Equities and the Economy:

Yet another choppy day for U.S. equities. The Dow rose 30 points closing at 18,199 but the other two major bourses, the S&P 500 and Nasdaq, fell 4 and 33 points, respectively with the former ending at 2,139 and the latter at 5,250. The Dow’s performance was noteworthy because the index was down as much as 107 points intraday. There’s been no volatility in equities recently. The S&P index has moved just 1.2% over the past 3 months. This multi-month lack of volatility is really making this section of my Blog boring. I haven’t mentioned earnings recently and being we are in the “season” here’s the update. Of the companies that have reported, 74% have beaten analyst expectations, above the 70% beat rate over the past 4 quarters. The last few years corporations have done a very good job of getting investors to set expectations low and then beat them. Under promise, over deliver.

The economic data reports were strong yesterday. The Commerce Department reported new sales rose 3.1% m-o-m in September to an annualized rate of 593,000. That data probably doesn’t mean much to you but this will. New home sales are 13% higher y-o-y. Current inventory is 4.8 months. A balanced market is 6 months. The market is tight. Also, the average price rose 2.7% to $377,000. Everything in this report was positive.

Markit released its “flash” index of service sector activity with it rising to 55 in October from 52 in September. Remember, anything above 50 indicates growth so this too was a very good report. Additional good news came from the Commerce Department reporting the U.S. trade deficit in goods fell 5.6% in September to $56.1 billion. This report is interpreted as U.S. economic growth picked up in Q3. As I stated, these well all very good reports on the economy.

This morning it looks like another directionless day. Earlier the Dow was up 43 points. Now it’s down 39 points. Asian markets closed lower and the European markets are trading on either side of unchanged.

Oil:

$49.98. Both off 7% lower than their October peak. That being said, oil prices are still about 9% higher than the lows seen just before the OPEC announcement about a month ago of a production freeze. Traders shrugged of yesterday’s weekly DOE crude and products report which was mildly bullish. The agency reported crude oil inventories fell 550,000 bbls last week with analysts expecting a 1.6 million increase. Also bullishly, gasoline inventories dropped 2.0 million barrels, above expectations for stockpiles to have decreased 1.0 million bbls. I believe a lot of this was already built into the market via Tuesday’s API report. Helping oil prices marginally is that the U.S. is, for the 3rd consecutive day, trading lower vs. a basket of major currencies. This is after it hit a 7 month high earlier this week on expectations of a Fed interest rate increase in December.

This morning WTI is up 37¢. Chatter.

Although at first blush one might get bullish on the report that China’s crude oil output fell 0.7% y-o-y, don’t go long those futures just yet because their production of products is skyrocketing. Over the past few years China has been building refineries dramatically increasing their production of refined products. Here are the numbers. In the first 7 months of 2016 China’s exports of gasoline, kerosene and diesel oil increased 145.2%, 46.1% and 181.1%, respectively, vs. a year ago. Not immaterial.

Courtesy of MDA Information Systems LLC

Natural Gas:

Natural gas prices fell for the 6th consecutive session with the November contract, which expires today, falling 4.3¢ settling at $2.731. As has been the trend this week, the December contract is getting whacked a lot more than the November contract and it fell a big 11.3¢ yesterday closing at $3.036. The calendar strips, which are one of the data points I watch closely, moved lower as well. The calendar 2017 strip dropped a big 12.7¢ yesterday. Remember, that’s the entire strip. The average of all 12 months. Back to November, it’s down nearly 75¢, 22%, over only the past 9 trading days erasing more than 40% of its past 7 month $1.75 rally. Forecasts of mild weather, i.e., no heating or cooling degree days, is slaughtering the bulls. This morning November is up 0.7¢ consolidating at yesterday’s two month low.

Today it’s not only the November contract expiration day but it’s also Thursday which means it’s EIA storage report day. What fun! The market is looking for an injection of 76 Bcf.

Elsewhere:

Two days ago the Chicago Cubs began their quest to win the World Series for the first time since 1908. Cub’s fans around the world are dying to see if the long-suffering team will finally be able to beat the Billy Goat curse. Michael Lee predicted the Cubs will win the series. Not really a big deal, eh? Except for the fact he made his prediction 23 years ago! Lee wrote in his Mission Viejo High School yearbook in 1993, “Chicago Cubs. 2016 World Champions. You heard it here first.” After photos of Lee’s prediction began going viral, multiple members of Lee’s graduating class came forward confirming his prediction was the real deal. We’ll know in 6 days or less just how clairvoyant Mr. Lee actually is.