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Economic Update

August 11, 2014

Economic themes: Geopolitical Risk, International Trade

  • Geopolitical Risk: Volatility has calmed over the weekend in global markets, as Russia announced an end to their military exercises near the Ukrainian border.  Putin placed a ban on food imports from Western nations in response to sanctions against his inner circle, which is likely to affect his own people more than Western food producers.  Along the Gaza strip, Egypt brokered a truce between Israel and militant groups, though history indicates that may not last long.  In Iraq, the U.S. has begun bombing Islamic militant strongholds, in efforts to weaken the uprising against the central government.
  • International Trade: The trade deficit narrowed more than expected in June, to -$41.5 billion, compared to forecasts of -$45 billion.  The decline was led by a 1.2% decrease in imports, and a 0.1% increase in exports.  The improvement could provide a boost for revisions in Q2 GDP.
  • Economic highlights for the week ahead:

o    Wednesday, 8/13/2014: Retail Sales.

o    Thursday, 8/14/2014: Jobless Claims.

o    Friday, 8/15/2014: PPI, Industrial Production, Consumer Sentiment.

Municipal market themes: Puerto Rico,

  • Puerto Rico: July 2014 revenues for the Commonwealth came in at $624 million, beating forecasts by 6.3% and beating the prior year by 26.1%.  Much of the increase was attributed to corporate excise taxes and corporate income taxes.   PREPA credit lines have been extended to 8/14/2014 and a decision regarding their short term liquidity needs is expected on or before then.

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