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Will the Narrative Soon Change to One of Growth?

Stocks rallied yesterday as Treasuries tumbled as data suggested a resilient consumer.  Retail sales is suggesting third quarter growth can be potentially around 3.0%.  The two year treasury or the treasury most sensitive to monetary policy rose to the highest level since 2011.

Against this backdrop one would think Fed Funds Futures would suggest a greater probability of Fed action at tomorrow’s conclusion of a two day Fed meeting.  The futures—which are only a gauge of market sentiment—remained unchanged suggesting only a 32% probability of Fed action.  This is down from 50% about a month ago when China surprised all with its nominal devaluation.

If Fed Funds Futures are only suggesting a 32% change in Fed policy tomorrow, why then did the 2 year Treasury spike to a four year high?  Could I remotely suggest Treasuries are fearful of the Central Bank falling behind the proverbial curve?   The data is suggesting an accelerating economy.

Will the narrative soon change to one of growth, a normalization of interest rates and declining margins but higher profits especially for those companies whose revenues are primarily derived domestically?

What will happen today?  Will the CPI and NAHB sentiment survey have any impact?

Last night the foreign markets were up.  London was up 1.10%, Paris up 1.43%  and Frankfurt up 0.66%.  Japan was up 0.81% and Hang Sang up 2.38%.

The Dow should open flat ahead of the commencement of the most recently hyped Fed meeting.  Can I remotely suggest that if the Fed does increase rates there may be a case of buy on fact for the discussion of the inevitability began two years ago?  The 10-year is flat at a 2.28% yield.

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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.