Market Review and Outlook: 3rd Quarter
This commentary reviews the previous quarter, and discusses our outlook for the months ahead.
- Multiple factors contributed to pressuring interest rates significantly lower:
– In August, China devalued its currency with no advance notice, causing an increase in speculation of the overall health of their economy. This caused a chain reaction of turmoil in China’s equity markets spilling over into the global equity, commodity, and corporate bond markets.
– The price of oil and other commodities dropped based on fears that the economic slowdown would extend out of China and go global.
– Weak inflation prospects allowed the Federal Reserve to put off its interest rate hike but it is still unclear if the global economy is truly slowing or just hitting a bump on its otherwise positive trajectory.
- Non-farm payrolls have shown a regular monthly increase of over 200,000 jobs. The unemployment rate has dropped since the beginning of the year to 5.1%.
- Overall the credit quality for the municipal market has continued to improve as revenues and tax receipts are up while general fund balances continued to be replenished after having being drained in the recession.
- Puerto Rico finally buckled under the weight of its debt burden. The Commonwealth defaulted on some of its appropriation debt payments due August 1st. Puerto Rico Electric Power Authority reached a preliminary agreement with its creditor group for a debt exchange.
- Chicago proposed a substantial increase in its property taxes along with other efforts to enhance revenue may not be enough to refute all of their financial concerns, is still progressing sensibly.
- Outflows from municipal bond mutual funds occurred in all three months of the quarter but this has not diminished the demand for municipal bonds resulting in a continuation of quality new deals.