Advisor Login Contact Us

Last Week Contained Several Surprises as European bonds were Crushed, Oil Advanced and Equities Ended Lower.

Last week contained several surprises.  European bonds were crushed as the realization of negative yields was acknowledged.  This acknowledgement was the catalyst for a sharp selloff in US Treasuries.  Oil advanced to its highest level of the year while the dollar fell from its lofty perch.  Equities ended lower.  Generally speaking, the data was decidedly weak.

Commenting further about last week, earnings exceeded dumbed down expectations however the question is now being asked were forecasts dropped to low thus suggesting forward looking outlooks as essentially meaningless.

As evidenced by sovereign bond yields, the financial system is awash with stimulus yet liquidity appears to be absent.  Is this a function of changes in trading and positioning of bonds as mandated by regulatory entities?  What happens if selling commences in earnest because of stronger than expected data?  Could we argue this lack of liquidity was a cause of last week’s sharp drop in sovereign debt?

Many times I have opined when everyone owns something, who is left to buy when selling commences.  The inverse of the above, if everyone has already sold, who will sell when buying commences?

I can argue commodities are vastly oversold and underweighted.  Last week the CRB crossed over its 100 day moving average, up over 10% from its mid-March multi year low.  Are commodities about to enter in a bull market after a punishing 35% plunge from last June’s multiyear peak?

As noted above, Treasuries increased in yield at the same time commodities rose in price.  The data was decidedly weak which negatively impacted equities.  Against this backdrop, can I suggest demand pull inflation is potentially developing?  The markets think yes.

If last week is a start of a trend, yesterday’s must owned technology and bio tech stocks would greatly underperform commodity based concerns. Will last week’s trends continued.

This week can also be of significance given the host of top tier statistics that are released.  Data includes several regional manufacturing indices, ISM non-manufacturing, trade data and various employment surveys including Friday’s posting of the BLS report.

Last night the foreign markets were up.  London was up 0.36%, Paris up 1.05% and Frankfurt up 1.38%.  Japan was up 0.06% and Hang Sang down 0.03%.

The Dow should open quietly higher ahead of big data week.  European stocks rebounded as some deflationary pressures eased in April.  The 10-year is off 3/32 to yield 2.12%.

Return To Index Page
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.