Equities and the Economy:

• Stocks close higher on Friday.
• All three major indexes post weekly gains.

U.S. equities ended the week on a positive note with the Dow closing 39 points higher at 21,988, the S&P 500 gaining 5 points to 2,477 and the Nasdaq adding 7 points to finish at 6,435. It was another good week for stocks with all three major indexes finishing higher. The Dow was up 0.8%, the S&P 1.4% and Nasdaq a hefty 2.7%. Although higher is always better than lower, it’s hard to draw any strong conclusions on the activity in the market because volumes traded have been so low.

The big report on Friday was the Labor Department’s employment situation report which stated the economy added 156,000 jobs last month which was materially below the forecast of 170,000. The unemployment rate rose 0.1% from July to 4.4%. Although average hourly earnings increased 0.1% m-o-m, it was less than forecasts of +0.2% and below July’s +0.3%. This is a data point closely followed by the Fed and the lack of wage pressure inflation will give the Fed a reason not to increase interest rates. The most disappointing statistic was that average hours worked which fell by 0.1 hours/week to 34.4. While that doesn’t seem like much, it shows the demand for labor is not increasing, therefore the economy is not growing. Again, more reason for the Fed not to increase interest rates. A big however here though, I fully expect the Fed to reduce its balance sheet by not reinvesting the money it receives from maturing T-bills and bonds that it purchased in its QE programs which is a form of monetary policy “tightening.”

On the positive side, on Friday the Institute of Supply Management Manufacturing index came in much better than expected hitting a 6 year high.

Congress returns to work this week and one of the biggest items it will be dealing with the debt ceiling. An agreement must be reached by September 30th. That seems like plenty of time but it really isn’t. The House is scheduled to be in session for only 12 legislative days this month and the Senate 17.

We’re beginning the week on a soft note with the Dow down 64 points.

Oil

• Crude prices post 5th consecutive weekly loss.
• Gasoline prices skyrocket.

Oil prices closed pretty much unchanged on Friday relative to Thursday with WTI closing up 6¢ at $47.29 and Brent falling 11¢ to $52.75. For the week WTI fell 1.2% logging its 5th consecutive weekly decline driven significantly by the loss of about 22% of the nation’s refinery capacity due to Hurricane Harvey. That loss of capacity has sent gasoline prices flying higher with the Nymex wholesale gasoline contract rising 13.4% on the week. This is the biggest weekly rise since March 2012. On Thursday the gasoline contract settled at its highest level in over 2 years. Reports are that refining capacity is beginning to return so I expect that in a couple of weeks gasoline prices will give up the majority of the gains of the last couple of weeks. However, some of the refining capacity will take weeks, if not months, to come back on line due to the damage from the flooding.

This morning oil prices are rebounding with WTI up a big $1.20 which is the highest price we’ve seen in a week. After hitting a 2 year high last week of over $2.00, gasoline prices are retreating trading below $1.70 this morning on reports that Colonial Pipeline will be restarting its pipeline today delivering crude to Gulf Coast refineries.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas posts small gain Friday.
• Post hefty weekly gain.

The October natural gas contract logged a relatively small gain on Friday closing 3.0¢ higher at $3.07 but it was a good week for the bulls with natty prices up 5% for the week. Last week we saw prices just below $3.10 which was a 6 week high. Prices last week got a boost from the EIA’s weekly storage report that showed 30 Bcf was injected for the week which was the lowest amount injected in 14 years.

This morning prices are retreating back toward that magic $3.00 level with natty down 9.7¢ being driven by a couple of factors. First, the all-important weather forecast which has and continues to show very little load in the eastern half of the U.S. over the next 2 weeks, and 2) although there’s been no formal announcement, it appears that Energy Transfers pipeline to move natural gas from western PA and eastern Ohio has started flowing on its Phase 1 stage which is moving an incremental 200 MMcf/d out of the region. The pipeline is expected to be fully operational in Q1 2018 and move 3.25 Bcf/d.

Elsewhere

Hurricane Harvey by the numbers:

• 51.88 inches of rain fell. That’s a record for the U.S. Houston averages 50 inches of rainfall annually.

• 27 trillion gallons of water fell across Texas and Louisiana in just 6 days.

• 6,800 homes destroyed.

• 84,000 homes damaged.

• Just 28% of homeowners have flood insurance.

• 20,000 rescues.

• 37,000 people across Texas were still in shelters as of Saturday.

• FEMA approved aid for 103,000 people for more than $66 million.

• Gasoline price national average hit $2.59 per gallon. Up 23¢ for the week.

• Total cost estimated between $40 -$75 billion.