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What will be the Tone of FRB Chair Yellen’s Testimony?

What will be the tone of FRB Chair Yellen’s testimony?  Moreover ECB President Draghi also speaks around the same time.  Talk about massive headline risk.

Will Yellen walk back the dovish Fed minutes from last week and tell the markets “patience” will be removed?”

Regarding Draghi, markets will be looking for reassurance on Greece and lending to Greek banks from the ECB.  Draghi will probably discuss the ECB’s QE program and the benefits to the Eurozone.

It is widely accepted the BOJ, ECB and the Fed’s strategy is to drive up the price of risk free assets to push the markets toward risk assets.  I think a strong case can be made that “risk free assets” are now prohibitively risky but with the central banks fearing deflation this is the really the only viable  strategy given the inability of world governments—including the US—to pass meaningful reforms and polices  that stimulates growth.

Speaking of the legislature, how will the funding for the Department of Homeland Defense be resolved?  As widely known this agency may be shut down at the end of this week because of the immigration issue.

I rhetorically ask what will happen if the DHS is shut down and the threat towards to the Mall of America materializes?  Wow!

There was little to write about yesterday’s market activity as all markets were relatively quiet.

Last night the foreign markets were mixed.  London was up 0.12%, Paris down 0.12% and Frankfurt down 0.04%.  Japan was up 0.74% and Hang Sang down 0.35%.

The Dow should open little changed before Yellen’s testimony.  Several times I have commented about the narrowest of the market.  According to CNBC, the entire gain in the NASDAQ 100 is from five stocks. Without these fives tocks the NASDAQ would be down.  Wow!  I have not witnessed such narrowness since 2000. The 10-year is off 2/32 to yield 2.07%.

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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.