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Wildfires Rage, Crude Prices Jump and Markets Advance

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May 5, 2016

(Thursday Market Open) Higher oil prices, getting a lift from wildfires impacting oil production in Canada, ignited the markets early Thursday after three days of trading to the downside as investors wait for Friday’s all-important jobs number. All three major benchmarks were moving to the upside. But are traders still a little leery?

The yield on the 10-year U.S. Treasury note fell yesterday to 1.786%, its lowest level in two weeks, and is fighting to stay in positive territory today. If it goes above 1.80% today, will it make a run for 2%?

Americans who applied for unemployment benefits at the end of April rose by 17,000 to a five-week high of 274,000, the Labor Department said today. New claims, considered a less volatile measure, inched up by 2,000 to 258,000. That’s coming off a 43-year bottom monthly average from a week ago.

Crude oil prices were moving higher in early trading Thursday after they reversed course Wednesday, putting a halt to a three-day string of setbacks. But the advance was thwarted from earlier highs. At the close, West Texas Intermediate futures were up $0.13 to $43.78 a barrel. Prices edged higher early after American Petroleum Institute (API) reported that the U.S. crude stockpile fell short of analysts’ expectations with a rise of 1.3 million barrels last week compared with a forecast of a 1.7 million barrels. But that turned out to be a miss from the U.S. Department of Energy’s report later in which inventories ramped up by 2.8 million barrels last week, a new weekly record and a larger-than-expected build. Today, however, all eyes turned to a raging inferno in Alberta, Canada, that was halting operations at a major oil-sands mining operation. Though the wildfire has been in play since Sunday, traders didn’t appear to take notice until it began to impact production and the province listed it as “out of control.”

The S&P 500 (SPX) appears to be ready to snap a two-day losing streak to rebound from a three-week low as oil prices advance and recent earnings results have outpaced Wall Street’s expectations. The energy sector, which drove the direction to the downside earlier in the week, appears to be switching gears and moving to the upside today.

On the Federal Reserve front, Minneapolis President Neel Kashkari sounded a dovish tone among a week of hawkish remarks by other Fed members. Late Wednesday, he told a town hall audience in Rochester, Minn., that the Fed is waiting for better data before it makes a move on interest rates, according to published reports. “If we [raised rates] aggressively, we would be setting the brakes on the economy,” he was reported saying. “You will see us move when the data allows.” Other Fed members will be at the pulpits later today.

S&P 500

FIGURE 1: NEARING SUPPORT LEVELS.

The S&P 500 (SPX), plotted through midday Wednesday on the TD Ameritrade thinkorswim platform, was testing key support at 2050 during a down day of trading. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

What Production Problems? Tesla (TSLA) Chief Executive Elon Musk shook off manufacturing issues during a conference call with investors Wednesday that have dogged the company’s Model X SUV and, some analysts insist, could threaten delivery on the more affordable Model 3. Instead, he said, he would ramp up annual production to a half-million cars two years ahead of time, according to the Wall Street Journal. “Tesla is going to be hell-bent on becoming the best manufacturer on earth,” WSJ quoted him from the conference call. “The key thing we need to do in the future is to also be a leader in manufacturing. It’s a thing we need to obviously solve if we are going to scale and scale rapidly.” Musk indicated that TSLA is targeting 2020 production at 1 million autos, despite falling short of delivery forecasts in Q1 because of a parts shortage. Meanwhile, TSLA reported a slightly narrower loss than expected and turned in revenues that matched expectations.

Sue Your Bank? A new rule proposed by the Consumer Financial Protection Bureau would allow consumers to do just that. The CFPB is pushing a law that would prohibit the use of arbitration clauses in consumer financial contracts, like credit cards and private student loans. Those are intended to block class-action lawsuits by forcing consumers into private negotiations should disputes arise. CFPB found that the clauses were used by 53% of credit-card issuers, 86% of the largest private student loan lenders, and 44% of banks taking insured deposits.

MCD’s Big Mac. Shares of McDonald’s (MCD) have soared in recent sessions, hitting an all-time high Wednesday and on track to do so again Thursday. "Who would expect that McDonald's is the No. 1-performing Dow stock over the last year,” Eddy Elfenbein, editor of Crossing Wall Street, said on CNBC yesterday. "It was in September that the company tweeted news of the all-day breakfast, and since then it's up nearly 40%." Is there more upside ahead? "Investors are not pricing in significant risk,” Stacey Gilbert, head of derivative trading at Susquehanna, said on the program. “This is very different than consumer discretionary as a whole, which definitely has a more bearish tone."

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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