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Equities fluctuated following a rebound in crude prices. Inventory data suggested gasoline demand is increasing. As noted yesterday, US production is now at the lowest level since November 2014 and OPEC production declined in February for the first time in several years.
And then there is a possible $10 billion dollar denominated loan for Saudi Arabia. In my view this could be significant. According to the periodical Foreign Affairs a Muslim country cannot borrow from a non-Muslim country. More over if such a loan does occur, will the Muslim world view the US is now again favoring the Sunnis?
The Gulf Cooperation Council banks (banks that cater primarily to the Sunnis) are currently over a 100% loan to deposit ratio thus suggesting the banking system is facing a possible liquidity crisis and has no borrowing capacity remaining.
Will history view this seemingly innocuous event in a similar light to that of the Thai baht devaluation in 1998 that ushered in the LTCM crisis?
As written many times, the implosion of oil is not only threatening the existence of various companies but also of countries. How much longer will or can OPEC continue this suicidal policy? Algeria, Angola, Iraq, Venezuela and Nigeria—5 of the 13 OPEC member countries– have already requested IMF assistance. Azerbaijan—Asia’s largest oil producer—has as well.
Just as aside, Libya—another OPEC member—is a failed nation state where its production has plunged from 1.9 million to around 100,000 barrels/day
Some have commented about my constant reference to oil. The reason for these consistent remarks—since July 2014 the correlation between the direction of oil and equities is over 90%.
Commenting about yesterday’s data and Beige Book, the ADP Private Sector Employment Survey suggested stronger than expected hiring in the private sector. The obvious conclusion to make is the despite the turmoil in the global financial markets, companies are still hiring at a consistent moderate pace.
Speaking of which, the Beige Book or the statistical compilation utilized at the upcoming Fed meeting indicated that the US economy continued to expand “moderately” across most of the country and wage growth varied from “flat to strong” depending upon the skill level of the employee. Wage gains were most prominent at either end of the latter, one the result of political pressure and the other because of lack of qualified employees.
What will happen today?
Last night the foreign markets were mixed. London was up 0.26%, Paris down 0.19% and Frankfurt down 0.07%. China was up 0.35%, Japan was up 1.28% and Hang Sang down 0.31%.
The Dow should open flat. Oil is flat. Will today be a quiet day ahead of tomorrow’s unemployment data? The 10-year is off 5/32 to yield 1.87%.

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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.