Equities were mixed on trade and earnings.  Treasuries sold off as yields are now at their highest levels since September.  Oil rose for the third consecutive day.

Commenting about Treasury yields, the 10-year yield is now up about 45 basis points from its early September lows.  Yields have increased about 31%.  The 10-year yield however is still about 1.33% lower in yield than its high yield achieved last November.

According to Bloomberg, if  yields were to increase to this level, the 10-year would have a total negative annual return of 19.61% from current levels and a total negative return of 27% from its early September low yield..

Wow!  The catalyst for the selloff is stronger than expected economic activity.

Speaking of which last year at this juncture consensus was expecting a 2.3% GDP, unemployment would drop to 3.5%, PCE prices would increase to 1.9% and the Fed would increase interest rates by 50 -75 basis points in 2019.

The above forecast has largely unfolded for the exception that interest rates were lowered by 75 basis points.

Changing topics and as stated above, oil again advanced from a combination of stronger than expected demand and lower than expected supplies.  Another marquee fracker warned that US supplies may not increase by the forecasted amount and supplies may actually contract in 2020.  The reason for the shortfall…lack of funds and exhaustion of easily found supplies.

According to Blomberg, oil (WTI) has averaged about $56.67 for the year.  Yesterday WTI closed at $57.29.

In my view, rarely has there been such a divergence between reality and the price of the commodity.  Based upon current and expected conditions, both the Ten year Treasury yields and oil prices should be considerably higher.

Last night the foreign markets were up.  London was up 0.02%,  Paris up 0.28%, and Frankfurt up 0.15%.  China was down 0.43%,  Japan up 0.22%  and Hang Sang up 0.02%.

The Dow should open flat.  The 10-year is up 3/32 to yield 1.88%.


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.