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Equities came under considerable pressure on skepticism that the US and China made any meaningful breakthrough on trade.  Selling accelerated amid news that a “hard Brexit” may occur.  Selling in US equity futures surged on this headline pushing the S & P 500 below the pivotal 200 day moving average.

There was little initial reaction to the NY Fed President’s optimistic view of the economy as he reiterated his support for further gradual interest rate increases and expressed no concern that market participants have dialed back expectations for policy tightening in 2019.

The NY Fed President stated there is “fifty percent chance that the economy performs faster, inflation picks up a little bit more than we expect and I think we are positioned to adjust to that.”

At the time of this writing, interest futures are only anticipating just one increase in 2019 following a hike at their meeting later this month.

As recently as September the FRB was projecting thee more hikes next year.  These projections are expected to be updated at the December 18 meeting.

Some pundits stated the decline was based upon fears of a slowing economy that caused equities to trade significantly lower, the result of a mild yield inversion between the three year and five year Treasury. 

Tomorrow November’s employment data is released.  What conclusions will be made?  Similar to Tuesday’s selloff, I am certain there will be contradictory views.

Last night the foreign markets were down.  London was down 2.31%, Paris down 2.21% and Frankfurt down 2.40%.  China was down 1.61%, Japan down 1.91% and Hang Sang down 2.47%.

The Dow should open considerably lower for a myriad of reasons.  JP Morgan writes 80% of recent volume is the result of algorithmic trading and just 10% from traditional stock analysis.  As discussed many times, liquidity and capitalization has been sacrificed for speed and cost of execution.

Many iconic participants are now publically lamenting the demise of market stability as such traditional forces are now absent the result of the relentless push to eliminate the proverbial middle man that is essential in times of volatility.  As noted in past remarks the next crisis will be of liquidity.  Are we now entering into the initial part of this phase?

The 10-year is up 5/32 to yield 2.90%.



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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.