Equites retraced their Fed induced advance. The dollar rallied and commodities were crushed further sending them to a fresh 16 year low. I believe trading was entirely dominated by HFTs as everyone knows higher short term interest rates suggests a higher dollar and lower commodity prices.
However if the economy is strong enough to absorb an additional four 0.25% interest rate hikes during the next 12 months, should not commodities firm given that commodities are influenced by economic production?
Speaking of economic production, the LEI or the indicator designed to forecast activity in 3 to 6 months rose by 0.4%. Consensus had expected a 0.1% increase. Such an increase is consistent with growth around 2.5% to 2.75%.
Another possible indicator of strength was weekly jobless claims which were lower than expected. Claims are hovering around a 40 year low.
HFT is based upon momentum with all markers cross correlated. There is no analysis or forward looking thinking. It is evident that most HFTs employ similar algorithms. I ask what happens when the economy/markets are near a major transition point; a transition point is very obvious to all except a computer?
I think we are around such an inflection point and the data in the next 30 days will soon suggest such is at hand.
What will happen today? There is little on the economic calendar.
Last night the foreign markets were down. London was down 0.22%, Paris down 0.48% and Frankfurt down 0.15%. China was down 0.03%,Japan down 1.90% and Hang Sang down 0.53%.
The Dow should open nominally lower even as commodities are rallying in the global markets. The 10-year is up 3/32 to yield 2.22%.
IT FELT LIKE GROUNDHOG DAY
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.
