Equities and the Economy:

It got a little scary yesterday after The Institute of Supply Management released its manufacturing index for August noting a fall from July’s 52.6 to 49.2 and most importantly, below 50 which is the demarcation between expansion and contraction. This was the first time in 6 months the index fell with new orders and production tumbling. After the report was released the Dow quickly fell about 100 points but as I’ve said so many times, this a is “buy the dip” market and that’s exactly what happened with buyers coming in on the “bad news is good news,” i.e. Fed doesn’t raise interest rates, and at the final bell the Dow posted a gain of 18 finishing at 18,419. The S&P 500 closed literally flat to Wednesday at 2,171 and the Nasdaq, which has been the “hot” index of late, added 14 to 5,227. Volume is finally picking up with greater than average volume traded yesterday. Traders are pricing in a 27% chance of an interest rate hike in September and a 54% chance in December.

There were a couple of other important reports released yesterday. The Commerce Department’s reported construction spending was unchanged in July from June but was up 1.5% from the same period last year. Economists were expecting a rise of 0.6% so this was a good report. The other report was the regular Thursday weekly jobless claims which came in dead on expectations at 263,000, up 2,000. The four week moving average, a statistic more often used because it’s less volatile, fell 1,000 to 263,000 and the number of unemployment claimants fell 4.4% form the same period a year ago. Interpretation: the labor market remains solid.

Speaking of employment, the Labor Department just released its much anticipated August employment report noting 151,000 jobs were added last month which was below economists’ forecasts of 170,000 jobs. Wages also grew more slowly than expected. Now everyone was expecting job growth to taper off from the blistering gains in June and July during which more than half-million jobs were created, but today’s report was no doubt disappointing, and you should know by now what that means. Bad is good because it will make the Fed less likely to want to raise interest rates, and the Dow is reacting accordingly being up a hefty 95 points but off its high of up 125 points. By the way, the unemployment rate for August is 4.9%, the same as it was for July.

Oil

Oil prices got bludgeoned yesterday. WTI lost $1.54, 3.4%, closing at $43.16 and Brent fell $1.44, 3.1%, settling at $45.45. The market is not falling for talk of an OPEC production freeze and is focusing on the quite bearish EIA crude and products report on Wednesday. It also isn’t helping the bulls that the dollar is hitting a one month high vs. a basket of major currencies. This morning oil is attempting to recover for a 3 week low being up a hefty $1.03. A couple things are going on here. On the lousy employment report global equities are materially higher this morning which is pulling oil prices higher and second, Russian President Vladimir Putin is urging oil producing nations to agree on a production cap, “It is the right decision for world energy.” I think each OPEC country and Russia are taking their turn jaw boning the market higher.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its weekly natural gas storage report yesterday, and it hammered natty. The EIA reported 51 Bcf was injected into U.S. storage fields last week but the market was expecting an injection of 46 Bcf. The bears immediately emerged and natty closed down 9.5¢ at $2.792. U.S. inventories are currently 283 Bcf, 7.5%, above last year at this time and 334 Bcf, 11%, greater than the 5 year average. I expect that at the end of the injection season, October 31st, we’ll be very, very close to last year’s inventory level.

Tropical Storm Hermine hit the Florida panhandle while you slept. This storm is going to be more of a pain in the butt ruining the holiday weekend than life threatening, thank goodness. For example it’s knocked out power out to 150,000 folks. The tropical storm is also killing the A/C load, and gas demand, across the south which is usually high during this time of year. Speaking of the forecast, it hasn’t changed all week. Heat is coming to the east in the 6-15 day period. Natty this morning is chopping around being up 1.5¢.

Elsewhere

COLLEGE FOOTBALL IS BACK!!! WHOO-HOO!!! And there are some great games this weekend! We started the weekend last night with Tennessee (9) having to beat lowly Appalachian State in overtime. If you recall, it was Appalachian State that had one of the greatest upsets of the century beating Michigan in 2007. Also last night Louisville (19) beat Charlotte, NC. The reason I note this game is because Lamar Jackson, Louisville’s QB, threw 8 touchdowns, in the first half.

Saturday is the day for most of the big games, so much so that you’d think it was bowl season! The day starts at 11 AM CDT with two ranked teams playing: University of Houston (15) vs. Oklahoma (3). My Texas A&M Aggies play UCLA (16) at 2:30. The undercard (lol!) is LSU (5) playing Wisconsin at the same time, 2:30. Georgia (18) plays North Carolina (22) at 4:30. At 7 PM CDT you have the marquee game of the day with Alabama (1) vs. USC (20) at Jerry World. And wrapping up the day we have Clemson (2) at Auburn at 8 PM.

Sunday we have the 4th weekend of preseason games which is a total joke for no starters will be playing but we’ll have a great college game in the evening with Notre Dame (10) playing Texas at 6:30 CDT.

Capping off the weekend, on Monday we have two ranked teams playing: Ole Miss (11) at Florida State (4) at 7 PM.

This is college football insanity! A good insanity! Have a great holiday weekend!