Equities and Economy

Good morning. U.S. stocks lower yesterday with the Dow breaking a 3 day winning streak falling 13 points finishing at 17,217. The S&P 500 traded within a tight 12 point range ending off 3 points at 2,031. The more volatile Nasdaq lost 25 points to 4,881. In summary, it was another lackluster day. Earnings season is hitting a peak with more than 110 companies expecting to report this week. Results so far have been a mixed bag but if a company misses expectations they are severely punished. For example, IBM yesterday reported earnings per share slightly above estimates but a drop in 3rd quarter revenue, and fell 5.8%. So far for the 3rd quarter companies that have reported have aggregated earnings of $28.62 per share, down 4.77% form a year earlier. Bottom line though is that equities currently are lacking a major catalyst to move appreciably in either direction.

In economic reports, the “fundamentals of the equities market, the Commerce Department reported that housing starts rose 6.5% month-on-month to an annualized rate of 1.21 million units coming in better than the always important expectation. “Starts” are up a material 12% so far in 2015. One somewhat bothersome figure was that the “starts” were almost all in the multi-family sector. The story remains the same: single family home construction remains muted by historical standards being well below the 30 year average and multi-family starts continuing to react to the 4-5% annual rent increases, low vacancies and drop in the home ownership rate. Existing home prices have been rising at about 5% annually making renting cheaper.

Yesterday Amazon.com announced it will hire over 100,000 seasonal workers this year, 25% more than last year. That’s a lot of people folks!

Although the Asian markets closed mixed, with Japan’s Nikkei popping 1.91% on horrible trade data showing export growth of a mere 0.6% y-o-y in September with expectations of an increase of 3.4%, the weakest since August. Imports fell 11.1%. Scratching your head on this? It’s the old bad news/good news thing. Trade data bad, expectations of more QE from the Bank of Japan good, and if there’s one thing we’ve learned over the past 5 years is that equities love QE! By the way, this ties into why Bernie Sanders is doing well in the Democratic primaries. He is bashing Wall Street saying the rich are getting richer and leaving Main Street behind. At least 50% of folks in the U.S. do not own equities, and he’s stating that if you haven’t owned equities you have not seen your net worth increase for years, save a recovery in the value of your home.

European equities are trading materially higher today with increases between 0.37% and 1.00%. The positive sentiment is traversing “the pond” and Dow futures are up 47 points.

Oil

Oil prices closed mixed yesterday with WTI closing down 34¢ at $45.55 while Brent posted a 10¢ gain settling at $48.71. $50 WTI has proven to be formidable resistance with bankers here in the States putting serious pressure on their clientele to hedge at that level. Technically, WTI has broken a major support line dating back to the lows in late August. That being said, I don’t expect capitulation, just not any strength, at least not until we see more of a drop in U.S. oil production.

The whole global market oil “game” changed last November when Saudi Arabia abandoned its 40 year old policy of being the swing producer to one of maintaining and capturing market share. And competition is really heating up folks! Kuwait is moving against Saudi Arabia by cutting its price to its client states, clients it shares with Saudi Arabia, and doing so by the largest discounts on record. Iraq is following Kuwait’s lead and also selling its oil more cheaply than the Saudis equaling the “cheapness” of the Kuwait sales. Qatar has joined the game now selling its crude at the biggest discounts it has offered in more than two years trying to take market share from Abu Dhabi, making Abu Dhabi not happy. Qatar is not happy. Kuwait is not happy. Saudi Arabia is not happy. The Gulf is a font of unhappiness these days. Welcome to a real commodities market folks where being the lowest marginal cost producer is everything!

Investors will be focusing on the “technical” conference held today in Vienna by OPEC which will include non-OPEC members Brazil Columbia, Kazakhstan, Mexico, Oman and Russia. Venezuela will be pounding its fist demanding “production controls,” i.e., “Saudi Arabia, you cut production to boost price while I produce everything I got” Venny, it ain’t gonna happen!

This morning WTI is down 75¢ on a bearish API report last night after the bell showing a huge increase in storage of 7.05 million barrels, more than double expectations. Offsetting this a tad was that distillate inventories (diesel) were down 1.4 million barrels, but the former outweighs the latter.

Courtesy of MDA Information Systems LLC

Natural Gas

The November Nymex natural gas price closed 3.4¢ higher yesterday at $2.476, but there was little change in prices in any contract other than November and December 2015. The front month got some support from remnants of the cool/cold weather this week. Chatter really. This morning natty is giving up all of its gains from yesterday, and more being down 6.9¢ with very warm temperatures hitting the, well, entire country this week. That being said, note the 6-10 forecast is showing some cold weather in the Midwest and northeast, and this is an area with large population weighted HDD’s. Traders seem to be focusing though more on the 11-15 day forecast though which shows a return to above normal temps.

Elsewhere

I’m very, very disappointed. I really expected to be getting around on a hoverboard right now. That’s what I thought back in 1989 after watching Back to the Future II. You see, today is the day, October 21, 2015, that Marty McFly traveled to into the future to save his children, who were yet to be born. By the way, when are we getting the flux capacitor? Have a good day.