November 24, 2014
Economic themes: China, ECB, Housing, CPI/PPI, OPEC.
- China: On Friday 11/21/14, the People’s Bank of China unexpectedly cut the one-year lending rate by 0.4% to 5.6%, and cut the one-year deposit rate by 0.25% to 2.75%, marking the first cuts since July 2012, in efforts to stimulate the world’s second largest economy. The move was received positively by equity markets, with the Shanghai Composite Index reaching its highest close since September 2011. It is consistent with central bank stimulus efforts in Japan and Europe, though is counter to the tightening policy in the U.S.
- ECB: European Central Bank President, Mario Draghi, is pledging to put forth all efforts to raise inflation across the Eurozone. Markets understand this to mean further stimulus efforts are forthcoming. Price growth data will be released on 11/28/2014, which is projected to increase at a 0.3% pace, and will have a significant impact on the 12/04/2014 ECB meeting. Unemployment across the region is around 11.5%.
- Housing: Existing home sales increased by 1.5% in October, to a 5.26 million unit pace, with supply falling to 5.1 months, while prices declined by 0.4%, they are up 5.5% over the past year. Housing starts fell by 2.8% in October, to a 1.009 million unit pace, though is up 7.8% over the past year. The multifamily component has been very volatile, and has been leading the swings.
- CPI/PPI: The Consumer Price Index was unchanged in October, and up 1.7% over the past year, with declines in energy keeping price gains down, though increases were seen in shelter, airfare, medical care, and recreation. The Producer Price Index increased by 0.2% in October, and is up 1.5% over the past year, again led by declines in energy.
- OPEC: The Organization of Petroleum Exporting Countries will meet on 11/27/2014 to discuss their output amid price declines in excess of 30% over the past six months. Amid the shale revolution across the U.S., crude oil imports have declined by 40% to 2.9 million barrels per day, the lowest since May 2005. The price declines have had an adverse impact on oil dependent economies such as Russia, Venezuela, and across the Middle East. A decline in output could support prices, though they are expected to decline further if output remains constant.
- Economic highlights for the week ahead:
- Tuesday, 11/25/2014: GDP, Case-Shiller HPI.
- Wednesday, 11/26/2014: Durable Goods, Personal Income & Outlays, New Home Sales.
Municipal market themes: Puerto Rico, California.
- Puerto Rico: The Commonwealth is holding a special session, that could last up to 20 days, to debate whether or not to increase oil taxes by 67.6% to support the Highway and Transportation Authority, among other things. Puerto Rico is being creative in efforts to maintain access to the capital markets.
California: The Legislative Analyst’s Office is projecting that California’s reserves will grow by $4 billion to $4.2 billion by the end of fiscal 2016. California has put forth strong efforts to pay down debt, stabilize revenue, and has benefited from a strong economic environment. Their estimates are dependent on sustained economic growth, and responsible budgeting from Sacramento.
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