Heat Wave – Wholesale Price For Electricity Spikes by RichardsonGMP
Warren Buffett’s 2018 Activist Investment
Overseas markets are, well, rather boring today. Europe is flat, Japan down but Hong Kong is up. Futures are pointing to a flattish open. Bond market is pretty quiet. We are seeing weakness in oil again today, but the bigger story is currencies. The yen is gaining 1.5% this morning against the US dollar on speculation that new stimulus will be less than expected. Or because the currency markets want to make it more expensive for when we travel there this fall.
We are having one of the hottest summers ever, according to some weather folks. So far no black outs but we are seeing stress periods on the grid. Yesterday, the wholesale price for electricity spiked in NY City zone J (I don’t know what the J means) after a storm warning was issued. Electricity is going for $23/mwh this morning but at 2pm yesterday it spiked up to over $1,000/mwh for a couple hours and then came crashing back down. We took a look at the NOAA cooling degree days for the US, and it does not appear to be as hot as they say (or it feels). Now this is a different measure, it is derived from the temperature above a certain level that causes more people to use air conditioning. Get it, cooling days. However, it is measured based on population as well, so heat in more populous regions matters more than, say, heat where nobody lives. Anyhow, this is running at 726 cumulative, the same as last year and lower (meaning not hotter) than in 2013, 2012, 2011, 2010. So stop complaining. Although this was running below the norm until recently, remember we did have a slow start to summer. We charted the daily levels to give a different vantage point in the chart of the day. This is the daily score and yes, it is a bit higher now.
The Democratic Party is trying to unite but its supporters remain divided. At last night’s convention, Bernie Sanders, Senator Elizabeth Warren and Michelle Obama endorsed Hilary Clinton. Even so, there were jeers from the crowd as Sanders’ supporters “repeatedly disrupted proceedings.” Democratic voters remain divided as a result of a differences of opinion between Clinton and Sanders. Some believe that Clinton is all talk when it comes to “reigning in Wall Street and eradicating income inequality.” This is in stark contrast to Sanders, who is viewed as more of a radical. Either way, the Democratic Party needs to find common ground if it wants to take down the Republican Party. In an email to his supporters, Bernie Sanders said that “our credibility as a movement will be damaged by booing, turning of backs, walking out or other similar displays. That’s what Donald Trump wants.” More from Reuters here.
The Lone Man Building a Cathedral by Hand. Via Great Big Story
Anheuser Busch increased its bid for SABMiller to $103bb. The deal was upped by 1 pound per share as the currency has weekend post-Brexit making the deal less appealing to investors. With Keystone XL now a pipedream, the winner is likely to be crude by rail. Exports rose by 23% in April, a nice gain for Canadian Pacific and Canadian National Railway. Additionally, there are already six projects underway in and around the oil sands that have the capacity to double exports. McDonald’s reported same store sales growth that missed expectations, raising concerns that the run in fast food sales might be abating. Caterpillar lowered guidance to the lower end of its range, citing that the flow through effects of the Brexit will weigh on earnings.
Oil prices are trading at the lowest level in three months, despite the expectation that inventories fell 2.5mm barrels last week. Copper is also falling this morning as smelters in China continue to expand their production capacity. Refinery shut downs and maintenance is almost complete and capacity is poised to resume. Nickel fell over 2% overnight despite rumors that the Philippines, the world’s largest producer, could institute an export ban of raw ore.
Fixed Income And Economics
For the past several weeks US Treasury market movements have been more correlated to moves in oil prices and currency markets (especially the Japanese Yen) than what we would have expected based on economic fundamentals. Overnight this trend has continued with the Japanese Yen gaining over 1.5% versus the US dollar following disappointing news from Japanese Finance Minister Taro Aso. Aso stated that the government has yet to decide on the size of a fiscal stimulus package, that monetary policy measures should be left to the Bank of Japan (BoJ), and that he hopes the BoJ will continue utmost efforts to reach the 2% price target. The Nikkei newspaper reported that the plan would include 6 trillion yen ($58 billion) of new spending, though only about 2 trillion yen of that would be in a supplementary budget to be passed this year. Treasuries rose in response, as the rumoured size of the package was disappointing. The statement also has increased focus on this week’s BoJ 2-day meeting, which starts on Thursday, and markets are hoping for some expansion of monetary stimulus.
The rally in Treasuries overnight comes despite a weak 2-year auction yesterday, and ahead of the 5-year auction today. US economic data continues to support greater odds of a hike in September, and we do get a number of releases today ahead of tomorrow’s FOMC rate decision and statement. S&P/Case-Shiller Home Price data is expected to show a continued climb, while Consumer Confidence also remains robust, even though forecasts are calling for a slight decline from last month. The Richmond Fed Manufacturing Index is however expected to remain below breakeven, following a similar report from the Dallas Fed yesterday.
Domestic markets continue to follow the move in Treasuries, with no data or events of note until tomorrow’s 10-year auction and Friday’s GDP report. Although most provincial borrowers are in good shape and ahead of schedule, they could be opportunistic today given the narrowing of spreads over the past few weeks and the small rally in rates markets this morning.
Chart Of The Day
Quote Of The Day
Be nice to people on your way up because you meet them on your way down — Jimmy Durante