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Week In Review


May reached agreement with the EU on a Brexit deal.  However, in order to reach this agreement May had to offer concessions that many Conservative lawmakers and the DUP will find unacceptable.  May’s cabinet agreed to the deal but then saw several key resignations.  Pro-Brexit Conservative leaders began the process for a no-confidence vote to oust May.

Our Take

Even if May survives a confidence vote, it is very difficult to see how the deal that she concluded with the EU will pass through Parliament.  This week’s developments increase the chances of a no-deal Brexit next spring, as well as the chances for a second referendum or a general election that could see Labour taking over.


Italy’s ruling coalition agreed to keep the budget previously rejected by the EU and refused to deliver a revised budget at last Tuesday’s deadline.  Spreads on Italian government bonds remain at multi-year wides relative to Bunds.

Our Take

The populists in control of the Italian government have not yielded to the market pressure brought on by the EU’s rejection of the proposed 2019 budget, and thus far, they are not paying a political price for this.  Italy will almost certainly enter the EU’s excessive deficit procedure, which could theoretically lead to fines for Italy’s non-compliance.  The EU will likely avoid fines and hope that continued and greater bond market pressure will persuade Italy to change course.  If this course of action does not work then the EU may be forced to choose between abandoning fiscal standards for member states and having Italy default or exit the euro.

Retail Sales

Retail sales rose 0.8% in October, outpacing expectations of a 0.5% increase.  Sales in August and September were both revised lower, from 0.1% to -0.1%.

Our Take

Despite the strong October report, consumer spending looks to be slightly less robust than previously believed, as evidenced by declining sales in August and September.  This week’s report will be negative for revisions to third quarter GDP.


October consumer prices rose 0.3%.  Core prices (excluding food and energy) rose 0.2% for the month.  Over the past year, headline and core CPI rose 2.5% and 2.1%, respectively.

Our Take

Inflation remains tame, trending around the Fed’s 2% target, despite many economists’ repeated warnings of potential acceleration.  Continued benign inflation reports put a dent in the Fed’s argument for continued tightening, though it is unlikely to derail plans as the Fed continues to focus on the acceleration potential rather than the historical reports.


Moody’s Investors Service put over $121 billion of California municipal bonds on watch for downgrade due to the wildfires affecting the state.  The bonds referenced by Moody’s are backed by local governments.  In addition, Moody’s announced that it is considering cutting certain pension debt due to the wildfire damage.  Moody’s cited the severity of the damage from the wildfires in its announcement.

Our Take

The total amount of damage and the cost of rebuilding will take time to process.  This week’s statement by Moody’s is not surprising, given the amount of destruction from the fires.  Our thoughts are with all affected by the California wildfires.

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.