Banks and phone companies pushed stocks higher as the dollar is at the highest level versus the euro since 2003. Financials are the direct beneficiary of a more hawkish Fed. As most are aware, the central bank is now projecting three interest rate hikes in 2017 versus two as was projected in September.
As widely known, for the past five years the FOMC’s “central tendency” was three interest rate hikes for the given year. This outlook did not even come close to materializing as there was only one 0.25% increase in 2015 and one in 2016. Will 2017 be the opposite of years’ past where the Fed is more aggressive than expected?
To write the obvious, it depends upon the data.
Treasuries continued their unrelenting selloff. The 10-year is at its highest yield since September 2014 but I must write it ended 2015 at 2.27%. Yesterday yields rose to 2.60%, levels that are still about half of what it was in the summer of 2007.
All can write volumes about the possible ramifications if yields continue to rise especially relating to the debt which is now $20 trillion, a debt that has doubled during the past eight years. As noted several times, today’s debt service coverage is nominally lower than it was in 1996 when the national debt was 25% of today’s level.
What will happen today?
Last night the foreign markets were up. London was up 0.16%, Paris up 0.39%, and Frankfurt up 0.32%. China was up 0.17%, Japan up 0.66% and Hang Sang down 01.8%.
The Dow should open quiet. The 10-year is up 7/32 to yield 2.57%.
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.
