Hammering Away

Hammering away.  Stocks edged up slightly yesterday as investors were somewhat optimistic about a trade deal.  Once again, trade talks with China was the force behind the markets.

 

N O T E W O R T H Y

 

  • Slippery stuff.  In my Monday’s note, I warned that crude oil would have a wild week, and it surely did.  Saudi Arabia has been working on a public offering of its state owned oil entity Saudi Aramco for some time.  The company earned $355 billion in 2018 and is the most profitable company in the world.  We know this formerly private information because of the disclosures related to its IPO.  Speaking of the IPO, it was finally priced yesterday at 32 riyals a share.  That’s about $8.53 in greenbacks.  The offering at that price means that the company will raise $25.6 billion, surpassing Alibaba as the largest ever IPO, sorry Jack.  The offering values the company at $1.7 trillion, which is less than the Saudi royal family’s original target of $2 trillion.  What’s $300 billion amongst friends?  This week, the Organization of Petroleum Exporting Countries (OPEC) met in Vienna to discuss production policy.  Saudi Arabia clearly dominates the cartel and with its pending IPO would like to ensure that the price of oil remains strong.  That can be accomplished by lowering production which would lower supply and hence increase prices.  The challenge for Saudi Arabia is that the cartel doesn’t have the power it once had due to other large producers like Russia and the US.  In fact, the US is the largest producer followed by Saudi Arabia and then Russia.  Russia, though it is not an official member, participates with the group making things a bit more interesting, as their commitments are voluntary.  All of this sums up to lots of soundbites from all sides leading up to the meeting – Twitter is not a thing for them… thankfully.  The soundbites move crude oil futures all over the map until the policy is finally set.  Today, we expect to hear from the cartel and they are largely presumed to marginally decrease supply by 500k barrels a day.  This expectation served to push crude prices up in the past few sessions after losing more than -5% last Friday on fears that the cut would be put off until next year.  It all makes for a wild ride in the commodity and the broader energy sector, which has lagged all other sectors over the past 12 months.  With expectations for lower future demand for oil, a supply cut would be welcomed by the industry.
  • All in a day’s work.  It’s jobs week!  Once a month, the Bureau of Labor Statistics releases its employment situation report detailing the health of the nation’s workforce.  It is one of the most highly anticipated numbers on the calendar.  Why?  Remember my obsession with the consumer (how can you forget)?  Consumers, the driver behind economic growth, need jobs in order to spend money.  When they lose jobs or even fear unemployment, the spending stops.  Every week, the Department of Labor puts out a report on Initial Jobless Claims, which gives us some insight into what we can expect.  Yesterday’s number showed a decrease from 213k to 203k claims, which is below average and positive news for the economy.  Earlier this week ADP released its Employment Change number which missed expectations, raising some eyebrows.  This morning we will get the official number which is expected to show that +180k new jobs were created in November, up from last month’s +128k.  The number is expected to be strong because it reflects the return of around 50k striking GM employees.  The unemployment rate is expected to remain unchanged at 3.6%.

 

THE MARKETS

 

Stocks closed in the black yesterday, after spending most of the session in red.  Optimism on trade buoyed equities.  The S&P500 traded up by +0.15%, the Dow Jones Industrial Average closed up by +0.10%, the Russell 2000 nudged up by +0.06%, and the NASDAQ Composite Index advanced by +0.05%.  Bonds slipped for a second day and 10-year treasury yields climbed by +4 basis points to 1.81%.

 

NXT UP

 

– Change in Non-Farm Payrolls are expected to be +180k compared to last month’s 128k.  The Unemployment Rate is estimated to have remained constant at 3.6%.  Average Hourly Earnings may have ticked up by +0.3% month over month compared to the prior reading of +0.2%.

– The University of Michigan Sentiment Index  is expected to come in at 97.0, up from last month’s reading of 96.8.

– This morning Big Lots beat expectations, announcing that it had lost less than expected.

– Next week we will get CPI, PPI, and Retail Sales. The big news of the week will be the Fed’s FOMC meeting at which they are expected to keep rates steady, but the press briefing after the meeting is usually good for some fireworks.  Check back on Monday for weekly details.

 

daily chartbook 2019-12-06

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