US equity markets slipped quietly into mid-August. Last week the S&P 500 rose a slight 0.002% – effectively a flat performance. The Dow Industrials, also flat, rose 0.004%.
Just when OPEC members felt comfortable that their approach to vanquishing US production by driving excess production into global markets had succeeded, US shale production has begun to gain traction again. North American Rig Counts, as measured by weekly Baker-Hughes data, climbed for a seventh week last week in their longest period of expansion in a year. The North American count jumped by 21 to 607. US rig count rose 21, Gulf was unchanged at 17 and Canada rose 4 to 126. This theme speaks to what should be a well contained trading range for crude in the near term, as I suggested would likely be the case in last Thursday’s note. As we all know, US production of crude has been severely curtailed since last August. It was only a matter of time before equilibrium, as a result of market forces, would return. A range bound trade of $40/bbl – $50/bbl is likely in the near term. That said, if the range breaks, it will be to the down side.
My commentary featured in Reuters highlights the fact that recent “strength in crude has both lifted equity prices and also tended to assuage that fear that we are going into a season of protracted anemic consumer and global demand,” said Peter Kenny, senior market strategist at Global Markets Advisory Group in Berkeley Heights, New Jersey. “Crude oil is an enormously important factor right now in the global market.”
Retail sales M/M for July, released on Friday were a disappointment. Consensus was calling for a rise of 0.4% but the month’s sales were flat at 0.0%. Also a disappointment were the retail sales for the period less autos (-0.3%) and less autos and gas (-0.1%). Business Inventories for the month of June were 0.2% versus consensus expectations calling for 0.1%. Consumer Sentiment ticked higher by 0.4 from July’s 90.0 but below consensus.
It was a mixed close on mixed volume Friday to close out a mixed week. Our economic data continues to leave little in the way of a directional queue for traders. Investors are clearly cautious despite, or possibly as a result of, our record highs.
Wednesday, investors will largely be focused on the FOMC Minutes to be released at 2:00 PM EST and the Atlanta Fed Survey. Thursday, Philly Fed and leading indicators. I expect this week’s economic data releases to remain in channel and do not expect the FOMC Minutes to impact the low likelihood of the current interest rate narrative to change.