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Economic Update

March 17, 2014

Economic themes: Ukraine, Industrial Production, HMI, PPI, Consumer Sentiment, Retail Sales.

  • Ukraine: In a referendum in Crimea, 96.8% of voters chose to be annexed to Russia.  The E.U., the U.S., and the new Ukrainian government view the vote as illegal, although Russia contends it “fully met international norms.”  Meanwhile, Russia has an estimated 60k troops on the Ukrainian border, under the basis that the central authority is not adequately functioning, and they need to protect native Russians from the “fascists” in the region.  The West has initiated economic sanctions, in what is being viewed as the most significant diplomatic standoff since the Cold War, bringing into question how well Putin’s Russia can integrate economically and politically with the West.  Bond and equity markets have been punishing Russia accordingly.
  • Industrial Production: The spring thaw is in full force, with industrial production increasing by 0.6% in February, above forecasts of a 0.3% increase, with manufacturing leading the way.  Strength was also seen in durable goods and mining.  Utilities fell by 0.2%, somewhat surprising in winter months.
  • Housing Market Index: The HMI, a survey of homebuilders, posted a 47 reading in March, below forecasts of 50, with weakness seen in buyer traffic.  The reading is reflective of few first time home buyers, and many all cash buyers.
  • PPI: The Producer Price Index fell by 0.1% in February, below a forecasted 0.2% increase, and is up 0.9% year-over-year.  The weak figure may give the Fed some room to be accommodative, but economic growth is likely to be strong enough to continue the tapering course.
  • Consumer Sentiment: The Reuter’s/University of Michigan Consumer Sentiment Index posted a 79.9 reading in March, below forecasts of 81.8, led by a strong current conditions component, although held back amid slow job growth, conflict in Ukraine, and slowing economic growth in China.
  • Retail Sales: The spring thaw hit retail sales as well, with the figure increasing by 0.3% in February, slightly above forecasts, with strength seen in vehicles, building materials, sporting goods, personal care, and home furnishings.
  • Economic highlights for the week ahead:
    • Tuesday, 3/18/2014: CPI, Housing Starts.
    • Wednesday, 3/19/2014: FOMC Meeting Announcement.
    • Thursday, 3/20/2014: Jobless Claims, Existing Home Sales.

Municipal market themes: Puerto Rico, Hercules, California Pensions.

  • Puerto Rico: The commonwealth had a very successful new deal, priced at 8.727% (93), and being upsized to $3.5 billion, which allegedly should ease liquidity concerns for the next year.  Offerings for PR have responded with price increases, although bids have not substantially improved.  The deal was a step in a very positive direction, as it proved the commonwealth can continue to access the capital markets, however substantial economic improvement will be necessary for long term sustainability.
  • Hercules: The Hercules Electric System Project posted a notice of voluntary tender to purchase bonds at 90, in order to complete the sale of the utility to PG&E.  The City warned that they anticipate defaulting on non-tendered bonds.  The deadline to act is 3/28/2014.
  • California Pensions: The Pension Reform Act of 2014 will be delayed until at least 2016, as debate stirs over the wording of the ballot summary.  San Jose Mayor, Chuck Reed, who has been leading the charge, believes the wording by Attorney General Kamala Harris, stating it “eliminates constitutional protections,” is misleading, although a court disagreed.


This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Past performance does not guarantee future results.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.

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