Equities and the Economy:

• U.S. stocks end little changed.
• Russell 2000 closes at record high.

The three major U.S. stock indexes ended little changed on Friday. The Dow settled 10 points lower at 6,427, the S&P 500 ended 2 points up at 2,502 and the Nasdaq closed 4 points higher at 6,427. Weekly results were also mixed. The Dow posted a 0.4% weekly gain, the S&P a 0.1% gain while the Nasdaq logged a loss of 0.3%. The Russell 2000 index closed up 7 points at 1,451 marking its first record close since July 25th. The reason I mention this index is because it is viewed by many investors as a general sentiment of the overall market. The index is comprised of 2000 small cap companies and if the index is rising it’s viewed as bullish because of the index’s breadth and that investors are willing to be long riskier, small cap stocks. The Russell is up 7% for the year compared to the S&P’s 12%.

Regarding economic news, on Friday IHS Market Economics reported its manufacturing composite rose in September but its services index fell. The group’s economist stated that the U.S. economy showed encouraging resilience in a month of hurricane disruption, but business optimism for the year ahead dropped.

Overnight Japan’s Nikkei closed at its highest level since August 2015. The rally was primarily driven by a weaken yen. Angela Merkel won her 4th term as Chancellor although she’s going to have to cobble together a 4 way coalition government which is by nature inherently unstable. European stocks are currently mixed and U.S stocks are doing nothing with the Dow down 7 points.

Oil

• Prices end slightly higher.
• Third week of higher closes.

Oil prices closed slightly higher on Friday with WTI gaining 11¢ to $50.66 settling at a 4 month high. The November contract posted a weekly gain of 0.4% and the front-month contracts were up 1.5%. Friday’s close was the 3rd consecutive week of gains. Brent added 43¢ to $56.86. The Brent November contract gained 2.2% for the week, its 4th consecutive weekly gain. Prices have been rising on evidence that global supply and demand is coming in line with 5 year averages.

On Friday the Joint OPEC-Non-OPEC Ministerial Monitoring Committee concluded its meeting in Vienna announcing in a press release that compliance with the production cut agreement was 94% in July and an astounding 116% in August, the latter number thanks to Saudi Arabia’s cut in production. Both are record numbers. Quite impressive! No comments were made about extending the agreement beyond March 31st. The earliest a decision will be made on that matter will be at the full OPEC meeting on November 30th.

This morning the bulls remain firmly in control with WTI up 55¢, a 4 month high. Support is coming from 1) comments from OPEC that bloated global stockpiles have been massively drained since the production cut agreement went into effect, and 2) Baker Hughes’ report on Friday that drillers cut the number of oil rigs working for the 3rd week in a row, 5 to 744, the lowest since June.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices end slightly higher.
• Calendar strips strong.

The front month October Nymex contract closed marginally higher up 1.3¢ at $2.959. Usually all the action, i.e. volatility, is in the front month but on Friday the calendar strips posted healthy gains with the 2018 through 2021 strips up 1.9¢ to 2.5¢. Usually with such a small move in the front month price the calendar strips would be unchanged in price. My antennae is up. Got to watch this closely.

If you watched any football yesterday you would have heard the announcers at almost every game played in the Midwest and East commenting about how hot it was, and this morning the weather forecast is quite warm for the same regions, especially in the 11-15 day time frame. Now if this was July or August this would be manifestly bullish, but the time frame for this warmth is the first week of October, so the bullishness of the forecast is markedly diminished. As I write natty is down a meaningless 0.9¢. Total chatter.

Elsewhere

Solar Power has gotten a lot cheaper. Back in 1977 each watt of capacity for a silicon solar panel cost around $76. By 1987, that dropped to $10. In 2017, according to Energy Trend, it is 22¢. As a result, solar installations are growing exponentially around the world. China is a major source of “cheap” solar panels. Maybe too much. Last month Suniva Inc., a U.S. manufacturer of solar panels, filed for Chapter 11 bankruptcy claiming Chinese solar panel manufacturers have benefited from subsidies from the Chinese government. The company lost $56.3 million since the end of 2014. But Suniva needs to look in the mirror. The company, founded in 2006, received $8.8 million in in subsidies from the federal government between 2010 and 2016. This was in addition to up to $11 million in state incentives. The company filed a complaint with the U.S. International Trade Commission (ITC) to protest the Chinese subsidies also claiming that China attempted to circumvent U.S. tariffs by shifting production to factories in other countries. On Friday, the ITC voted 4-0 siding with Suniva. This is a preliminary finding which now heads to President Trump’s desk for a final decision. His decision will be to either slap sanction on foreign solar panels in the form of additional tariffs or take some other action. Many U.S. solar companies oppose the ITC ruling saying it puts hundreds of thousands of solar industry jobs at risk.

Interestingly, according to the IEA, China spent $80 billion on green energy in 2014. The U.S., $34 billion.