April 27, 2015
Economic themes: Fed, Greece, Durable Goods, Housing.
- Fed: The Federal Reserve will begin their two-day meeting on Tuesday, with a meeting announcement expected on Wednesday, April 29, 2015 at 11:00am PT. Investors will be looking for clues as to when they may increase the Federal Funds Rate, which has been between 0 – 0.25% since December 2008, and has not been raised since 2006. By focusing on their dual mandate of employment and price stability, they are not quite there, but other factors could come into play. Given quantitative easing policies across both ponds creating negative yields for some sovereign debt as far as 10-years out, matched with the strengthening dollar, has contributed to international funds pouring into treasuries, effectively creating an additional form of quantitative easing in the U.S. Likewise, GDP figures are expected Wednesday morning, which have been revised sharply downward as the economy has come under pressure from a harsh winter back east, a strong dollar, and port strikes.
- Greece: Deputy Foreign Minister Euclid Tsakalotos has been handed the reins of negotiating with creditors, from controversial Finance Minister Yanis Varoufakis. While Varoufakis is held in high regard among Greeks, creditors were growing tired of his persistent lack of results, and lack of professionalism, which at times resorted to outright name calling. Creditors are standing behind the notion that further aid will not be distributed until bailout terms have been met, though Greece’s near-term liquidity has been shored up through last week’s move mandating local governments to deposit funds with the central bank.
- Durable goods: New orders surged in March, posting a 4% gain, well above forecasts of a 0.5% gain, and are up 0.7% over the past year. The surge came substantially from the transportation component, up 13.5%, with the core falling 0.2% when excluding transportation. Overall, the number gives the Fed more room to be dovish.
- Housing: Existing home sales posted strong numbers in March, up 6.1% to a 5.19 million unit pace, led by the condominium component, which was up 11.1%. Prices were up 5.5% on the month, and 7.8% year-over-year, with inventory holding steady at 4.6 months. The market has benefited from an improving job market and low interest rates. New home sales plummeted by 11.4% in March to a 481k unit pace, led by declines in the South, bringing supply up to 5.3 months. Prices fell by 1.5% on the month, and are down 1.7% over the past year. The new homes component has been volatile over the past several months.
Economic highlights for the week ahead:
- Tuesday, 4/28/2015: Cash-Shiller HPI.
- Wednesday, 4/29/2015: GDP, FOMC Meeting Announcement.
- Thursday, 4/30/2015: Jobless Claims, Personal Income and Outlays.
- Friday, 5/01/2015: ISM Mfg, Consumer Sentiment.
Municipal market themes: PREPA, North Las Vegas, Kansas.
- PREPA: Chief restructuring officer of the Puerto Rico Electric Power Authority, Lisa Donahue, discussed the proposals from forbearing creditors as being “overly optimistic on costs.” Forbearing bondholders responded by appreciating the feedback, and believed Donahue’s remarks were based on “fundamentally flawed analysis or misunderstanding.” The forbearance agreement currently runs through the end of April, though is likely to be extended into the summer. Critical to PREPA’s future will be capital market access, which is available, on a conditional basis.
- North Las Vegas: Fitch Ratings revised the outlook on North Las Vegas to stable, while affirming the ‘B’ rating. The financially distressed city was awarded the revised outlook on “successful negotiation of labor concessions needed to balance fiscal 2015 and 2016 budgets.” They added, “Given tax caps and the scope of service cuts already made, Fitch believes any meaningful solutions are outside the city’s control.”
- Kansas: After a series of controversial income tax cuts, increases to liquor and cigarette taxes, and slashing of services, Kansas’ fiscal 2016 budget is projected to be four times higher than a year ago, to $400 million. Savings have been achieved through the refinancing of debt, though the state has been hit with a lagging economy, weak income tax revenues associated with cuts, and reductions to oil and gas severance taxes.
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