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March
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Week In Review

GDP

GDP rose at a 2.6% annual rate in the fourth quarter, slightly faster than the 2.2% consensus.  GDP increased 2.9% in 2018.

Our Take

Q4 GDP growth, while decent, slowed considerably from the 4.2% Q2 and 3.4% Q3 rates.  Economists expect to see continued slowing in 2019, especially as the effects from tax cuts continue to wear off.


Brexit

May’s government made a tactical retreat and agreed to allow votes in mid-March on whether to allow a no-deal Brexit and whether to ask for an extension of the Brexit date from the EU if parliament rejects whatever deal is agreed with the EU by then.  The pound rallied as the prospect of a no-deal Brexit became much more remote.  Corbyn also changed course and made a second referendum the official Labour position.

Our Take

May is trying to keep control of the Brexit process by effectively taking a no-deal Brexit off the table, while also opening up the option of asking for a short extension of the Brexit deadline.  This week’s developments mark a shift from trying to present moderates with a choice of May’s deal or no-deal to presenting pro-Brexit MPs the options of May’s deal or no Brexit.


China

The Trump administration indefinitely delayed the scheduled increase in tariffs on imports from China in response to progress in trade negotiations.  Reports surfaced that the administration is making arrangements for a Trump-Xi meeting in late March to sign a trade deal, but Lighthizer’s Senate testimony indicated that the administration only wants a deal that achieves structural changes in the Chinese economy rather than just a commitment for China to purchase more U.S. exports.  Separately, the Chinese politburo stated that supporting growth is the first policy priority and that deleveraging and reducing financial system risk is secondary.

Our Take

It remains to be seen whether the Trump administration is determined to get a deal that achieves meaningful change in Chinese policy and practices, or will accept a smaller deal that ends the trade conflict and allows the president to claim success.  Regardless of the near-term outcome of trade talks, the Chinese government’s determination to double down on fiscal and monetary stimulus to maintain growth increases the risk of a sharper contraction in the Chinese economy and of a financial crisis stemming from too much leverage.


Municipals

Bloomberg reported that nearly $25 billion of municipal bonds were issued last month.  This represents 51% more issuance compared to February 2018.  So far, 2019 issuance has reached almost $50 billion.  A Barclay’s estimate indicated that 2019 issuance will be $380 billion, nearly $60 billion more than 2018.

Our Take

The January and February increase compared to a year ago is not a surprise.  Early 2018 issuance was low after state and local governments rushed to issue new debt at the end of 2017 before the new tax laws took effect.

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.