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New York Fed President William Dudley may have shattered some bond market complacency when he stated the central bank could potentially raise interest rates as soon as next month.  Additionally Atlanta’s Fed chief opined that he is confident growth is accelerating, setting the stage for at least one hike this year.

The dollar trimmed its drop of almost 2% on these comments.  Oil however rallied and equities fell nominally.  Treasuries were lower.

2016 has been a volatile year surrounding monetary policy assumptions.  After the proverbial “liftoff” in December 2015, officials have twice cut their projections for the number of hikes this year from four to two and then one.

Today’s release of the Minutes from the July FOMC meeting may again alter these projections.

2016 violence in the crude is perhaps the only sector of the market that has been more volatile than monetary policy assumptions.  As all know oil fell about 40% during the first six weeks of the year than rallied about 85% in approximately four months and then fell about 22% in six weeks only to rally over 20% in two weeks.

Will crude continue to follow 1999’s path and close 25% higher from today’s levels from a combination of stronger demand and lower supplies?  As noted last week, the similarities between 1999 and 2016 are uncanny.

What will happen today?   Will activity continue to be muted until the release of the Fed minutes?  Yesterday’s data indicated an unexpected surge in housing starts in July to the fastest pace in five months while factory production increased more than forecasted.

Last night the foreign markets were down.  London was down 0.15%, Paris down 0.53% and Frankfurt down 0.97%.  China was down 0.02%, Japan up 0.90% and Hang Sang down 0.48%.

The Dow should open flat as oil is lower because of a higher dollar, the result of another change in monetary policy assumptions.  The 10-year is unchanged at 1.58%.

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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.