TRADE, MONETARY POLICY AND FIRES

Equity markets are pricing about a 90% probability the Fed will lower interest rates on Wednesday.   In my view the global headwinds that pushed the Bank to cut rates in July and September have abated somewhat, a partial abatement that includes easing of US-China trade tensions and Brexit uncertainty.

I think I can write with certainty that if no action is taken, equities will trade considerably lower.

In some regards the Fed is in a no win situation, trying to push back from the belief the Committee is being bullied by both the President and “the market.”  The only way to break this proverbial cycle is to do the unexpected.

Changing topics, what will be the outcome of the California fires?  As widely known, the largest California utility has shut off power to more than 3 million people in an attempt to avoid wildfires.  As reported the current fire may have been sparked by electrical lines.

This strategy may not have worked.  Not only are people in the dark (and are angry), fires are still occurring.

As widely known California utilities have been mandated to invest in Green Energy.  The end result of this government mandated spending is the syphoning of funds away from regular maintenance. California’s electrical rates are already two times higher than the national average thus the ability of the utilities to raise rates to meet all demands is hindered.

In my view, California is a microcosm of the demands that are now being levied by the long arm of government.  The ideas sound great but how are they paid for, an environment amplified by the litigiousness of today’s society.

What will happen today?  Will yesterday’s trade inspired rally falter?  Will Treasuries rebound from the current selloff, the result of a possible trade deal that might ease economic uncertainty?

And then there are earnings. Several high profile firms nominally missed expectations.

Last night the foreign markets were down.   London was down 0.83%, Paris down 0.05% and Frankfurt down 0.13%.  China was down 0.87%, Japan up  0.47%  and Hang Sang down 0.39%.

The Dow should open nominally lower as some the largest earnings releases occured yesterday and today, some of which posted mixed results.  Moreover there is tomorrow’s Fed meeting.  A rate cut is expected.  The 10-year is up 3/32 to yield 1.84%.

kent
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.