Insights

CREDIT AND MARKET STRATEGY
MUNICIPAL MARKET WEEKLY

March 23, 2020

Global Markets: Risk Off In Uncharted Waters

Global markets convulsed as governments across the globe closed borders and issued stay-at-home orders to residents in an effort to contain the spread of Covid-19. The abrupt economic shutdown sparked investor fear of a deep recession or depression as many scrambled to liquidate financial assets into the safety of cash, the ultimate risk-off trade. Selling accelerated throughout the week as government leaders and health experts predicted a wide range of scenarios and dire outcomes, fueled by mass media hyperbole.

The US Federal government grappled with how to best aid the economy and financial markets. The FOMC, in addition to dropping rates to 0%-0.25%, launched liquidity facilities to provide support for primary dealers, commercial paper, and money market mutual funds, including for short-dated Munis, inc CP and VRDOs (Money Market Mutual Fund Liquidity Facility, or MMLF). The Fed also today announced a second round of aid that includes buying an unlimited amount of Treasuries and agency-MBS. Trump signed a rescue bill for $100 bil. to fund sick leave and free virus testing. Congress has yet to agree on a bipartisan plan, although we expect a plan to materialize this week as the health crisis worsens.

Quarterly Review

SAMUEL A. RAMIREZ & COMPANY, INC.
QUARTERLY MACROECONOMIC OUTLOOK
FINANCIAL STRATEGIES GROUP – 1st QUARTER 2020

Dear Clients,

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:

• The US economy enters its 11th year of expansion, and will likely grow at a pace moderately above potential (1.75%-2%).  The labor market stays robust as unemployment falls to 50-year lows
• Business investment remains downbeat, restrained by weak growth abroad and trade conflicts.  However, a “Phase 1” agreement between the US and China is at hand, and consumer spending is robust.
• The 10Y Treasury yield approaches historical lows, and Moody’s Baa Index yield slides to levels not seen for over 60 years.
• US equity markets reach new highs.  Money markets are rattled, prompting the Fed to intervene through repo operations.  The Fed’s balance sheet expands in the last quarter by $400bn.

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.