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Investors Witness a Historic Day in Energy Markets


Today's financial recap and tomorrow's financial outlook.

Yesterday, in their meeting in Vienna, OPEC did absolutely nothing to change their daily production target of 30 million barrels per day. The cartel already exceeds that target by up to 1 million barrels as it is. Even though slightly more than 50% of analysts expected no change, a total lack of movement was even worse than that. West-Texas crude oil fell by 9% today in its worst single day of trading in years. The drop was a six standard deviation move, or a historical "tail event."

The drop in oil also dragged down every other commodity as well, partially due to the strength in the dollar. The Jefferies/Reuters commodity CRB index dropped 4% and had its worst day in more than six years.

The immediate response from market participants is that OPEC is declaring war on US-based shale producers. Production costs for Middle Eastern countries is only a fraction of what it is in the US, and with WTi crude below $70 that will begin to put a number of companies out of business. This is also a long-term negative because energy-related growth in the US has been the strongest source of growth over the last two years as shale production has accelerated rapidly.

Energy stocks dropped by 6.57% as a sector and by the close that had begun to affect the wider equity indices. For the S&P 500's energy sector (ETF:XLE), it was the largest drop in more than a decade. Consumer discretionary and staples stocks all rose, which supported the general indices, as did tech. Investors priced in the drop as beneficial for consumers, which would support a marginal uptick in future spending. The S&P 500 (SPX) closed down 0.25%, but the tech-based Nasdaq-100 (NDX) finished 0.46% higher.

Tomorrow's Financial Outlook

The Swiss gold referendum vote will take place on Sunday. The vote needs more than 50% of the overall vote from the populace and the majority of cantons to support it for the measure to pass. The final results are expected at 3:30pm GMT. If the vote does not pass it would be very negative for gold.

On Monday, the national ISM manufacturing index will be released, which will kick off a busy week on the macroeconomic front. The index is expected to decline to 57.9 in November from the month prior.

Outside of the Swiss gold vote the other global economic report of note is the official China manufacturing PMI release for November. The private HSBC survey showed a small decline in growth.

There are no earnings schedule for Monday in the US.

Twitter: @Minyanville

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No positions in stocks mentioned.

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