Equites declined amid concern China may have to further tighten its COVID curbs which in turn may create even more societal unrest.  Various newswires have reported the current strife is the greatest since the Tiananmen Square protests of 1989 with “disturbances” reported in Beijing, Shanghai, Hangzhou, Nanjing and elsewhere.

The Newswires indicated a “heavy police presence” utilizing facial recognition to quell, identify and arrest the protestors.  It is largely accepted the Chinese government uses social media to monitor and control its society.

Markets also reacted to Federal Reserve Bank of St. Louis President James Bullard remarks that “financial markets are underestimating the chances that policymakers will need to be more aggressive next year in raising interest rates to curb inflation.”

Bullard further stated “there is still a heavy degree of expectations that inflation will go away naturally” reiterating his view that the Fed needs to at least reach the bottom of the 5% to 7% range to meet policymaker’s’ goal of being restrictive to stamp out inflation near a four-decade high.

NY Fed President John Williams partially confirmed Bullard’s remarks when he stated “I do see a point, probably in 2024, that we’ll start bringing down nominal interest rates because inflation is coming down and we would want to have real interest rates appropriately positioned.”

The FOMC has explicitly stated that it intends to increase nominal interest rates to equal that of the rate of inflation.  Today inflation is about 8% and the nominal interest rate is 4%, thus real interest rates are -4%.

One of two things must occur…either the nominal interest rate increases to the inflation rate, or the inflation rate declines or a combination of the two.

Williams’ remarks further dashed any hopes of a pivot in the intermediate future and is perhaps the first time a fed official has quantified a possible timetable.

Tomorrow FRB Chair Powell speaks.  Will his remarks echo other Fed officials’ remarks?

Oil on the other hand reversed earlier losses of almost 4% to close about 2% higher on reports that OPEC may further reduce output.

Last night the foreign markets were up.  London was up 0.76%, Paris up 0.25% and Frankfurt up 0.14%.  China was up 2.31% Japan down 0.48% and Hang Seng up 5.24%.

Futures are nominally higher as Chinese COVID fears eases slightly.  The 10-year is up 7/32 to yield 3.67%.  Oil extended its rebound-on speculation that OPEC will deepen its supply cuts.


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.