Oil Spike Drags Market Along

[Excerpted from Bill Cara's Daily Report]

Faced with weakness in key overseas markets, US equities opened weaker, later firming after a report on oil inventories caused crude oil (USO +3.58%) to spike higher. Large cap oil stocks Exxon (XOM +2.27%) and Chevron (CVX +1.82%) led the charge, helping the broad market to a second consecutive day of moderate gains, albeit on anemic volume.

At the closing bell on Wednesday in New York, the S&P 500 (996.46 +6.79 +0.69%), the DJIA (9,279.16 +61.22 +0.66%) and the NASDAQ Composite (1,969.24 +13.32 +0.68%) made solid gains, which, combined with Tuesday’s gains, almost made the market flat on the week. By all accounts at this point Thursday, we should be ahead in the morning.

The Toronto Exchange Composite (10,686.83 +12.99 +0.12%) was muted over concerns about the Canadian banks, but the Toronto Venture Board (1,176.95 +10.45 +0.90%) made solid gains as these indexes are sensitive to oil ($WTIC 73.58 +2.49 +3.50%) and gold ($GOLD 942.10 +3.10 +0.33%) prices.

In the US equity market, most sectors and industries were higher, with the best being Energy, Healthcare and Basic Materials (XLE +1.9% XLV +1.4% XLB +1.3%). The only losing sector, and barely, was Financials (XLF -0.1%). But Wednesday was clearly led by the Oilers, which were pumped in the morning on reportedly low inventories.

Among the technology industry groups, the Biotech’s ($BTK +2.2%) were strongest, while Airlines, on higher oil prices, and REITs were losers ($XAL -1.4% $DJR -0.9%).

The biggest winners of the Cara 100 company stocks were Brazilian pulp and paper company Votorantim, again, and Teekay LNG Partners (VCP +5.4% TGP +2.8%). These are Reflation Play stocks. VCP also gained +13.3% yesterday. There were not many losers, and the losses were small, but Electronic Arts was soft (ERTS -2.1%). Volume, except for VCP, was anemic.

The US Dollar gave more back ($USD 78.52 -0.48 -0.60%), which it does on Reflation Play days. This time, however, the Yen (106.32 +0.73 +0.69%) was stronger against the $USD, and so was the Euro (142.28 +0.91 +0.64%) and Canadian Dollar (91.33 +0.57 +0.63%). But after it was reported that the latest round of Qualitative Easing (QE) by the Bank of England was hardly unanimous as the extent some of the directors wanted, such as the Governor who wanted much more in fact, the British Pound (165.36 -0.22 -0.13%) sagged against what was a weak Dollar.

As tends to happen when the Fed is pumping liquidity, the US long bond ($USB 119.86 +0.58 +0.48%) took back the prior day’s loss and then some. Treasury yields dropped for the 30-year (4.294 -0.71 -1.63%), 10-year (3.463 -0.63 -1.79%) and 5-year (2.418 -0.53 -2.14%) instruments. The Treasury bill yield (0.165 -0.10 -5.71%) dipped slightly.

Earlier Thursday, the Austral-Asian markets, except Australia (4,391.4 +0.09%), closed sharply higher. Japan’s Nikkei 225 (10,383.4 +1.76%), Hong Kong (20,328.9 +1.88%), India (15,012.3 +1.37%), and particularly Shanghai (2,911.6 +4.52%) were soaring. Commodity plays were strong, particularly the oils. It was a complete reversal of the previous day.

Then the French CAC (3,496.7 6:53AM ET +1.34%), German DAX (5,296.2 6:38AM ET +1.23%) and FTSE 100 (4,747.8 6:38AM ET +1.24%) opened sharply higher, with strength coming from the Oilers and Bankers.

In precious metals trading Thursday morning, the spot (cash) market was as follows for: gold (942.89 +0.49 +0.05% 06:55am ET); palladium (272.0 +2.0 +0.74% 06:38am ET); platinum (1245 +9 +0.73% 06:32am ET); and silver (13.980 +0.050 +0.36% 06:54ET), respectively. The reflected yesterday’s gains, but are holding firm.

Sept futures prices at 6:42am ET were as follows for the Euro [1.4225 -0.0015 -0.11%], Crude Oil [73.50 -0.33 -0.45%], and DJIA [9301 +25 +0.27% 06:42].

Comments

[User 143167:]

The drop of crude inventory of 8.4mm barrels was only due to a drop of crude oil imports of exactly 8.4mm barrels last week. That means the final demand for oil was basically unchanged. However, the stupidity of the market always amazes me as people simply attribute the drop to the rising demand.

Aug 20 09:47 AM