Equities and the Economy

Note: tomorrow will be the last Morning Energy Blog until Monday September 21st for I will be travelling on business.

Good morning. Once again and too frequent of late, yesterday’s price action was horrible. U.S. equities began the day very nicely with Dow futures up as much as 180 points with the Asian markets closing up materially and the European bourses trading firmly in the green. However, the open was the high of the day and things deteriorated from there and at about 12:30 CDT the market went negative and never bounced back and when the final bell rang the Dow logged a material loss of 239 points, 1.45%, to 16,254. The S&P 500 posted a loss of 27 points, 1.39%, ending at 1,942 and the Nasdaq closed down 1.14%, 55 points, at 4,757. As I’ve unfortunately stated more times than I’ve wanted to lately, this is not the price action of a bull market. Bull markets open lower and close higher. Yesterday’s price action was classic bear market action: open higher only to close negative on the day.

Fundamentally, the data was positive. The Labor Department reported that job openings in July soared 8% to 5.75 million which the most since records began in 2000. Even with job openings growing leaps and bounds, firms have not been able to find suitable workers at wages they want to pay. Indeed, the report showed that the rate of hiring declined. Part of the problem is that workers are not leaving their jobs for the quit rate is very low. It ain’t easy being an HR executive these days. On the one side you have everyone saying they need more employees and on the other side you have workers reluctant to move and CFO’s who don’t want to pay more. This has to change. It will change. All the analysis aside, it appears what’s going on, at least for right now, is the opposite of what we saw in 2009 and 2010. Back then bad news was good news, i.e., more QE. Today investors are taking the good news as bad news.

Going back to the job opening report yesterday, this is after last Friday’s Labor report noting the unemployment rate fell to 5.1% which the Fed considers in the full employment range so all eyes and ears will be on the FOMC meeting Wednesday and Thursday of next week wondering if the Fed will follow through on its well communicated interest rate hike. The only question is whether it will be in September or December. This meeting can’t come and go fast enough. I’m getting Fed fatigue.

This morning looking to the East the Asian market got pummeled overnight following the very weak performance of U.S. equities with the three major indexes closing down between 1.39% and 2.57%. European equities started lower but managed to claw back to unchanged 3 hours ago but are now giving up the ghost with Germany’s DAX down 1.25%. Here in the U.S. Dow futures are waffling around unchanged being up a non-directional 9 points.

Oil

The fall in equities weighed on oil prices yesterday but the price decline was exacerbated by the EIA’s monthly short-term energy outlook report yesterday noting a reduction of 2016 global oil demand for petroleum products on the back of a slowdown in the Asian economies (that would be China). The EIA also stated they don’t see added Iranian production triggering a reduction in OPEC output. However, they did project that U.S. production will fall 1 million bpd in 2016 due to the low price environment. The bears came out in force yesterday on all the negative news and WTI fell $1.79 closing at $44.15 and Brent lost $1.94 settling at $47.58.

Today the DOE releases its weekly crude and products report, a day late due to the holiday weekend, which I’ll discuss tomorrow. The oil field is quiet this morning with WTI up 22¢. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices continue to meander like Ole Man River with one day moving up a few cents (Tuesday up 5.5¢) and the next falling which it did yesterday closing down 5.9¢ at $2.651. We’ve been in the $2.60 to $2.70 range for the last 3 weeks. The market has found an equilibrium between coal displacement in the electric generation sector and demand for storage injections to prepare for winter and supply. Speaking of storage, today is always exciting with the price moving EIA storage report. The market is expecting an injection of 76 Bcf which is less than last year’s 90 Bcf but greater than the 5 year average of 63 Bcf. So far traders are ho-humming with natty up 1.4¢.

Elsewhere

Discerning historical truth can be quite challenging. This is one such case. In the November 7, 1874 issue of the American Medical Weekly is an article written by a Dr. L.G. Capers Jr. entitled “Notes form the Diary of a Field and Hospital Surgeon, C.S.A.” According to Dr. Capers, on May 12, 1863 he saw a young soldier fall to the ground. The medic ran to offer aid and found a compound fracture of the left tibia caused by a minié ball that had ricocheted from there upward through the man’s body and out his groin. As the doctor addressed the wounds a woman came running from the porch of a nearby house. One of her daughters had also been wounded. Upon treating the woman Dr. Capers found that she too had a minié ball wound which penetrated her left abdominal region. After the battle, Dr. Capers was able to visit the young woman frequently, and 278 days from the date of being shot he “delivered this same young lady a fine boy weighing 8 pounds.”

About three weeks after the birth Dr. Capers was called to examine the baby and extracted a mashed and battered minié ball from the child. At that point the doctor claims to have solved a mystery. He wrote, “The ball I took from the babe was the identical one which, on the 12th of May, shattered the tibia of the young soldier, and in its mutilated condition, plunged through his groin and into the left ovary and the uterus of the girl, impregnating her!”

As stated in the first sentence, historical truth can be elusive. However, as is pointed out in a Vicksburg, Mississippi museum, if this story is true it would make the little baby the world’s one and only, honest-to-goodness “son-of-a-gun!”

Have a good day.