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Economic Update

July 29, 2013

Economic themes: Earnings Season, Housing, Consumer Sentiment, Chinese Manufacturing

  • Earnings Season: Of the 265 S&P 500 companies to have reported thus far, 73% have beat profit projections and 56% beat sales projections.  Over 130 companies are expected to report this week.
  • Housing: Pending home sales fell by 0.4% in June, beating forecasts of a 1% decline, though are still up 9.1% year-over-year.  New home sales increased to a post-recession high of a 497k pace in June.  Weak inventory, rising prices, and rising mortgage rates are slowing buyers, though an improving job market and rising home prices could give the market a boost.  Mortgage rates, though up about 1% in the past month, still remain well below long-term historical averages.
  • Consumer Sentiment: The Reuters/University of Michigan consumer sentiment index posted an 85.1 reading for the end of July, the highest since 2007.  Rising home and stock market prices have given the consumer a boost, though rising gas prices and a flat job market have held the consumer back.
  • Chinese Manufacturing: Net income for Chinese industrial companies increased 6.3% year-over-year in June, though is down 15.5% from May, implying their economy could be cooling.
  • Economic highlights for the week ahead:
    • Tuesday, 7/30/2013: S&P Case-Shiller HPI.
    • Wednesday, 7/31/2013: GDP, FOMC Meeting Announcement, ADP Employment Report.
    • Thursday, 8/01/2013: ISM Manufacturing Index.
    • Friday, 8/02/2013: Employment Situation, Personal Income and Outlays.

Municipal market themes: Detroit, SFCCD, Puerto Rico.

  • Detroit: Both SIFMA and the MSRB have expressed concerns to Michigan and Detroit in regards to their treatment of Detroit general obligation bondholders as unsecured creditors, stating the need to honor well established municipal bond rules if they intend to use the capital markets to finance capital improvements in the future.
  • SFCCD: Moody’s Investors Service downgraded the San Francisco Community College District to A2 citing the risk of the district losing its appeal of the accreditation termination.  The accreditation issues are still not expected to impact bondholders.
  • Puerto Rico: The interim president of the Government Development Bank of Puerto Rico, Jose Pagan, is projecting a balanced budget in the next few years, and is monitoring market conditions as to when the best time will be to refund $575 million in general obligation bonds, and finance $245 million in new money.

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