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Economic Update

October 14, 2014

Economic themes: S&P 500, FOMC Minutes.

  • S&P 500: The index has fallen 6% from its 9/18/2014 high, on concerns over global growth, possible adverse impacts from the Fed raising interest rates, falling oil prices, and Ebola scares. The Volatility Index (VIX) closed at 24.64 yesterday, from 15.46 a week ago, and 12.03 on 9/18/2014.  Fifty three companies in the index are scheduled to report this week, with forecasts calling for profits to be up 4.8%, and sales to be up 4.2%.  The flight to quality rally has pushed the 10-yr treasury to 2.22%, from 2.62% on 9/17/2014, and the 30-yr treasury to 2.97%, from 3.37% on 9/17/2014.
  • FOMC Minutes: Notes from the Federal Reserve’s latest meeting had a bit of a dovish tone, where they emphasized a “flexible and pragmatic” approach, and that the Federal Funds Rate will remain between 0-0.25% for “a considerable time”. They remain data dependent, though many expect quantitative easing to end following the October meeting, while reinvesting proceeds from maturing securities, and not yet selling existing holdings. They also discussed the need to eventually reduce their balance sheet.  Weak global growth, weak inflation, and underutilization in the employment market appear to be their chief concerns.
  • Economic highlights for the week ahead:
    • Wednesday, 10/15/2014: PPI, Retail Sales.
    • Thursday, 10/16/2014: Jobless Claims, Industrial Production.
    • Friday, 10/17/2014: Housing Starts, Consumer Sentiment.

Municipal market themes: Puerto Rico, Daughters of Charity.

  • Puerto Rico: The commonwealth successfully completed the sale of $700 million in short-term debt at 7.75%, and $200 million in a revolving credit line at 7.55%. The funds are being lent by JPMorgan, Morgan Stanley, Barclays, Banco Popular, and Amalgamated Bank.  The deal represents the first capital market access for the island since the passage of the debt restructuring act, and the first since the $3.5 billion general obligation deal in March 2014.
  • Daughters of Charity: The distressed healthcare network sold all six of its hospitals to Prime Healthcare, pending attorney general approval, after considering as many as 133 bids. Under the deal, Prime has pledged to retain existing facilities, maintain union contracts, and invest $150 million in capital improvements.  The SEIU (Service Employee International Union) Healthcare Workers West is opposing the deal, and Prime’s racketeering lawsuit against the SEIU is ongoing.

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