Markets have been sanguine regarding a potential debt ceiling crisis. In my view, it seems more likely than not a deal will be done by November 3rd. But what are the possible implications if the debt ceiling debate once again goes down to the wire?
To write the incredibly obvious, equities would become weak, reversing the very narrow and myopic gains of the last two weeks. To remind all, the current advance is predicated upon more global central bank stimulus and data suggesting the FOMC will hold off raising rates until 2016.
What about Treasuries if a debt ceiling agreement is not reached? Some have stated Treasuries would rally, even if there is a short term default. I completely disagree. In my view even suggesting defaulting for political purposes is absolutely reckless.
Borrowing is dependent upon trust and confidence the borrower will be repaid on a timely basis and any such default will forever change the financial system. I believe at minimum treasury investors would now demand a premium.
Many on both the left and right have decried about the lack of meaningful growth. I believe one does not have to look any further than the length of their arm for the reason for such pitiful economic activity. In my view the electorate is demanding bipartisan leadership and to hell with today’s divide and conquer mentality.
As noted yesterday, today is the commencement of a two day FOMC meeting. Will the Committee comment about the debt negotiations, reiterating fiscal policy and reform is required and needed?
What about jobs? Until six weeks ago, monetary policy was mono variable—jobs. While all can argue the implications of a 38 year low in the labor participation rate, the four week moving average jobless claims is now at the lowest level since 1973.
I can strenuously argue a major reason why corporation loathe hiring is regulatory such as health care, family leave and wrongful termination suits. Will the Committee reference such impedances?
There is little I can write about yesterday’s market action. All markets were quiet ahead of a major earnings, data and meeting week, events that commence today.
Last night the foreign markets were down. London was down 0.30%, Paris down 0.49% and Frankfurt down 0.44%. China was up 0.14% Japan down 0.90% and Hang Sang up 0.11%
The Dow should open nominally lower ahead of a deluge of profit reports. Of the companies that have posted earnings, 75% have exceeded profit projections while 58% missed sales estimates. The 10-year is flat a 2.05% yield.
THE DEBT CEILING, JOBS AND THE FOMC MEETING
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.
