“Where have all the flowers gone …?” I must admit my faith in the market is shaken. I mean, really, is there nothing positive to entice the buyers to step up?
- U.S. retail sales declined in September and producer prices also fell, worrisome signals on the economy’s health that heightened financial market worries over faltering global growth
Apparently, there is not. After all, last month’s retail sales report is old news and long forgotten in a world that hangs its hat on the latest data output.
- Retail and food sales rose a seasonally adjusted 0.6% in August from July.
My point is the trend for retail sales is more important than the latest data point (and the trend is up), and I know the market understands this, but today’s news is piled on top of a whole lot of recent panic selling, so, the sellers sell and the buyers wait.
- The two reports on Wednesday could deepen concerns at the Federal Reserve over the readiness of the U.S. economy to absorb a hike in interest rates that many policymakers have said would likely come around the middle of next year.
And yet, the market is dropping hard today. One would think, given all the blathering about how the market fears the Fed raising rates, the market would rejoice at the news that retail sales and producer prices dropped in September. No, once fear becomes the driver of the market, the sellers sell and the buyers wait.
- Intel Corp gave a current-quarter revenue forecast above expectations and said the supply chain was in good shape ahead of holiday season as demand for personal computers recovered.
As you know, the personal computer industry has been long suffering, you know with smart phones phablets, tablets, and watches all the latest rage. Perhaps the industry has begun a comeback toward relevance in a world that covets portability, speed, and apps.
My point is that retail sales here are not flagging. And don’t forget Alcoa and its stellar earnings report. It also told us its supply chain was in good shape as the demand for automobiles has been on an upward trend. One month does not a trend make, and yet the sellers sell and the buyers wait.
However, many months does a trend make (or is it do?) and that is what is happening in the world of oil. More data has come out that should cheer the market, as it portends a boost in the amount of discretionary money in consumers’ pockets, yet, the sellers sell and the buyers wait.
- Growth in Global Oil Demand This Year Seen Weakest Since 2009
Now, remember, 2009 was the height of the Great Recession and the price of oil was somewhere around $145 per barrel. Today, it is around $81 for light-sweet and $84 for Brent, which was just about $110 in August. The takeaway is that oil demand is not dropping because people can’t afford to drive; it is dropping because there is truly less demand for the amount of oil produced. The world is changing energy wise.
- The national average price for regular unleaded gasoline has fallen for 18 straight days, reaching today’s price of $3.20 per gallon. This price represents a new 2014 low and is the lowest average for the Columbus Day holiday since 2010 when gas averaged $2.81 per gallon.
As I wrote yesterday, it does not appear this trend will change for some time. There is a war in the world of oil.
- Saudi Arabia effectively started a global oil price war this month aimed at quickly denting U.S. oil output. Slowing a U.S. drilling boom, however, could take more than a year.
Yes, it will take some time for US producers to cut back, even they wanted to, as it is not an easy thing to do, given the complex nature of the business.
- Existing wells that are drilled but not yet fracked will keep output surging for months.
- Many drillers have long-term rig contracts and are loathe to pay costly penalties for dropping equipment they could need soon after.
- Most have hedged next year’s production at much higher prices, and are racing to lock in 2016, protecting their revenues even if the free-fall in oil markets continues.
As well, small and large US oil producers are not keen on giving away market share to the Saudis, so, expect the pumping to continue and the prices to keep falling.
- At stake is not just the fate of a U.S. drilling frenzy that has transformed the North American energy picture and powered the U.S. economy, but the shape of the global market as OPEC leader Saudi Arabia hopes to claw share from U.S. producers.
So, expect the US consumer to rebound this month, as we move into holiday spending mode. Oh, and BTW, don’t be shocked if the September retail numbers are revised upward, as they are, well, almost every time.
- The U.S. dollar hit a three-week low against the euro and a more than one-month low against the yen on Wednesday after weak U.S. economic data on retail sales and producer prices heightened concerns that the Federal Reserve would delay its first rate hike.
The above is also good news, especially as it relates to oil prices, the US consumer and import prices, US manufacturing, US exports, and the market (think earnings). So, I guess we just wait this panic out, as sellers sell and buyers wait.
Just remember, this is not 2008 and we have been here before, more than once.
P.S. I was wrong a while back when I scoffed at the idea the Dow could drop 1,000 points, as one analyst suggested. Oops!
Trade in the day; invest in your life …
