WHAT SENTIMENT WILL THE FED EXPRESS THIS WEEK?

Will this week be of great significance?  As widely known the Fed is holding its June meeting. The prevailing market narrative is the economy is edging towards a considerable slowdown and the market is suggesting combating such slowing, the Fed will lower interest rates by 0.75% by year end.

A major issue at hand is that according to a recent poll, respondents from the largest firms are only suggesting a 0.25% reduction. There is a disconnect between economists and the market. If the economists are correct, markets would have to recalibrate.

As written last week a 0.75% reduction in the overnight rate by year end is not considered as “patient,” the word chosen by the Committee to describe monetary policy. If this were to occur, the 33% reduction in the overnight rate by year end would be one of the sharpest and quickest in history.

In my view, the battle between Main Street and Wall Street is intensifying. Wall Street is suggesting a recession is all but inevitable given trade tensions.  Main Street on the other hand believes the future is much more optimistic.

May’s retail sales gave Main Street support.  Sales posted broad based gain and the prior two months were revised considerably higher. Moreover sentiment remains very robust.  Additionally manufacturing output increased for the first time this year.

Can I remotely suggest Wall Street is nervous because the status quo, aka the multipolar interdependent system, is being challenged both at home and abroad?  As noted many times, Wall Street has prospered the last 10 years while Main Street suffered.

Much to Wall Street’s chagrin, Main Street holds the power of the voting box.

Markets were relatively quiet Friday with both trade and the tanker attacks providing ample narratives.

How will the markets trade this week? As noted above all will focus upon the Fed meeting but numerous housing statistics and the Index of Leading Economic Indicators are also released.  Will such influence attitudes?

Last night the foreign markets were quiet. London was down 0.11%, Paris up 0.21%  and Frankfurt up 0.02%. China was up 0.20% Japan up 0.03% and Hang Sang up 0.40%.

The Dow should open quiet. The 10-year is off 8/32 to yield 2.11%.

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.