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December
14
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Week In Review

China

China announced a temporary reduction in tariffs on automobile imports from the U.S. back to the level in place before retaliatory tariffs.  China has also resumed soybean purchases from the U.S. and has announced they will resume corn purchases in January.  November economic data for China was weaker than expected both for business investment and consumption.

Our Take

Chinese authorities are trying to offer some gestures that will help defuse trade tensions with the U.S.  However, China remains unlikely to abandon state planning and involvement in the economy and this will be a likely stumbling block to resolution of the trade dispute.  The slowing growth rate of the Chinese economy is likely to further delay de-leveraging efforts, and this will leave China more exposed to a financial crisis and a sharper economic contraction.


Brexit

May survived a vote of confidence in her leadership of the Conservative party by a vote of 200-117, and this means that she cannot be challenged from within the party for a year.  EU leaders held firm about not renegotiating any aspects of the Brexit deal.  May delayed a vote on the deal until January when it became clear that the current deal would not pass Parliament.

Our Take

May’s survival of the Conservative confidence vote removes the chance of a UK government that chooses a no-deal Brexit over the deal on offer from the EU.  The parliamentary math is still overwhelmingly against passage of the current deal, and May’s government likely faces a vote of no confidence prior to the March Brexit date.  Without a second referendum or a general election that significantly alters the makeup of Parliament, the UK is growing more and more likely to end up with a no-deal Brexit because there is no majority for any other available outcome.


Municipals

Chicago Mayor Rahm Emanuel presented a plan this week to the Chicago City Council that calls for issuing as much as $10 billion of bonds to help fund the city’s pension funds.  Currently, Chicago’s pension systems are underfunded by $28 billion according to Bloomberg.  Emanuel also called for a change to the Illinois Constitution that would allow pensions to receive revenue from future casino operations and, if legalized, marijuana revenue.

Our Take

Emanuel’s office had hinted last summer that the mayor would push a bond issuance to fund the ailing pension funds.  Supporters of issuing pension obligation bonds believe that borrowing at low interest rates makes more sense compared to raising taxes to pay for pension obligations.  However, adding more debt could increase the city’s overall borrowing costs.  In addition, any future revenue from casinos and marijuana sales is likely years away.  Chicago city officials should focus on long-term, meaningful pension reform rather than adding additional debt.


All expressions of opinions are subject to change without notice in reaction to shifting market conditions.  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.  Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.