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Will the December 4 Italian referendum be the final geopolitical risk event of 2016?  To remind all the referendum is about a stream lining of the Italian government fearing a possible “Italiexit” if the populists win as was the case in England and the US.

As noted many times interdependency and multipolarity have been replaced with nationalism and patriotism, two attitudes that have been around since the dawn of mankind versus the 25 year tenure of interdependency utilizing the fall of the Berlin Wall as the benchmark.

I am certain attention will soon focus upon the upcoming vote with an infinite number of potential interpretations.

Speaking of interpretations, the global bond market has definitively stated a Trump presidency will cause demand pull inflation as the losses in sovereign debt is now over $1.5 trillion.  The 10-year Treasury has increased in yield by 41 basis points, the steepest climb in more than seven years and an index of relative strength is at the most oversold level since 1990.  The thirty year Treasury had its biggest rout in over a decade.

Few expected such a rout but I do think it is significant that the 10 and 30 year Treasury is now yielding around January 1 levels.

Speaking of a potential unexpected event, will OPEC curtail production?  Oil was up over 5.7% yesterday on the possibility.

I ask how the bond market will respond if OPEC strikes an agreement.  It widely known if oil remains around current prices Saudi Arabia may be bankrupt in four years thus suggesting economic conditions are dire for the cartel.  November 30 could be of considerable significance.

Commenting about yesterday’s market activity, the NASDAQ advanced 1.1% on the “must own growth stock” while the Dow was up about 0.25% on the strength of the financials and the energy.

Last night the foreign markets were down.  London was down 0.76%, Paris down 0.88% and Frankfurt down 0.76%.  China was up 0.02%, Japan up 1.10% and Hang Sang down 0.19%.

The Dow should open moderately lower.  Since Trump was elected, financials outperformed utilities by 17%, the biggest gap since April 2009. Financial were up 10% while utilities—the “must own and can’t lose money” sector—down 7%.  What is this suggesting?  And then there is the mega capitalized technologies.

The 10 year is off 14/32 to yield 2.72%.

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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.