Equities and the Economy:
• Stocks end little changed on Friday.
• Post solid weekly gains.
The Dow and S&P 500 suffered minor losses on Friday. The Dow fell an immaterial 2 points to 22,774 ending a 7 day winning streak. The S&P slipped 3 points to 2,549 ending its 8 day streak. The Nasdaq though managed to post a gain of 5 points to finish at 6,590 eking out a record close. All three indexes posted solid weekly gains. The Dow was up 1.7% for the week. The S&P gained 1.2%. Both indexes have risen for 4 straight weeks. The Nasdaq gained 1.5% for its second straight weekly gain.
The major fundamental report on Friday was the Labor Department’s Employment Situation Report which showed the economy lost 33,000 jobs in September which was the first time jobs have been lost in a month since February 2001. The unemployment rate fell to a new post-crisis low of 4.2%. Economists had expected payrolls to grow by 80,000. Investors are not reacting very much to these portions of the report because hurricanes Harvey and Irma probably seriously skewed the data. For example, due to the hurricanes the leisure and hospitability industry lost a whopping 110,000 jobs in the month.
However, there was one data point in the report investors are obsessing over. That is average hourly earnings, which jumped 2.9% y-o-y. This is the strongest growth since 2009. Significance? The Fed has been communicating to the market it may raise interest rates one more time this year and this will give it further justification to do so. Remember, wage growth is one of the, if not the, primary driver of inflation. Immediately after the report was released markets reacted by sending December rate hike expectations odds to above 90% from 77% on Thursday and 40% a month ago. The Fed will see two more Employment situation reports before the December meeting.
This morning the Dow is up 42 point being pulled up by global equities with Chinese stocks hitting a 21 month high and Germany’s DAX setting a new record.
• Oil prices get whacked.
• Post first weekly decline in a month.
Oil prices got walloped on Friday with WTI losing $1.50 closing at $49.29 and Brent falling $1.38 settling at $55.62. Oil prices have rallied for over a month and last week they posted their first weekly decline in 5 weeks. WTI lost 4.6% lower for the week and Brent fell 2.1%. WTI prices want to migrate to the “norm” and the norm is $50.00.
Hurricane Nate impacted oil precaution forcing 15% of Gulf of Mexico to be shut-in. This should all be back on today or tomorrow.
Baker Hughes released it rig count report on Friday showing the number of active oil rigs fell by 2 last week to 748. Traders yawned.
Traders are keeping a close eye on whether or not there will be fallout over the independence referendum in Iraq’s semiautonomous Kurdistan region which could result in Turkey closing an oil port which would shut-in about 500,000 bpd of oil.
This morning its super quiet with WTI down 7¢.
Courtesy of MDA Information Systems LLC
• Cash market weak.
• Prices slip.
Weak demand for weekend natural gas pushed the cash market down which brought out the bears on Friday who pushed the November Nymex contract down 6.0¢ to $2.863. For the week natty lost 4.8%. Things are interesting at this price level. The $2.86-2.88 region has proven to be pretty solid price support so we’ll have to see if the bears have enough conviction to push it lower.
Regarding the calendar strips, they haven’t move much of late, but cal 2018 is about 12¢ higher than the recent low of $2.894 set on July 5th.
It’s chatter out there this morning with natty up 0.9¢.
We’ve all heard of Winston Churchill. He was one of Great Britain’s most famous prime ministers who saw the beleaguered emprise through the second World War. Prior to becoming prime minister Churchill fought in several wars. While aboard a train carrying English troops, Churchill and his fellow soldiers were attacked by a group of Boer fighters and he was taken prisoner. He was treated well in captivity, but wrote he “hated every minute,” continuing that he hated it “more than I have ever hated any other period of my whole life.”
During his incarceration, the opportunity came for him to escape. And he did so, but only after doing one thing first. He wrote and left a letter of apology to Louis de Souza, the Boer war secretary. “I have the honour to inform you that as I do not consider that your Government has any right to detain me as a military prisoner, I have decided to escape your custody.” It ended, “Regretting that I am unable to bid you a more ceremonious or personal farewell, I have the honour to be, Sir, your most obedient servant, Winston Churchill.”