Equities and the Economy:

Gesundheit. We all know that is they word said after someone sneezes, possibly the result of having a cold. Well Deutsche Bank has a cold and it spread to U.S. equities. As I’ve mentioned previously this week, Deutsche Bank has been under scrutiny because of its leverage and investors have been bailing on the stock. After losing 7% earlier in the week its stock price fell another 6.7% yesterday hitting an all-time low. And the contagion from Deutsche Bank roiled global markets yesterday including U.S. stocks. The Dow lost 196 points, 1.07%, to end at 18,143, the S&P 500 fell 20, 0.93%, finishing at 2,151 and the Nasdaq lost 49, 0.93%, to 5,269. So why we care about a bank located half way around the world? Because Deutsche Bank is Europe’s largest investment bank! Additionally, it certainly didn’t help, and I haven’t mentioned this previously, that a couple of weeks ago the U.S. Justice Department announced it’s seeking $14 billion from the bank to settle a probe tied to its mortgage backed securities activities. As we experienced 8 years ago, when bad things happen at banks investors scramble for safety, which means selling riskier assets including stocks. Even though Chancellor Angela Merkel has said the government will not bail out the bank, it will if necessary. It has no other choice. Deutsche Bank is “too big to fail.” Lehman Brothers remains a fresh memory. By the way, from a purely technical perspective yesterday’s equities collapse did not damage the charts, i.e. did not break support.

Regarding fundamental data, as usual the Labor Department released its weekly first time jobless claims report yesterday noting claims rose by 3,000 last week to 254,000. No big deal. Unemployment claims remain at post-recession lows. The National Association of Realtors reported its index of pending home sales fell 2.4% to 108.5 in August which is the lowest level in 7 months and far worse than economists’ forecasts. Finally the Census Bureau reported the U.S. trade deficit fell from $58.8 billion in July to $58.4 billion in August. The numbers probably don’t mean anything to you but what is the most important piece of data is that exports rose 0.7% and imports rose 0.3% indicating the economy is moving along quite nicely thank you very much.

Today is the end of the quarter so some “window dressing” could be happening and the Dow is up 114 points.

Oil

Equities may have been collapsing but oil prices hung in there with WTI closing up 78¢ at $47.83 and Brent rising 55¢ to $49.24 hitting a 3 week high. Yesterday’s price gains were the continuation of the gains on Wednesday resulting from the surprise announcement by OPEC of a production agreement. The details of that agreement are to be worked out over the next weeks and presented at the OPEC meeting in November. It’s not all about OPEC though, remember earlier this week both the API and EIA reported that crude inventories fell last week more than traders expected. That being said, as prices rise so will the U.S. rig count.

This morning WTI is up marginally 30¢ which is on the coattails of higher U.S. equities.

Courtesy of MDA Information Systems LLC

Natural Gas

The November Nymex natural gas contract spent its first day falling 4.3¢ to $2.959. The EIA released its weekly storage report yesterday stating 49 Bcf was inject last week into U.S. storage fields which came in right at expectations so no price influence there. Current storage levels are now only 90 Bcf, 2.6%, greater than last year and 220 Bcf, 6.5%, greater than the 5 year average. My bet is that storage levels at the end of the injection season, which is the end of October, come in very close to last year, which were a record level.

This morning natty remains on the defensive being down 5.4¢ influenced by a weaker cash market, which if you recall, is what drove Nymex prices up to $3.10 earlier this month. The weather forecast is helping the bears. Being it’s October the forecasted above normal temperatures will do nothing in spurring A/C load. They’ll simply make for incredible weather!

Coal consumption is getting hammered! Per the EIA, coal production is down 12% vs. a year ago and coal carloads on U.S. railroads are down 14% from a year ago.

Elsewhere

You got to love this! Setting the stage, due to a student-led initiative at the University of Michigan students can select their preferred pronoun before their name. The university vice president and provost of student life said employing preferred pronouns was “one of the most basic ways to show your respect for their identity and to cultivate an environment that respects all gender identities.” Well student Grant Strobi decided to troll the university administration by officially requesting his pronoun be changed to, drum roll please, “His Majesty.” “I henceforth shall be referred to as: His Majesty, Grant Strobi” he told the school newspaper. He has started a trend. Other students have selected: Her Royal Highness, His Grace, and The Exalted Reverend Doctor Architect.