CREDIT AND MARKET STRATEGY
MUNICIPAL MARKET WEEKLY
August 5, 2019
Recap / Thoughts:
+ Risk-off sentiment gripped markets last week in the wake of Trump’s proposal for additional 10% tariffs on Chinese exports, which overshadowed the Fed’s -25 bps rate cut and an in-line non-farm payrolls report
+ Treasuries rallied across the curve and equities posted the worst week of 2019
+ Munis gained but massively underperformed Treasuries with the 10yr spot now looking more fairly valued heading into this week
+ Muni yields hit historical low absolute levels although spreads remain fairly valued vs historical
+ This week’s big data release is July PPI on Friday, expected at +0.2% MoM
+ Muni gross supply is in-line with our expectations at +6% YoY
+ $18.2 bil. of new issue Muni supply on tap for this week, the largest of 2019, led by several large taxable transactions
+ Trade idea: Sell: 5% coupons, short duration, short-calls, weak credits; Buy: 4% coupons, long-duration, floating rate, high-quality credit
Market Recap. Risk-off sentiment gripped markets last week as trade policy, monetary policy, and financial markets intersected to create a perfect storm of mind-bending proportions. The week began with markets expecting – and then receiving -- two things: a -25 bps cut in the Fed funds rate (to a range of 2%-2.25%) on Wed and a July employment report on Friday showing 164k jobs added to non-farm payrolls and the unemployment rate unchanged at 3.7%. In a “normal” world, these two items would be positive, risk-on catalysts; however, we are not living in a normal world, but instead, a parallel universe resembling the Upside Down of the hit
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SAMUEL A. RAMIREZ & COMPANY, INC.
QUARTERLY MACROECONOMIC OUTLOOK
FINANCIAL STRATEGIES GROUP – 3rd QUARTER 2019
Please find attached Ramirez & Co.’s Quarterly Macroeconomic Outlook. In our report, we continue to monitor the US economy, global events and the Fed’s outlook on the economy and rates:
- Despite numerous concerns and pessimism, the US economy remains healthy. The Fed expects GDP growth in the second quarter to be slightly below its potential of 1.9%. Inflation expectations decline and move away from the Fed’s 2% target. The labor market stays robust.
- Trade, politics, fiscal policy, private and public sector debt, fully valued markets, and slowing economies across the globe pose challenges.
- The markets see high likelihood of significant declines in the Fed Funds rate, with the bulk of estimates suggesting a drop of 25-75 bps by the end of 2019. Median primary dealer expectations are flat and Fed economists split on future expectations. By contrast, the EU and Japan wade deeper into negative rate policies.
Members of our Financial Strategies Group, Niso Abuaf, Konstantin Semyonov and Duncan Sinclair, would be happy to discuss further any of the material with you.
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