Major market indices ended substantially lower this week as fears of higher interest rates and higher natural gas prices drove selling.  While August’s jobs growth slowed, it is still high by historical standards and job openings are still over twice the number of unemployed.  One encouraging sign was an increase in workforce participation which caused unemployment to tick up.  Home price growth is slowing but still high from a year ago and inflation in Europe is still accelerating.

The Federal Reserve announced a new payment system to be launched in 2023.  Currently electronic fund payments are only available on weekdays and can take a couple of days to clear.  The new system will work 24/7 and be nearly instant.

G7 countries agreed to a plan to cap the price paid for Russian oil, in order to limit Russia’s profit from the sale of crude.  While Russian exports have fallen, revenue is up sharply on higher oil prices.  However, major importers such as China and India are not part of the G7.  Only the U.S., Canada, France, Germany, Italy, the U.K. and Japan are part of the G7.  Russia warned that it would stop exporting oil to any countries that impose the price cap.

Natural gas inventories in Europe are very low and prices have skyrocketed.  This was made worse on Wednesday as Russia shut off the Nord Stream 1 pipeline for maintenance.  Russia announced Friday that the reopening of the pipeline, which had been scheduled for Saturday is further delayed due to maintenance issues.  Even when the pipeline has been running it recently has only been delivering 20% of its capacity.  Ships capable of transporting liquified natural gas are in short supply.  The main LNG exporters are Australia, Qatar and the U.S.  Australia is starting to limit exports so it doesn’t run out.  In the U.S., the Freeport export terminal has been down due to an explosion in June but is expected to be back up in early October.  Additional U.S. export facilities are not expected to come on line until 2024.  Europe will be dealing with unprecedented measures including possible rationing in order to make it through this winter.

On the weekend OPEC+ met and chose to cut oil production by 100,000 barrels per day in October.  This came despite President Biden’s recent visit to Saudi Arabia to encourage an increase in production and may have been a rebuke of that and of the G7 price controls on Russian oil.  OPEC+ had been increasing production targets for many months but started to slow the monthly increase in September.   The U.S. has been releasing oil from its Strategic Petroleum Preserve by about 2,000,000 barrels per day.  OPEC+ is also concerned about the prospect of Iranian oil reentering the market if the nuclear agreement is resurrected.

Treasury bond yields rose with the 30-year bond at 3.347% and the 10-Year note at 3.193%.  30 year mortgage rates rose to 6.14%.  Crude oil rose to $86.97 a barrel and natural gas fell to $8.880 per MMBTUs.  The U.S. dollar index rose to 109.62 and is at a 20 year high.  Gold fell to $1721.10 an ounce.

In the economic numbers:

• The Eurozone reported inflation of 9.1% in August, up from 8.9% in July.  Energy prices have been skyrocketing on dwindling supplies from Russia.
  • Excluding volatile food and energy, core prices rose 4.3% in August, up from 4.0% in July.
• S&P CoreLogic Case-Shiller home price index rose 18.0% in June from a year earlier, down from 19.9% year over year rise in May.
• The Labor Department reported:
  • The U.S. added 315,000 jobs in August, strong by historical standards but down sharply from the 526,000 jobs added in July.
    • Unemployment rose to 3.7%.
    • The labor force participation rate rose from 62.1% to 62.4%.
  • Job openings rose in July to 11.2MM up from 11.0MM in June.
  • Job openings remain more than double the number of unemployed workers.
  • The number of job quits fell from 4.3MM to 4.2MM.
  • Seasonally adjusted first time claims for unemployment fell to 232,000, down from a revised 237,000 in the prior week.  
    • The 4-week moving average of claims, designed to smooth out volatility, fell to 241,500 from a revised 245,500.
    • For the full unemployment report go here:  https://www.dol.gov/ui/data.pdf .
• The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf .  Also, the EIA reported in the prior week:
  • Field production of crude oil rose from 12.0MM BPD 12.1MM BPD.
  • Natural gas storage rose 61BN cubic feet and is below the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs fell 9 to 596.  The number of active natural gas rigs rose 4 to 162.

  Please call us if you have any questions.

  Thank you,

  Loren C. Rex, CFP^®, MA                                                                     Erik A Smith, AIF®

  Founder / Emeritus                                                                            President & C.E.O.                                                       

  269-441-4143                                                                                    517-795-2025

  Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.

  These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.