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08Jul2016 Market Update: Rig Count Up, Crude Prices Continue Sideways Trading, Short-Term Indicators Remain Bearish

Written by Gary

Wall Street has recovered all of its Brexit-sparked losses after the US economy posted its largest job gains in eight months. Crude prices have been trading in a narrow sideways range since their earlier tumble. Indicators show crude may fall into the mid 30's as the US dollar is expected to rise.


Here is the current market situation from CNN Money

North and South American markets are broadly higher today with shares in Brazil leading the region. The Bovespa is up 2.06% while U.S.'s S&P 500 is up 1.32% and Mexico's IPC is up 0.18%.

What Is Moving the Markets

Here are the headlines moving the markets.

Stellar jobs data helps Wall Street recoup Brexit losses

(Reuters) - Wall Street recovered all of its Brexit-sparked losses on Friday after data showed that the U.S. economy posted its largest job gains in eight months in June, strongly rebounding from dismal numbers in May.

U.S. economy posts largest job gains in eight months in June

WASHINGTON (Reuters) - U.S. job growth surged in June as manufacturers and other employers boosted hiring, confirming the economy has regained speed after a first-quarter lull, but tepid wages suggested the Federal Reserve will probably not raise interest rates soon.

NHTSA to probe Harley-Davidson motorcycles for brake failure

(Reuters) - The National Highway Traffic Safety Administration (NHTSA) said it would investigate some motorcycles made by Harley-Davidson Inc after complaints of brake failure without warning.

Theranos CEO Holmes barred from operating lab for two years

(Reuters) - Theranos Inc founder and CEO Elizabeth Holmes, once touted as the Steve Jobs of biotech for her company's innovative blood-testing technology, has been barred by a U.S. regulator from owning or operating a lab for at least two years.

German ministry denies investigating Tesla over software updates

BERLIN (Reuters) - Germany's Transport Ministry denied a report on Friday that it was investigating Tesla Motors Inc for updating driving assistance software without informing authorities, but said it was "clarifying technical issues" on the matter.

U.S. recession risk rises on auto sales fall: J.P. Morgan

NEW YORK (Reuters) - The risk of the U.S. economy slipping into a recession in the next 12 months increased to its highest level during the current expansion following a drop in auto sales in June, J.P. Morgan economists said on Friday.

Twitter seeks NBA, MLS, Turner deals to stream sports: Recode

(Reuters) - Twitter Inc is in talks with the NBA, Major League Soccer and Time Warner Inc's cable network Turner Broadcasting to buy digital streaming rights for content related to major sports and events, Recode reported.

Porsche to maintain big profit margin despite spending surge: CEO

STUTTGART, Germany (Reuters) - Porsche aims to keep its profit margin running at a double-digit percentage of sales in the coming years, Chief Executive Oliver Blume said on Friday, benefiting from more efficient production while boosting spending on its first all-electric car.

WTO's new trade index suggests sluggish third quarter world trade growth

GENEVA (Reuters) - The World Trade Organization on Friday forecast sluggish trade growth in the third quarter of 2016 as it published a quarterly trade barometer for the first time.

Oil Slides After Rig Count Rises Most In A Year

Having bounced off their earlier tumble, crude prices reversed lower after the US oil rig count rose by another 10 this week (11 last week) to 351 - perfectly tracking the lagged crude price. This is the biggest 2-week rise in rig counts since July 2015.

Chart: Bloomberg

JPMorgan Says Recession Odds Rise To New Cycle Highs

While not quite as dire as the recent analysis by Deutsche Bank which calculated recession odds in the next 12 months as more than likely, or 60% as of last weekend, moments ago JPM released its own latest recession probability analysis, and - somewhat unexpectedly following today's outlier jobs report - sees a 37% chance of a receession in the next 12 months. This is the highest recession probability calculated by Jamie Dimon's bank during the current economic cycle.

Here is what JPM's Jesse Edgerton came with this number:

After edging down to 34% on June 16, our preferred macroeconomic indicator of the probability that a recession begins within 12 months has moved back up and now sits at 37%, narrowly above the previous expansion high (Table 1, bottom row and Figure 1, blue line).

The probability from this model based on macroeconomic data remains moderately above our models based on financial markets (Table 2).

The 5% decline in June auto sales was the primary driver of the increase in probability, with the decline in May single-family housing permits also making a small contribution.

Morgan Stanley Warns That Rising Rig Count Could Undo The Rally

Submitted by Irina Slav via OilPrice.com,

In an industry where anything could happen, surprises - often unwelcomed - are hard to come by. Oil is exactly such an industry at the moment. No one is sure where oil is heading, near-term forecasts range from $20 to $80 per barrel by the end of the year, and there are just too many wild cards on the scene.

So, in a sense, the news that shale producers are launching more drilling rigs is not really news at all. It was expected, the companies themselves said they are ready to start ramping-up production as soon as prices reach some more reasonable level. What's new, perhaps, is Morgan Stanley's warning that production from the new wells being drilled could prompt a reversal of forecasts that U.S. crude production is falling and will continue to fall.

Morgan Stanley commodity strategist Adam Longson, who led the team that researched the situation, said that this reversal carries a downside risk for oil prices. According to Longson's team, "The rig count in the highest initial production counties of the Permian Midland continues to march higher and is not far from its 2015 peak." That's impressive on its own, but the other thing that's new is where all these new rigs are concentrated: in high-yield fields. This means that the ramp-up could be pretty significant.

The Good News on Jobs

The June jobs report was an occasion for investors to celebrate rather than fret about the Federal Reserve.

Brexit and the Hit to U.K.'s Consumer Culture

Consumer confidence has been slammed by the Brexit vote. More headwinds are in store for the U.K. economy

China's Banks Are Sitting on a Lumpy Cushion

Chinese banks are issuing tens of billions in Tier 2 capital to absorb losses, and investors are snapping up the instruments—but they provide less protection to investors than they may realize.

Top Ten: Weekly roundup: An affordable condo in San Francisco, LeBron James, Tesla and the stock market

MarketWatch articles to read this weekend.

The Ratings Game: Gap's June results excite investors but analysts remain wary

Gap Inc. posted positive same-store sales in June, but analysts are waiting to see if the positive results are sustainable.

Apple's stock might not recover until 2017

Shares of Apple may not fully recover until after the iPhone 7 launch.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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