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Equites fell as the Treasury curve continued to flatten to the narrowest since 2007 amid speculation that the Federal Reserve see firm enough economic activity to raise rates as soon as June.

The selling yesterday commenced with the CPI suggesting stronger than expected inflationary pressures but accelerated following the comments from two Fed officials that higher rates may be warranted.  As widely noted Monday a different Fed president stated an interest rate hike may occur in June.

All three officials believe “two or three” interest rate hikes may occur by year end, a view not shared by the markets.

Defensive/technology issues led the declines but energy/financial issues posted advances on the continued rotation from momentum growth to value is continuing

Today’s release of the Minutes from the April Fed meeting could now be of even greater significance than earlier thought.  As noted above, the markets have not yet begun to discount a potential interest rate hike in 2016.  Three Fed officials have publically suggested two or three are possible.    Is this the view of the full Committee?  We will know at 2:00.

Last night the foreign markets were down.   London was down 0.38%, Paris down 0.16% and Frankfurt down 0.10%.  China was down 1.27%, Japan down 0.05%and Hang Sang down 1.45%.

The Dow should open flat ahead of the Fed Minutes which may change the trajectory of interest rates.  Oil is flat with crude close to $50. Will the inventory data at 10:30 cause of breach of this psychological mark?  The 10-year is flat at a 1.78% yield.

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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.