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At 8:30 the BLS releases November employment statistics. The data has taken a heightened importance given recent comments by the Fed Chair and two Fed governors. Did Yellen, et.al. telegraph to the markets the data may be considerably stronger than anticipated, increasing the odds of a change in monetary policy at the December meeting?
Currently fed funds futures are suggesting a 62% chance up from almost 0.0% three weeks ago.
Several weeks ago I referenced August 2008 and how quickly the FOMC changed its view of the economy. In two weeks the Committee went from growth/inflationary concerns to weakness, a weakness that caused the Fed to stage a rare intermeeting reduction in the little used discount rate.
I rhetorically ask could such a dramatic shift in sentiment occur again, the result of budding wage pressures for those who have skills and for those in the lowest rung of the proverbial employment latter because of political posturing.
I can write at great length about the anemic labor participation rate (LPR), an observation I first made about 3 years ago and now has become mainstream. However, I am talking about a shortage of qualified workers in the STEM and trade industries where the data clearly indicates wage pressures for these workers as compared to the rest of labor force.
How will the averages respond if the data is considerably stronger than analyst’s views? Will the unexpected occur, meaning equities will rally as such data is suggesting the economy can handle any increase?
Many times I have commented about the outsized impact of HFT. Most think if the data is stronger than expected, equities would decline because everyone knows of this correlation. But if everyone expects something to happen, historically the opposite occurs, which may be the case today, perhaps amplified by the re programing of HFTs.
To Oliver Stonish? I never thought three weeks ago I would be writing about a possible change in monetary policy in December.
Analysts are expecting a 5.0% unemployment rate, a 184k and 168k increase in non-farm and private sector payrolls, respectively, a 34.5 hour work week, a 0.2% increase in average hourly earnings and a 62.4% LPR.
Last night the foreign markets were down. London was down 0.08%, Paris down 0.62% and Frankfurt down 0.52%. China was up 1.91%, Japan up 0.78%, and Hang Sang down 0.80%.
The Dow should open flat but this could change radically given the elevated importance of today’s jobs data as it relates to December’s Fed meeting. The 10-year is flat at a 2.23% 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.