Equities and the Economy:

Yesterday was another day of muted, consolidated trading. After hitting a 2 week high on Monday, the Dow fell 54 points to 18,169, the S&P 500 ended off 8 at 2,143 and the Nasdaq lost 26 to 5,283. If we must point to something let’s point to the Conference Board’s Consumer Confidence report which stated its index of the same fell sharply in October to 98.6 from September’s 103.5. Wall Street was expecting a number closer to 101.5. That being said, consumer confidence is still near highest levels this year. One of the sub-components, how difficult it is to find a job, continues to reflect a tight labor market with only 22% saying jobs were hard to get. Janet Yellen, you taking notice?!

Interestingly, even though consumer sentiment faded many consumer’s balance sheets improved with Standard & Poor’s CoreLogic Case Shiller reporting its 20 city home price index rose 5.1% y-o-y which although at expectations, was a solid increase. With housing normally the largest component of many consumer’s assets, they are a little “richer.” My take away is the impending Presidential election is causing some angst, albeit temporary, in the consumer. We’re still in a trading range of 2,100 to about 2,200 which we’ve been in since early July and everything in-between is chatter. Maybe investors are waiting for the election to be history before making a move.

After being down 83 this morning the Dow has bounced back and is up 44. More chatter.

Oil

Here’s a surprise!. Skepticism is rising that OPEC will be able to effectively coordinate a production freeze/cut. Wow! Never would have guessed that! Considering Russia, Iraq, Iran, Libya, and Nigeria want to be excluded from the freeze, that really pretty much leaves Saudi Arabia as the only country to cut production. The kingdom would have to cut about 1 million bpd which would put its production at a two year low. Oh, and let’s not forget they, for the first time ever, issued debt (bonds) to shore up their balance sheet. Translation: they need the money as badly as everyone else and they’re not going to be happy cutting their production and foregoing revenues only for someone else, including their arch enemy Iran, to capture their market share.

So pressure mounts some on oil prices with WTI falling 56¢ yesterday to $49.96 and Brent closing down 67¢ at $50.19. Oil prices at their lowest level since the start of October. WTI is following equities lead. This morning WTI was off 89¢. Now is flat to yesterday’s close.

The bulls didn’t get any help from yesterday evening’s API data. The institute reported that crude inventories rose 4.8 Million barrels last week. Well above expectations of an increase of 1.6 million barrels. Making the data even more bearish, gasoline inventories rose 1.7 million barrels with forecasts of a decline of 1.0 million barrels. Remember last week’s data was bullish which I conclude was the effect hurricane Matthew. The imports got deferred from 2 weeks ago to last week.

Courtesy of MDA Information Systems LLC

Natural Gas

While equities have been meandering and oil giving up a little ground up, there’s been huge action in the natural gas market. Specifically, prices have been getting destroyed! While the November Nymex contract closed down only 5.7¢ yesterday at $2.774. The December contract got knackered falling a whopping 17.0¢ settling at $3.149. November, which expires tomorrow, has fallen more than 65¢, 20%, in less than 2 weeks. Forgive the redundancy, but the warm weather and warm weather forecast has collapsed the bull. The very mild weather the country is having is translating into a very weak cash market which is bringing in the sellers. The weather over the past week has resulted in only 8 degree days. Yesterday at Henry Hub, the Nymex contract delivery point, cash prices hit a two month low falling to $2.67. Cash prices there have shed 55¢ over the past 5 trading sessions, the biggest downward move in cash prices over such a short time frame in more than 19 months. Additionally, the 17% sell off in the past 5 days is the biggest percentage loss since December 2015.

And there’s no demand in the forecast. The current 14 day forecast expects heating degrees to average a total of 8. Response: the November contract is down 5.7¢ and the December contract is down 9.9¢.

Elsewhere

Electricity from wind generation continues to grow, materially. Per our EIA, in 2015, 11 states generated at least 10% of their total electricity from wind. As recently as 2010, only 3 states had at least a 10% wind share. Interestingly, it was Iowa that has the greatest percentage at 31%. It was followed by South Dakota, 25.5%, and Kansas, 23.9%. While they just barely missed the cut in 2015, Texas and New Mexico are expected to make the list this year. At the national level, wind’s share of total U.S. electric generation has risen every year since 2001. In 2001, wind’s share of total electric generation was 2.3%. In 2015 it was 2.7%. Based upon data though July 2016, that number is now 5.6%. A combination of tax credits, state renewable portfolio goals and improvement in technology have led to the dramatic increase in wind generation.