Equites declined as both the 2-year and 10-year Treasury now yields over 4%. Yields for both benchmarks are around 40 bps since the Federal Reserve lowered interest rates by 50 bps three weeks ago.
The catalyst for the increase is yields are varied. Economic growth greater than anticipated with the Atlanta GDP Now forecast is suggesting third quarter growth to be greater than 3.0%. Surging oil prices because of Middle East tensions. Lack of liquidity. Unsatiable demand for funds by the Federal Government to name a few.
Markets are no longer are suggesting another 50-bps reduction in the overnight rate next month. Two weeks ago, this was all but a certainty. A quarter point reduction is now priced around a 70% probability.
This week could prove pivotal in determining the immediate direction of the markets. Key inflation data such as the CPI, PPI and Import/Export prices are released. It is also the commencement of third quarter earnings season.
Bank of America is stating that the options market is pricing in the biggest post earnings move in history. Data however only dates to 2021.
Last night the foreign markets were down. London was down 1.13%, Paris down 0.59% and Frankfurt down 0.19%. China was up 4.59%, Japan down 1.0% and Hang Seng down 9.41%.
Futures are flat. Attention is focused on the inflation data later this week, the hurricane and the Middle East, all of which could impact the direction of the markets. The 10-year is up 1/32 to yield 4.03%.
Kent Engelke
Chief Economic Strategist Managing Director
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.
