August 4, 2014
Economic themes: Geopolitical Risk, GDP, Employment, Fed, Housing, Personal Income & Outlays.
- Geopolitical Risk: Espirito Santo Bank (BES) will be getting a 4.9 billion Euro bailout from the Portuguese Central Bank after one of the group’s holding companies missed a payment on short-term debt in early July. Argentina missed a $539 million debt payment last week, despite sending sufficient funds to the trustee, as a US judge ruled that funds could not be distributed unless holders of Argentina’s previously defaulted debt were paid as well. Fighting continues in the Gaza Strip, though Israel granted a brief cease-fire to allow for humanitarian aid. Ukraine is continuing their offensive against pro-Russian forces, meanwhile Russia is performing military exercises near the border. Combined with economic data, Fed statements and weaker than expected earnings, the S&P 500 posted its worst week in 2 years, falling by 2.7%.
- Employment: Non-farm payrolls increased by 209k in July, below forecasts of a 233k increase and the unemployment rate edged up to 6.2%. Strength was seen in the goods-producing, manufacturing, construction and mining sectors, with weakness seen in retail, health, and business services. Job growth is remaining steady in excess of 200k per month, though still weaker than market expectations.
- GDP: Gross Domestic Product increased by 4.0% in the second quarter, beating forecasts of a 3.1% increase, as the economy rebounded more than expected from adverse weather in the first quarter. The growth was led by inventory investment, personal spending and residential investment, though was held back by the services component. The price index increased by 2.0%, in line with the Fed’s preferred gauge.
- Fed: In their latest meeting announcement, the Federal Reserve stated they will stay the course, reducing their asset purchases to $25 billion per month, and keeping the Federal Funds Rate low for a “considerable time.” With their focus on the labor market, they stated, “conditions have improved,” though, “there remains significant underutilization of labor resources.” Inflation is nearing their long-term objective and appears stable.
- Housing: The Case-Shiller housing price index declined by 0.3% in May, the first negative reading since January 2012, and is up 9.3% over the past year. Declines were led by the Atlanta, Chicago, and San Francisco regions.
- Personal Income & Outlays: Personal income increased by 0.4% in June, in line with expectations and personal consumption increased by 0.4%, above forecasts of 0.3%. PCE inflation increased by 0.2%, less than a forecasted 0.3% and is up 1.6% over the past year.
- Economic highlights for the week ahead:
o Wednesday, 8/06/2014: International Trade.
o Thursday, 8/07/2014: Jobless Claims.
Municipal market themes: PREPA.
- PREPA: The Puerto Rico Electric Power Authority extended their lines of credit to August 14th, giving the authority more time to consider their options for near term liquidity.
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.