June 22, 2015
Economic themes: Greece, Fed, CPI, Housing.
- Greece: With a looming month end €1.6 billion Greek payment due to the IMF, Euro leaders are holding an emergency summit Monday. June 22, 2015 to deliberate what the best course of action may be. Over the weekend, Prime Minister Tsipras put forth a series of “broad and comprehensive” reforms, including the elimination of early retirement, an increase in sales tax, an increase in income tax on wealthy individuals, and a tax levy on large corporations. If agreed upon, the reforms could unlock another aid payment, and is viewed by many as a last second concession to avoid a default.
- Fed: After their meeting last week, the Federal Reserve indicated that free money is here to stay for a little longer. Specifically, they would like to see job growth increase further, though acknowledged that slack in the employment market is diminishing. Economic growth and the consumer sector are both growing at a “moderate” pace, housing is “improving,” though business investment and exports are soft, and inflation is below target. While the possibility of a September rate hike has not been eliminated, December is seen as much more likely, and waiting until the first half of next year is a distinct possibility. They remain data dependent.
- CPI: Consumer prices remain soft, as the Consumer Price Index posted a 0.4% increase in May, below forecasts of a 0.5% increase, and is flat over the past year. Energy, gasoline, and transportation provided the most price pressure, though weakness was seen in apparel, communication, and education. Food and housing were flat, all of which supports the patient Fed doves.
- Housing: Existing home sales surged by 5.1% in May to a 5.35 million unit pace, and the figure is up by 9.2% over the past year, with prices up 7.9% to a median price of $228.7k. Inventory fell slightly to 5.1 months, though could increase in the months ahead as prices rise. Housing starts fell 11.1% in May to a 1.036 million unit pace, though follows a huge 22.1% increase in April. Permits posted a 1.275 million unit pace, the highest since August 2007. Housing is providing a boost to economic growth, despite weakness in exports and manufacturing.
- Economic highlights for the week ahead:
- Tuesday, 6/23/2015: Durable Goods, New Home Sales
- Wednesday, 6/24/2015: GDP
- Thursday, 6/25/2015: Jobless Claims, Personal Income & Outlays
Municipal market themes: Puerto Rico, PREPA.
- Puerto Rico: The Commonwealth’s House of Representatives will be voting on a balanced budget for the upcoming fiscal year today, with many expecting it to pass. The proposed budget is expected to include $675 million in cuts, and is scheduled to accommodate escalating debt service and pension payments. Secretary of the Treasury Juan Zaragoza is also proposing the creation of an Office of Internal Revenue to focus on tax evasion.
- PREPA: The Puerto Rico Electric Power Authority’s creditors extended the forbearance agreement until the end of the month, as restructuring talks continue, the next debt service payment is due on July 1st. Chief Restructuring Officer Lisa Donahue previously stated that all stakeholders must make financial contributions, without providing specifics. PREPA is mulling over a number of business proposals to put the distressed utilities on a stable footing.
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