called the Summary of Commentary on Current Economic Conditions, is a summary of anecdotal information on, duh, current economic conditions in the U.S. It is released prior to the FOMC meetings, the next one being November 1st & 2nd. This Beige book was indeed beige. There really was nothing of note except that there was wage pressure in the Philadelphia, St. Louis and San Francisco districts. This is important for wage pressure is a big factor in inflation which the Fed is keying on right now.

The major event today is the ECB meets. The market is not expecting any changes to the extremely accommodating monetary policy there. ECB President Mario Draghi’s press conference will be the key focus with listeners looking for hints on what’s to come in monetary policy

This morning the market is caught “in irons” with the major indexes unchanged from yesterday.

Oil

Oil prices, which popped on Tuesday evening’s bullish API crude and products report, jumped even more yesterday on the EIA’s crude and products report which came out yesterday morning. WTI closed up a hefty $1.31 at $51.60 and Brent added 99¢ settling at $52.67. The EIA reported that crude stockpiles dropped 5.3 million barrels last week with the market expecting a build of 2.2 million barrels. This was even more bullish that the API report. The reporting period for this report coincided with the Hurricane Matthew event which could have delayed oil imports. Let’s see how next week’s report comes in.

There was a very interesting “discussion” yesterday at a gathering in London of global oil executives. Mr. al-Falih, the Saudi Arabian oil minister, stated that the oil market had done its duty in taking prices lower sufficiently to take marginal producers out of the market. It is well known that the U,S. shale producer is the global marginal producer. Only minutes later Mr. Rex Tillerson, the CEO of ExxonMobil, stated in what can only be said as directed at the Saudi minister, that the U.S. is now clearly the world’s swing producer, taking that role from the Saudis, and that U.S. E&P companies have learned how to profitably produce oil at $40 per barrel and that Exxon has “confirmed the viability of a very large resource base in North America.” It’s a new (oil) world out there!

Today the November Nymex WTI contract expires and WTI is getting hammered being down a material $1.08 this morning. I’ve said for many years crazy things can happen on expiration days.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices took a Mohammed Ali right hook yesterday with the November Nymex contract closing down a whopping 9.3¢/MMBtu at $3.170. Day after day of above normal weather forecasts made the bull’s yoke just too heavy and yesterday it stumbled. The front month contract is now down more than 20¢, 6.6%, since hitting a high of $3.366 a couple weeks ago. As I told numerous clients, $3.36 was too high based upon storage levels and both the short term and long term weather forecast. You can see the 2 week forecast below and there’s nothing bullish about it and I received the November and December forecast yesterday and there’s above normal temperatures everywhere on it. Additionally, as I stated yesterday, the cash market did not support those prices. Based upon current conditions and data the price should be around 3 bucks. And we’re getting closer to that with this morning’s price action with natty down 4.3¢.

Elsewhere

Here’s something I think we’ve all known intuitively but lacked the supporting data. Now you have it. According to a working paper by economists Alexander Bick of Arizona State University, Bettina Bruggemann of McMaster University of Ontario and Nicola Fuchs-Schundein of Goethe University Frankfort, U.S. workers not only work more hours than workers do almost anywhere else, we also are increasingly retiring later and taking fewer vacation days. The data stated that Europeans work 19% less than the average U.S. worker. That equates to 258 fewer hours per year, or about an hour a day. Another way to look at it is the average U.S. worker puts in almost 25% more hours than the Europeans. The Swiss’ work habits are the closest to ours and guess which country’s workers are the least likely to be at work putting in 29% fewer hours per year than we do? Think pasta.

The three economists identified numerous factors as to why this is so including taxes which are lower in the U.S. and create a disincentive for the Europeans, labor unions and other worker protections which are much stronger in Europe, generous pensions in Europe and that in the U.S. it’s easier to move up and down the “economic ladder” therefore American workers additional effort is more likely to pay off with a promotion which means more income.