November 17, 2014
Economic themes: Japan, Industrial Production, Retail Sales, Consumer Sentiment.
- Japan: The world’s third largest economy unexpectedly fell into a recession in the third quarter, with GDP declining by 1.6%, compared to forecasts of a 2.2% gain, marking the second consecutive quarterly decline, which has coincided with an increase in the value-added tax. The Bank of Japan has been vigilant by enacting stimulus measures, though some may argue further economic stimulus may be necessary to pull the island nation out of a recession. It places greater scrutiny on the health of the economies in China and Europe, as well as the impacts it could have on the U.S. growth story. Other geopolitical issues have aided instability, including Ebola, Ukraine, and ISIS.
- Industrial Production: Industrial production fell by 0.1% in October, compared to forecasts of a 0.2% increase, led by declines in utilities and mining. Manufacturing continued its moderate upswing, increasing by 0.2%. Capacity utilization slipped to 78.9%, from 79.2% in September.
- Retail Sales: Retail sales increased by 0.3% in October, beating forecasts of a 0.2% increase, led by increases in automobiles, sporting goods, and electronics, though held back by declines in gasoline prices. The consumer appears to be benefiting from an improving labor market, and declining gas prices.
- Consumer Confidence: The Reuter’s/University of Michigan consumer sentiment index posted an 89.4 preliminary November reading, beating forecasts of an 87.5 reading, led by gains in the current conditions component. The report bodes well for the holiday shopping season, as falling gas prices are helping the consumer feel better about opening their wallet.
- Economic highlights for the week ahead:
- Tuesday, 11/18/2014: PPI.
- Wednesday, 11/19/2014: Housing Starts, FOMC Minutes.
- Thursday, 11/20/2014: CPI, Jobless Claims, Existing Home Sales.
Municipal market themes: Stockton, Culver City, Puerto Rico.
- Stockton: Franklin Advisors, the lone holdout creditor in the Stockton bankruptcy process, has appealed the confirmation of the plan of adjustment, as it entails them receiving an approximate 1% recovery rate on a $35 million lease revenue bond, while CalPERS remains unimpaired.
- Culver City: The successor agency was awarded a $10.4 million disbursement from California’s Department of Finance, though the DOF is appealing the decision. The disagreement stems from a $12.5 million loan from the former Redevelopment Agency to the City, where the State deemed the loan illegal, and has withheld $11.2 million of funding to the successor agency. The delayed transfer of funds has resulted in a reserve draw by the successor agency, despite more than adequate pledged revenue coverage, and a BBB- credit rating, which has made refinancing challenging for the successor agency.
Puerto Rico: Gov. Padilla is planning a special session to vote on a borrowing bill. The measure would increase petroleum taxes 67.6% to $15.50/barrel, from $9.25/barrel, with the proceeds being pledged to a scheduled new $2.3 billion Infrastructure Financing Authority bond, in order for the Highway and Transportation Authority to repay the Government Development Bank. If the new deal gains credit support by a major insurer, it would likely be much better received in the market.
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