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Equities were quiet yesterday as volume was about 30% below its average for 2016 according to Bloomberg.  Oil advanced nominally as Treasuries fell as several moderate FOMC voting members suggested a change in monetary policy could occur at the April meeting.

Some are suggesting housing sales are slowing but yesterday’s disappointing statistics was the result of lack of inventory not slowing demand.  Because of the lack of homes, prices are up about 5% from year ago levels.

Commenting about oil, crude rose about 1.1% for a myriad of reasons.  One is the potential production freeze in April which I think is symbolic in nature.  Second is the growing belief that demand and supply is moving towards balancing.  Third is the growing acceptance that Iran will not be the global producer as some feared because lack of western funds.

Iran needs about $500 billion in western funds to modernize its fields.  According to Bloomberg, to date most western banks/companies are limiting their exposure to less than $100 million given the dynamics at hand including lack of deal transparency from Iran.  It is now believed that Iran may only add about 250,000 barrels in 2016, replacing about a third of the production lost by Nigeria, Iraq and Venezuela.

Today and tomorrow weekly inventory statistics are released.  Will gasoline demand continue to rise at a high single digit rate?

As noted above, Treasuries fell in price as several Fed officials had a more hawkish tone as a measure of inflation expectations climbed to the highest levels in more than seven months.  As noted many times, some of the largest fixed income managers—Goldman, PIMCO, Blackrock– are expecting a 3.0% 10-year by year end.  If this yield does come to fruition, the 10-year would have a negative 1 year total return of 18.31% according to Bloomberg analytics.

What will happen today?

Last night the foreign markets were down.  London was down 0.37%, Paris down 0.35% and Frankfurt down 00.8%.  China was down 0.30%, Japan up 1.94% and  Hang Sang down 0.08%.

The Dow should open nominally lower.  The US awoke to the news of explosions ripping through the Brussels airport departure hall and a downtown subway station.  European stocks initially traded significantly lower on the news but have erased most their losses.  I rhetorically ask have the markets become inured to such attacks?

Commenting further, how will these attacks impact the US presidential debate?  Historically nationalism and patriotism trump all other themes.

The 10-year is up 5/32 to yield 1.90%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.