January 26, 2015
Economic themes: Greece, ECB, Fed, Housing.
- Greece: Syriza, the far left leaning, anti-austerity party, took over the Greek government, with leader Alexis Tsipras sworn in as the Prime Minister. Greece had previously agreed to implement an austerity program as a condition for €240 billion in aid since May 2010 from the European Central Bank, the International Monetary Fund, and the European Commission. Tsipras was elected on a pledge to writedown debt, while maintaining aid, scheduled to end in late-February, which would not be an easy balancing act. Greece is scheduled to experience liquidity issues by July without new means of financing. Critical to success will be support from the Germans, who have stated that while they value “friendly” relations, their stance toward the aid package has not changed post Greek elections.
- ECB: The European Central Bank announced a €1 trillion quantitative easing program to combat deflation and stimulate the economy, by encouraging lending and spending. They are recommending a sovereign bond buying program of €50 billion per month through December 2016. Given current interest rates, some, such as Germany, are concerned that program could do too little, and delay much needed structural reforms. Given current interest rates, prices on nearly $4 trillion in global sovereign debt indicate negative yields, including Germany, France, and Japan, reflecting capital preservation needs and deflationary concerns.
- Fed: The Federal Reserve will be holding their periodic policy meeting on Tuesday and Wednesday, where they will discuss declining oil prices, Greek elections, the ECB quantitative easing program, and an appropriate rate policy that would maintain U.S. growth rates.
- Housing: Existing home sales increased by 2.4% to a 5.04 million unit pace in December, led by the single family component, though held back by the condominium component. Supply declined to 4.4 months, from 5.1 months, and prices increased 1.1%, and are up 6% over the past year. Housing starts in December picked up 5.3% to a 1.089 million unit pace, above forecasts of a 1.041 million unit pace. Housing permits declined 1.9% to a 1.032 million unit pace, with much of the decline coming from the volatile multi-family component.
- Economic highlights for the week ahead:
- Tuesday, 1/27/2015: Durable Goods, S&P Case-Shiller, New Home Sales.
- Wednesday, 1/28/2015: FOMC Meeting Announcement.
- Thursday, 1/29/2015: Jobless Claims, Pending Home Sales.
- Friday, 1/30/2015: GDP, Consumer Sentiment.
Municipal market themes: Atlantic City.
- Atlantic City: New Jersey Governor Chris Christie appointed restructuring attorney, Kevin Lavin, to act as the emergency manager of Atlantic City to turn around its financial situation. In response, Moody’s Investors Service downgraded the city’s general obligation bonds six notches to Caa1, from Ba1, reflecting the risk of restructuring, and a high risk of default over the next five years. Atlantic City responded by stating they have made improvements, and there are bills in the New Jersey legislature that could provide 15-years of financial stability. Whether or not the City can make a $12.8 million note payment on February 3rd could be telling.
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