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What will happen today? China suspended its circuit breaker. Reuters reported China is also considering allowing the yuan to quickly fall as much as 10%-15% at the same time backing tighter capital controls. The decimation in oil is continuing and equity markets are roiled. AND then there is today’s unemployment data.
Will the data stem the drop? As widely discussed, 2016 is the worst start of the year in history for the major market indices.
Some think equities would cheer disappointing data given that such would reduce the odds of further monetary action.
I do not agree as I think the jobs market (and economy) needs some wage inflation that accompanies a stronger labor report. Yes interest rates may rise but greater jobs and wages will increase spending power and earnings.
Analysts are expecting a 5.0% unemployment rate, a 200K increase in both non-farm and private sector payrolls, a 0.2% increase in average hourly earnings and a 34.5 hour work week. The labor participation rate (LPR) is expected to remain unchanged at a 30 plus year low of 62.5%.
In my view, if the employment report indicates an unemployment rate of 5.2% and a 62.8% LPR, such would suggest a considerably stronger labor market than the consensus view. We need to get more people working utilizing the LPR as evidence. Yes such may increase the headline rate but such a scenario is an indicator of confidence/strength because workers are returning to the labor force.
Today could be significant. If the rout is over, what sectors will rally? Last night a CNBC participant stated the S & P 500 growth index is trading at 29x earnings. Value is trading at 11x earnings. Historically growth trades at 19x and value at 14x. Will monies gravitate into value as there is always a reversion to the mean?
Another CNBC participant commented 2015 was the most difficult and narrowest market in 72 years. Wow! No wonder why most are so miserable.
The data is released at 8:30.
Last night the foreign markets were mixed. London was up 0.42%, Paris down 0.23% and Frankfurt up 0.11%. China was up 1.03%, Japan down 0.39% and Hang Sang up 0.59%.
The Dow should open moderately higher as China moved to shore up its markets by eliminating the circuit breaker rule that vastly limited potential liquidity and set a higher reference rate for the yuan and directed state controlled funds to buy shares. To write the incredibly obvious, the markets are vastly oversold. The 10-year is off 8/32 to yield 2.18%.

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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.