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Economic Update

December 8, 2014

Economic themes: Employment, Oil, International Trade, China.

  • Employment: Nonfarm payrolls increased by 321k in November, well above forecasts of a 230k increase, with the unemployment rate holding steady at 5.8%, and the labor participation rate holding steady at 62.8%. Of note in the report, earnings were up 0.4% on the month, which could help boost inflationary expectations, and may give the Fed some room to bump the Federal Funds Rate sooner than later.
  • Oil: Crude has continued its bear market, reaching a 5-year low, down 11% in the fourth quarter, and down 39% on the year, amid excess supply, and slowing global demand growth. The energy component in the S&P 500 is trading near a 17-month low, despite 7 straight weekly gains in the broader index.
  • International Trade: The trade gap in October was -$43.4 billion, compared to narrower forecasts of -$41 billion, with exports increasing by 1.2%, and imports increased by 0.9%.
  • China: The Shanghai Composite Index has surged 24% over the past month, the highest since April 2011, on the expectation of accommodative monetary policy and favorable valuations. Overseas shipments increased by 4.7%, below forecasts of an 8% increase, with imports plummeting due to declining oil prices, resulting in a trade surplus of $54.5 billion.  Economic slowdowns in Europe and Japan could hinder China’s growth.
  • Economic highlights for the week ahead:
    • Thursday, 12/11/2014: Retail Sales, Jobless Claims.
    • Friday, 12/12/2014: PPI, Consumer Sentiment.

Municipal market themes: Puerto Rico, California.

  • Puerto Rico: The Commonwealth’s House and Senate have approved similar bills to increase oil taxes by 68%, which could aid in the issuance of a $2.9 billion Highway & Transportation Authority bond, to be issued under the Infrastructure Financing Authority. A conference committee will be formed among the two bodies to create a singular bill that will be voted on.  The Aqueduct and Sewer Authority reported net revenues 6.7% higher than projections for Q1 2015, bringing senior coverage to 3.72x, and aggregate coverage to 1.16x.
  • California: Demand for California municipal debt remains strong after last week saw the largest supply totals in 2014. This week, the Los Angeles Community College District will be bringing a $1.4 billion refunding and new money deal.  The Bay Area Toll Authority will be pricing an $814 million deal, with $431 million in variable rate notes, designed with potential for rising rates in mind.  The 30-day visible supply is at $18.7 billion.


This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Past performance does not guarantee future results.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.

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