Good morning. After about 3 weeks of crazy volatility I guess equities became exhausted (at least I know traders were!) and took the day off yesterday ending mostly flat to Friday. The Dow rose 12 points to 16,818, the S&P 500 fell 3 to 1,962 and the Nasdaq added 2 to 4,486. Shares of energy related companies got whacked and were the biggest drag on the S&P (more on that below). There was some economic news here in the States yesterday starting with pending home sales which the National Association of Realtors reported was up 0.3% to 105 which was a tad of a disappointment with analysts looking for a 1% increase. Markit’s Services Index came in at 57.3 for October which is down marginally from September’s 58.5. What’s important here is that the index remains well above 50 indicating expansion. The Dallas Fed released its Manufacturing Outlook Survey, which reflects activity in Texas and surrounding states, came in at 10.5 down slightly from the previous month’s 10.8 but above the consensus of 7.5 so this was supportive.

Moving on to this morning Asian stocks closed all over the board with notably China’s Shanghai Index up 2.07% and Hong Kong’s Hang Seng ended near one month highs. The European bourses are doing really nicely this morning all trading in the green with Germany’s DAX leading the way up 1.52%, and we all know how important Germany is being it’s the powerhouse economy of Europe. Closer to home Dow futures are feeling the momentum for across the pond being up a nice 55. As mentioned yesterday, today the FOMC begins its two day meeting. My expectations are the committee will reiterate the rising of interest rates are data sensitive and not signal they will be raised prior to next summer. I also don’t expect them to say they’ll renew their asset purchases which end this month.

WTI closed down a penny at $81 even while Brent lost 30¢ to $85.83. Quite frankly, oil’s performance yesterday was pretty impressive. On Sunday Goldman Sachs released a research note lowering its forecast for oil prices from $90 in Q1 2015 to $75 for WTI and to $85 from $100 for Brent. They went on to state they forecast WTI in Q2 to average $70 and Brent $80. Deutsche Bank followed Goldman’s report stating yesterday they are forecasting Brent to average $88.75 in 2015 and WTI $80.50. On these reports oil got hammered with WTI trading as much as $1.55 lower than Friday’s close but then rallied back closing near unchanged. Again, a pretty impressive daily performance. You regular readers know I watch the “shape of the curve” closely (how near month prices move relative to the back months) and it’s definitely bearish. For the first time since January WTI prices have flipped to contango from backwardated indicating the market is bidding for storage. In over supply conditions prices must be discounted to cover the cost of storage and with each incremental unit of storage being more expensive than the previous one the price of oil must continue to be discounted. Without a change in production levels by Saudi Arabia I believe $75 is inevitable. This morning WTI is very quiet down 7¢.

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The weather forecast is like water flowing over unprotected earth eroding natural gas prices with the November contract closing down 6.2¢ yesterday at $3.581. Mother Nature has not been friendly to the bulls with the summer coming in very mild and continuing into the fall. The Great Lakes region will definitely be chilly over Halloween with Chicago having highs in the mid 40’s but next week it warms up to the mid 50’s and Boston will even post highs in the 60’s. Looking at the maps below its hard to believe that most forecasters are predicting a colder than normal winter for the eastern part of the nation but that is indeed the case. This morning natty is moribund down $0.007.

Yesterday marked a very important day. It was “Deficit Day.” From yesterday through the end of the year every penny the U.S. government spends shall be deficit spending; that is, if the taxes received by the U.S. Treasury were taken in as one lump sum and spent as the demands upon it were made it would be spent entirely as of yesterday and the rest of the year’s spending would be solely on borrowed money. The good news. According to Realclearpolitics.com, we now have 66 remaining days of full deficit spending which is an improvement from last year’s Deficit Day which came in late September with 112 days of deficit spending remaining. Another indication our economy continues to improve. Have a nice day.