Trading was relatively quiet yesterday given that it was Veterans Day.  Even though the Treasury market was closed, the narrative is rising about current yields as compared to the underlying inflation rate.

Numerous firms have since remarked about the lack of liquidity in the Treasury market stating that swings in either direction can be amplified.  As widely accepted, the Treasury market is regarded as the most liquid in the world.

Wow!  This is scary especially as the markets are at a potential major inflection or transition point.

Commenting about the oil market, Saudi Arabia is making a very public pivot towards China.  Oil is the ultimate geopolitical product.

As widely noted Saudi Arabia has rebuffed the President’s demand to increase production for reasons such as the Administration’s refusal to meet with Riyadh, perhaps the result of the murder of a critical journalist, to Biden’s s pivot back to its arch enemy Iran. Is Saudi Arabia’s perceived pivot towards China just posturing?

Speaking of rising narratives, the rise in oil is making many headlines.  The demands for the President to do something is increasing.  The markets are expecting a release of crude from the strategic reserve but the effects of such would be short lived.

An issue at hand is production and capital.  As noted the other day, domestic oil production in January 2020 was about 13 million barrels a day.   Today it is around 11 million.  Several months ago, The Administration issued an Executive Order stating banks must estimate and reserve for climate costs.  The OCC—a primary regulator of banks—remarked Tuesday that reserves must commence in the upcoming year, stating any understating of costs may have SEC ramifications.

Moreover, at the climate conference, a communique was issued that the largest banks will work with governments to end fossil fuel funding.

Approximately 79% of the world’s energy needs are supplied by fossil fuels.  Green energy is less than 6% as per the International Energy Agency.  Capital expenditures in the oil sector has plunged about 75% since 2014.  Green technology or green capacity has not yet been invented or available to replace fossil fuels.

Moreover, as noted oil is the ultimate geopolitical product.  The rise of energy prices and the availability of such greatly impacts the electorate.  How will this unfold?

Today the JOLTS Job Openings is released.  Vacancies are near a record.  Analysts are expecting 10.3 million openings, down nominally form 10.4 million the month before.  This equates for about 1.25 jobs for every person who does not have a job.

Also released today is a sentiment survey.

How will the data influence the markets and perceptions?

Last night the foreign markets were up.  London was down 0.38%, Paris up 0.37% and Frankfurt up 0.1%.  China was up 0.18%,  Japan up 1.1% and Hang Seng up 0.32%.

The Dow should open mixed.  Oil is down about 1.5% as the President is considering releasing oil form the strategic reserves. Bloomberg reports the average price for a gallon of gas in California is $4.65, just 2 cents shy of the record that was set in 2012.

The 10-year is off 6/32 to yield 1.57%.


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.