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Friday was a Relatively Uneventful Day, a Very Welcomed Day, Given the Intense Volatility Experienced During the Past Two Weeks.

Friday was a relatively uneventful day, a very welcomed day given the intense volatility experienced during the past two weeks.

Some would suggest one of the greatest surprises of last week was the incredible 18% two day rally in crude, the sharpest two day advance since 2009.  Oil rallied almost 11% on Thursday and another 7% on Friday. Friday’s gains were the result of data indicating incomes grew in July which enabled greater consumer purchases.

Moreover there are concerns of additional supply disruptions from Nigeria and rumors that Venezuela is requesting an emergency OPEC meeting.  Crude had its best week in four years breaking a record nine week of declines that pushed oil lower by over 33%. Wow!

But should this advance really be a surprise?  It has been reported that short interest in oil futures is at a record high, the result of the incredibly negative oil narrative that ignored all issues that could potentially cause a drop in supplies.

I ask was there the proverbial short market squeeze on crude?  Perhaps but as inferred above I can argue oil should not be this low given the current geopolitical and socio economic dynamics.

What will happen this week?  Traditionally trading gets quieter and quieter during the two weeks leading to Labor Day.  I think it safe to write that this year is an anamoly.

This is a heavy data week with multiple employment surveys leading into Friday’s BLS labor report, various manufacturing indices, the trade balance, and the release of the Beige Book which is the statistical compilation utilized at the upcoming FOMC meeting.

How will the markets interpret the statistics?

Last night the foreign markets were mixed. London was up 0.90%, Paris down 0.73% and Frankfurt down 0.57%.  Japan was down 1.28% and Hang Sang up 0.27%.

The Dow should open moderately lower, extending its worst monthly decline since 2012.  Today’s weakness is blamed on uncertainty over Fed policy and Chinese concerns, the same fears that have plagued the markets for many months. The 10-year is up 4/32 to yield 2.17%.  Oil is down nominally following last week’s incredible advance.

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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.