The next four days can be pivotal in determining the direction of the markets for the immediate future. What are the odds of a surprise in November’s jobs data? September was surprisingly weak. October’s report was surprisingly strong. Each report altered the perception as to when the Fed would act.
And then there is the OPEC meeting. Few are expecting any change but “credible” reports are suggesting that the cartel is experiencing considerable strains in maintaining its unity.
Several months ago I was explicitly writing oil around $42/barrel is creating fiscal chaos for 7 of 12 OPEC members, questioning how much longer these countries can survive. Today there are ample stories supporting this view.
Perhaps of significance was yesterday’s Bloomberg report commenting about a possible liquidity crisis for Saudi Arabian banks, utilizing the overnight rate that the biggest Arab countries lend to each other as evidence. Bloomberg writes the rate jumped the most in seven years during November and was the fifth consecutive monthly increase.
Bloomberg also noted the drop in bank deposits in October, in absolute amount, was the greatest since the 1990s. As widely known Saudi Arabia is now delaying payments to government contractors and has embarked upon “cost cutting” reducing redundant government jobs. The issue at hand, according to the IMF approximately 86% of Saudi Arabian workers are employed by the government. Will these workers become fertile grounds for Islamic extremists?
Today the ISM is released. Many will scrutinize the employment sub index in an attempt to discern labor and wage strength for 17% of the economy. This sub index has a close correlation back to the overall labor market.
I will ask an obvious question. What are the odds of a surprisingly strong jobs report and unexpected action by OPEC? The former 55% and the latter, 10%.
Last night the foreign markets were mixed. London was up 0.53%, Paris down 0.14%, and Frankfurt down 0.18%. China was up 0.32%, Japan up 1.34% and Hang Sang up 1.75%
The Dow should open moderately higher after a gauge of Chinese factory output unexpectedly rose and a European inflation gauge rose to a four month high. The 10-year is off 7/32 to yield 2.23%.
CAN WE EXPECT THE UNEXPECTED?
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.
