In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Energy Bet Paying Off
My big energy bet is paying off now that we are in the midst of peak seasonal demand for crude oil. Although I remain very positive on our dividend and growth stocks, Treasury bond yields soared this week to the highest level in almost a year in the wake of the U.S. government’s Treasury securities being downgraded.
Specifically, Fitch Ratings on Tuesday cut its AAA rating on U.S. Treasury debt to AA+ due to worsening financial conditions and governance. The other thing that spooked financial markets is that the Treasury Department now wants to auction $1 trillion in Treasury securities this quarter, up from $733 billion that was anticipated. In other words, the Treasury Department may have bitten off more than it can chew, but that will be ultimately determined by the bid to cover ratios at the actual Treasury auctions.
Saudi Arabia reiterated on Thursday that its production cut would continue for at least another month. Currently, Saudi Arabia is producing 9 million barrels per day of crude oil, which is its lowest level in several years. Saudi Arabia and Russia will chair an online review of market conditions for OPEC+ members on Friday.
The next OPEC+ meeting is in late November, so I do not expect any potential production increases since seasonal demand may moderate after September, so OPEC+ will likely have no incentive to boost crude oil production.
It will be interesting if Russia continues to curtail its crude oil exports to boost crude oil prices if it is having production and/or pipeline problems. Russia has to keep its crude oil in the Arctic flowing through pipelines in the winter months, otherwise, an empty pipeline could freeze and burst. Obviously, Russia remains a wildcard in the global oil market that could impact crude oil prices.
The other wildcard putting upward pressure on crude oil prices is Mexico-based Pemex whose largest export terminal was closed on Tuesday due to a crude oil leak. Pemex has faced a series of operational challenges recently, including the recent shutdown of its Salina Cruz terminal and an explosion on a company gas platform that resulted in two fatalities.
Productivity Surges
The Labor Department this week announced that productivity surged 3.7% in the second quarter after declining in the first quarter. One reason that productivity rose in the second quarter is that labor costs only rose 1.6% after surging 3.3.% in the first quarter.
Productivity growth is a big component is GDP growth, which may explain why the Atlanta Fed is now estimating 3.9% annual GDP in the third quarter. I should add that private economists are nowhere near the Atlanta Fed’s third-quarter GDP estimate and are much more cautious with their GDP forecasts.
ADP on Wednesday announced that 324,000 private payroll jobs were created in July, which was substantially higher than economists’ consensus estimate of 189,000. The June private payroll report was revised lower to 455,000 jobs, down from ADP’s previous estimate of 497,000.
Interestingly, ADP continues to report manufacturing job losses and reported that another 36,000 manufacturing jobs were lost in July. The strongest sectors for job creation were leisure and hospitality which added 201,000 new jobs in July, while natural resources and mining added 48,000 jobs. Since the Labor Department has been grossly out of sync with ADP, especially on manufacturing jobs, Friday’s payroll report will be closely scrutinized.
Healthy Service Sector
Although the pace of growth in the service sector slowed in July, the service sector remains very healthy and is leading overall GDP growth. ISM on Thursday announced that its non-manufacturing, service index declined to 52.7 in July, down from 53.9 in June.
Any reading over 50 signals an expansion. The backlog of orders component surged to 52.1 in July, up from 43.9 in June, which is encouraging. Fully 14 of the 18 service industries surveyed in July reported growth.
Coffee Beans: Red Carpet Treatment
An ultra-rare orange lobster arrived in a shipment at a Red Lobster restaurant in Arkansas and will now live out the rest of its life in an aquarium. The rare coloration is believed to occur in only one in 30 million lobsters. Source: UPI. See the full story here.
