Talk about a fast turnaround out of nowhere! Crude oil was moving higher today after its big sell off yesterday. This morning's catalyst for the upward move was news that oil stocks had unexpectedly shrunk. It had recaptured half of its losses from yesterday when it began to slowly fade and then fell sharply. The cause was news out of Saudi Arabia.
The Kingdom announced that it was lowering its official selling price for its crude oil. The cut was $1.00/barrel.
Brent crude was hit harder than WTI as the former made a 2 year low in price.
I think it is safe to say that S. Arabia is not exactly thrilled to see US production rising. I for one am particularly happy to see Uncle Sam dethrone it in this area. Think about what might be if we had an energy friendly Administration here in the US!
Bonds continue on a tear higher. The yield on the Ten Year Treasury Note has fallen to near 2.4% today.
I am wondering if some of the weakness being seen in stocks today - and the resultant rush into Treasuries - might be tied partially to investor concerns over the Ebola virus. That slowing PMI number this morning seemed to get the ball really rolling to the downside but we then got news that a second patient is now being tested for possible contamination with Ebola. Some might ( and I am stressing that this is only a guess ) be thinking worst case scenario with an epidemic that would stunt consumer growth. Who knows? But for whatever reason, stocks at this point in the session are not yet seeing any concerted buying. Markets are funny things - they react to news in sometimes unpredictable manners choosing at times to ignore what many deem important and at other times possibly overreacting.
As a personal side note, I do not understand why we do not have a quarantine in place for incoming flights from those regions of West Africa where that virus is raging. Is it more political correctness at the expense of public safety of US citizens?
We can all argue about the proper role of government but one thing that we can probably all agree on is that one of the chief roles, if not THE CHIEF ROLE, of the federal government is protecting the well-being/safety of its citizens. To me, it is inexcusable that we are allowing anyone coming from that area of the world into this country. How many more deadly or crippling diseases are the authorities going to allow into this nation before we get serious about our borders?
There are too many instances of diseases coming into this nation, that we cannot even identify in some cases or that we once had eliminated here to believe that our open borders and lax immigration policies are not the main contributors.
Stocks continue to waver with some investors fretting about overall slowing global economic growth. The September Manufacturing PMI numbers were released this morning by the Institute for Supply Management showing a fall to 56.6 from August's 59.0 reading. The reading remains above 50 showing continued expansion but the pace slowed and that is feeding into those concerns noted above.
The one number that I found noteworthy was the New Orders index. That fell to 60.0 from August's 66.7, which was a multi-year high according to Dow Jones. Again, nothing strongly negative but it does reflect a slowing trend and that is spooking equity bulls somewhat.
That is bringing some strong buying into the bond market which notched a three week high today.
The flip side to this were numbers out of China. It's version of the manufacturing PMI came in at a 51.1 reading for September. That was steady with the August reading.
Investors/traders are looking at this and seeing the glass half full this morning ( especially in the copper and silver markets). The thinking is, "Yes, we knew China was slowing down but at least it seems to have stabilized". One month does not a trend make but for today, copper is breathing a sigh of relief and has thus managed to hold above $3.00. Silver seems to be taking its cues from the red metal and has clawed back above $17 on the number.
The weakness in the stock markets has sent some safe haven buying into gold this morning ( note the Yen is also higher confirming the safe haven bid seen in the gold and bond markets ) and that is keeping the metal afloat above psychological and round number support at $1200. Even the HUI is bouncing today.
Something also I am watching this morning is the further melt-up in the feeder cattle market. In going over the COT data for this very small and thinly traded futures market, I noted that the small specs or general public, have been holding the bulk of the short position in there and they are being mercilessly brutalized by the hedge funds who are squeezing them to kingdom come. Again, this market is currently experiencing a parabolic blow off run which I want to hasten to add makes it EXTREMELY DANGEROUS for all by the most experienced and nimble trader. Be careful with it unless you have some very deep pockets.
Every now and then a mania comes along in the futures world and this market is one of them. When the panic buying out at the auction barns in the country is going to come to an end is anyone's guess but with replacement feeders fetching such nose-bleed prices, my view is that once the panic ends, the fall will be quite dramatic. Oh would I have loved being a cattle guy at this time in the industry with calves to sell! it was not that long ago when you could not GIVE them away.
Crude oil has erased half of yesterday's massive losses as an unexpected drop in supplies.
More later....
