Treasuries climbed and the dollar slumped after data showing anemic expansion of the service sector bolstered speculation the Federal Reserve will not increase interest rates later in the month. Fed Funds futures are now suggesting a 24% chance, down from over 55% last week.
The ISM non manufacturing index indicated service industries expanded in August at the weakest pace in six years. While this is a relatively immature data point that has a history of indicating false weakness/strength, because of Fed statements, broad based conclusions are made on every tier I statistic.
As indicated, the yield on the 10-year Treasury fell by 6 basis points or retraced half of August’s increase in yields. As noted last week, prices fell in the 10-year by the greatest amount since June 2015. Yields rose 13 basis points.
The dollar is now down about 5.1% for the year. Eight months ago consensus expected the dollar to continue its multiyear advance.
Crude closed nominally higher, the result of the decline dollar and speculation that something might happen at the month end OPEC meeting.
What will happen today?
Last night the foreign markets were mixed. London was up 0.09%, Paris up 0.26% and Frankfurt up 0.35%. China was up 0.04%, Japan down 0.41% and Hang Sang down 0.19%.
The Dow should open little changed. Crude is up 1% and the 10-year is unchanged
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.
