Economic themes: Tornadoes, Fed, China, Industrial Production, International Trade, HMI
- Midwest tornadoes: Tragedy struck the Midwest this weekend with tornadoes touching down in multiple states causing widespread destruction which resulted in seven counties in Illinois deemed state disaster areas. This disaster is likely to put downward pressure on insurance agencies.
- Fed: Chairman of the Fed nominee, Janet Yellen, spoke and markets listened and reacted accordingly, a la free money is here to stay! She vehemently defended the Federal Reserve’s unprecedented monetary stimulus and explicitly stated the economy must improve prior to tapering quantitative easing. She is very concerned with the elevated unemployment rate more so than inflation. Alamo Capital would consider a sustained increase in monthly nonfarm payrolls in excess of 200k as a means to justify tapering, which could be evident as soon as the March Fed meeting.
- China: In an unprecedented move, China released a major economic reform plan designed to free up the emerging economy, increase competition, reduce downside risk, allow markets to set prices, allow local governments to issue municipal bonds and ease the one-child policy.
- Industrial Production: Manufacturing increased by 0.3% in October, in line with forecasts, although overall industrial production fell by 0.1%, below forecasts of a 0.1% increase, due to weak utility and mining figures.
- International Trade: The trade gap expanded more than forecasted to $-41.8 billion compared to forecasts of $-39.1 billion due to petroleum and non-petroleum products which implied better consumer and business demand to be forthcoming.
- HMI: The Housing Market Index of homebuilders posted a 54 reading, slightly below estimates of 55, implying homebuilders remain confident, although slightly less than perceived. Buyer traffic is weak as land, construction and borrowing costs hinder some would-be buyers, although the high-end market is showing strength.
- Economic highlights for the week ahead:
- Wednesday, 11/20/2013: CPI, Retail Sales, Existing Home Sales, FOMC Minutes.
- Thursday, 11/21/2013: PPI, Jobless Claims.
Municipal market themes: Jefferson County, Morgan Hill Redevelopment, Puerto Rico.
- Jefferson County, AL: All eyes are on the bankrupt Alabama County’s efforts to bring a sewer deal this week. Skeptics cite concerns about the political and legal risk of recent rate increases, scheduled to be implemented over 40-years, which are necessary to pay debt service. Ratings agencies say the transaction is dependent on the success of the increases.
- Morgan Hill Redevelopment: To strengthen the security behind its $88 million redevelopment agency refunding, Morgan Hill obtained a validation judgment from the Sacramento Superior Court establishing the primacy of the statutory lien of pledged revenues in favor of bondholders, contributing to AA- credit ratings from S&P and Fitch.
- Puerto Rico: Fitch affirmed the negative outlook on the commonwealth’s BBB- rated general obligation bonds, citing deteriorated market access. The commonwealth has utilized short term private placement offerings to finance deficits and repay long term debt due to the return markets are demanding for the debt. Fitch expressed concern over recent economic weakness, although stated they have ample liquidity in the short term, and credited the government with making substantial progress in addressing several credit challenges.
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