Friday the all-inclusive June unemployment data is released. The data could be of considerable significance regarding the outlook for monetary policy. As written many times the markets have discounted a 0.75% in the overnight rate by year end with the first such reduction occurring at the July FOMC meeting.

The response to the data could be exacerbated given the thinned trading staffs because of the 4th of July. Some have commented this should  not be an issue given the vast majority of Treasury trading now occurs electronically. Perhaps this outlook is correct.

I am in the small minority believing the economy has not yet slowed as much as many are now suggesting. My rationale is simplistic…jobs and housing.

Regarding jobs, most measures surrounding “the ability to get a job” are around record highs. Additionally the number of jobs available is also around record highs. Weekly jobless claims are still hovering around 50 year lows.

Commenting about housing, most gauge the financial and economic well-being by the value of their homes. Housing prices are still increasing in secondary and tertiary markets, markets that still have not fully recovered from the 2008-09 financial crisis.

I reiterate my long held view monies are gravitating back to Main Street from Wall Street. A major issue at hand is the news is dominated by Wall Street type stories, stories that are filled with fears about the potential change in the global economies, the result of the populist movement that is sweeping the industrialized western democracies.

I am a firm believer it is not what one writes but rather why one writes it. By many measures Main Street’s optimism greatly exceeds Wall Street’s pessimism.

All must remember historically the vast majority of job and wealth creation occurs in companies with fewer than 400 employees. This sector of the economy was all but forgotten during the last Administration as that Administration emphasized crippling regulations and dogma that only the largest companies could navigate.

Perhaps radically changing topics, I think there is evidence of the markets are now in the “greater fool” stage; two year Italian bond briefly fell below 0.0% yesterday.

For a moment investors decided it was just fine to pay Italy for the privilege of lending it money even though less than a month ago the country was on the verge of a fiscal crisis so bad some wondered whether or not it would be forced to leave the euro zone.

In my view what is even more shocking is that its debt is rated at the lowest rung of an investment grade credit. Is one being amply rewarded for the event and interest rate risk one is taking?

As noted many times the global universe of negative-yielding debt has topped $13 trillion, doubling since December. The amount of negative real yielding debt is now over $22 trillion as per Bloomberg.

Wow! To expand upon General McAuliffe’s famous quote This is Nuts.

I rhetorically ask what happens if the pundits and the Establishment are wrong about the momentum of the economy? Would the bond market unwind itself at a pace quicker than it advanced? Will trading mechanics go “Nuts?”

Only history can answer this question.

What will happen in today’s abbreviated trading session?

Last night the foreign markets were mixed. London was up 0.76%, Paris up 0.68% and Frankfurt up 0.68%. China was down 0.94%, Japan down 0.53% and Hang Sang down 0.07%.

The Dow should open nominally higher on dovish monetary policy central bank appointees. The 10-year is up 5/32 to yield 1.96%, the lowest yield since November 2016.

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. 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. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.