We have housing data and crude oil inventories due out today but the big news will come out when the Fed releases their rate decision in the afternoon. There will be a lot of speculation as to what their move means, but the rate should stay at 0.25%. It is less about what the Fed does today than what they say about tomorrow, so the outlook will be everything. This will set the table for the Europeans on Thursday and we fully expect the US Fed to defer to their counterparts and allow them to finally do some heavy lifting to solve their own economic issues.
Oil & Natural Gas
Natural gas plays have been trending higher as of late and Encana (ECA) has been no exception. Shares were up $0.48 (2.20%) to close at $22.25/share yesterday with the company posting volume of 11.4 million shares. That interest is important to note as many commodity plays have seen volume cut in half from their three month average daily volume numbers, so traders staying active here is quite interesting. This is not one of our favorite plays in the oil and natural gas sector, but it has a strong yield and is growing its oil and natural gas liquids production, so margins will be improving and so too shall their return on investment for these expensive shale wells they are drilling.
We were thinking about Cheniere Energy (LNG) the other day as we were going through ways to gain exposure to Europe and play a potential easing on their central bank's part. If the ECB were to begin a quantitative easing program the company would be a great way to play that action as they will be selling their exports to Europe moving forward and a weaker currency would push prices up. Yes they have contracts for these sales, but we are looking at the long-term and potential additional contracts which the company has not yet signed. Shares finished down $0.11 (0.80%) yesterday to close at $13.63/share on volume of 6.8 million shares.
Refiners
Refiner stocks have been steadily moving upwards lately, with Valero (VLO) no exception. The shares traded higher by $1.42 (5.44%) to close at $27.50/share after the company's latest quarterly report. In a bid to increase shareholder value the company announced a plan to separate into two companies where the refining business would stay and they would spin off the retail division in order to get the higher valuation assigned to that business that its peers sport. That business could be worth as much as $5 billion should it get the high end of the valuation range, and this is just another move by management to try to create returns for shareholders. Based off of the trading yesterday, investors liked the idea.
Steel
Shares in US Steel (X) rallied $1.73 (9.14%) to close at $20.65/share after the company beat Wall Street expectations. The company reported a solid current quarter, but said next quarter will be lower than this quarter's results although results should still be strong. Prices in Europe on the rise and it appears that we could have seen the bottoming out of prices and demand recently. This is what set shares off and it will be interesting to see how much the market turns over the next couple of months and what type of results the company is able to post as they have a lower cost for inputs than competitors due to their owning mines here in the US.
On the news from US Steel, investors also saw shares in AK Steel (AKS) rise as hope that an industry bottom has taken place. Shares rose $0.28 (5.56%) to close at $5.32/share, which was pretty close to the high for the day. Volume was strong at 11.1 million shares as this sector was one of the few bright spots in the commodity arena yesterday. The industry still has not recovered from a share price perspective and it will be interesting to watch these plays and any uptick in steel prices and demand as that will give investors a valuable insight to potential coal demand.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
