Good news on jobs means bad news on interest rates

Stocks try to break out of prolonged slump, but dropping oil, precious metal prices don’t help. Fed interest rate hike now almost certain for the Ides of March.

Jobs in the construction trades are trending up. (Image via Wikipedia entry on carpenters, CC 3.0 license, attribution: Deutsche Fotothek)

WASHINGTON, March 10, 2017 – We don’t really have much to say on this rather limp Friday for Wall Street action. Once again, average remain near flatline, running slightly in the red this morning but moving slightly to the green this afternoon as of about 2 p.m. ET.

On the jobs front, after the usual too-high estimate by ADP (which was actually in the ballpark this time), the Department of Labor (DOL) said the economy added 235,000 jobs in February, the first month of the new Trump presidency. The White House crowed about the numbers, even as the predictably Republican-hostile media pooh-poohed the report and the Administration’s claiming credit for achieving them.

Of course, the media routinely crowed the pitiful “job increase” numbers ever month for President Lightworker, even though most of each month’s “job increases” were lower-level service jobs. In the case of those February 2017 numbers, however, a surprising majority of the new jobs were in construction and the trades. Now that’s something different.

Read also: Trading Diary: Friday’s yawn-inducing stock market action

Again, though, that dichotomy. With job numbers like this, and particularly given the quality of those new jobs, the Fed is going to regard this news as the final green light needed for the central bank to do what it wants to do anyway: raise those interest rates next week. That’s now a likely happening, which is at least part of the reason why markets have been hesitating or going slightly negative all week.

Crude oil tried a feeble rally in morning trading action, but that’s gone, with WTI down over $0.60 bbl. as we write this. Gold and silver tried to rally a bit this morning, but got their wings clipped pronto with gold currently near the flatline, while silver is off about 8 cents.

Good news for now is bad when it comes to the oil patch. This morning’s brief patch of price optimism may have been tempered by an astonishing report from Alaska, whose oil fields are allegedly approaching “played out” status. Fox News has run an AP report noting a big new Alaska oil discovery by the Spanish oil company Repsol, a company relatively unknown in the U.S.

“Spanish oil giant Repsol (REPYY) has revealed the largest U.S. onshore oil discovery in 30 years, located in Alaska’s North Slope. (AP report via Fox Business).”

Better yet, according to the report,

“Oil is expected to flow beginning in 2021, with a potential rate approaching 120,000 barrels per day.”

Wow. What a difference a new administration makes. The last one would have immediately handed this North Slope turf to the caribou.

Oil rigs are popping up all over the U.S. right now, or at least they are near major oilfields. To some extent, that’s what’s hitting the price of crude right now, eroding any pricing activity by OPEC, whose curtailment of some production was meant to boost the summer’s way-low crude oil price. That worked for awhile. But it ultimately succeeded in bringing irrational exuberance back to the American oil patch, particularly under a new Washington regime, which, whatever you think of its Fearless Leader, is dedicated to keeping those profits roll.

Hopefully things will remain relatively balanced on the oil front, keeping the price of oil stocks at least even if not slightly bullish. But if our guys don’t quit finding new oil soon, who knows?

In the long run, this is a lovely problem to have. In the short run, if price drops continue, we may see a few more bankruptcy cases popping up, particularly in the smaller producers and oilfield services industry. Meanwhile, consumers may have another summer festival of cheap prices at the pump, meaning lower costs for that summer vacation.

Markets will likely close Friday fairly flat. So will we. See you Monday.

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