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September
13
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Week In Review

ECB

The ECB delivered a broad, aggressive and open-ended easing package at Draghi’s last meeting as head.  The package includes even more negative deposit rates, tiering of negative rates to try to help banks, 20 billion euros a month of bond purchases and more generous terms on bank financing provided by the ECB.  The ECB also changed their guidance about the duration of these measures to be linked to an uptick in inflation rather than stating an expected timeframe.  Many ECB officials representing core nation central banks (including Germany and France) expressed skepticism about the need for these measures, their likely effectiveness and the adverse effects that they could cause.

Our Take

The ECB is moving strongly toward monetary stimulus, and this leaves the Fed as the only major central bank not doing so.  There are significant concerns about the impact of these actions on the already fragile European financial system.  The level of internal ECB opposition to these moves, as well as the change in ECB leadership, make it likely that the ECB will change course in the near future.


Retail Sales

Retail sales rose 0.4% in August, exceeding economists’ expectations.  Excluding autos, sales were flat for the month.  The retail sales control group, which is used in GDP calculations, rose an as-expected 0.3%.

Our Take

The consumer remains resilient and continues to carry the U.S. economy.  However, it is unlikely this report will cause FOMC members to change their vote over whether to cut rates at next week’s meeting.


Inflation

Consumer prices rose 0.1% in August and are up 1.7% year-over-year.  Core consumer prices rose 0.3% for the month and 2.4% for the year.  Producer prices also rose in August, up 0.1%, and are up 1.8% for the year.

Our Take

Inflation seems to be rising slightly, in part due to tariffs.  While some measures are now above the 2% target, inflation is not yet rising at a rate likely to alarm the Fed.


China

President Trump delayed implementation of a 5% increase in tariffs scheduled for October 1st to October 15th as a “gesture of goodwill” during the celebration of the 70th anniversary of the founding of the PRC.  China responded by exempting some U.S. goods from their currently imposed tariffs and encouraging Chinese companies to purchase more U.S. soybeans and pork.

Our Take

Any move to reduce trade tensions and restrictions is welcome news, especially at a time when global growth is slowing.  However, most of the tariffs implemented over the past 18 months still remain in place, and the two sides are still far apart on some of the key issues driving the conflict.


Municipals

Moody’s Investors Service upgraded New Orleans from A3 to A2.  The ratings agency cited the city’s increasing tax base and growing economy along with infrastructure investments to better protect the city from environmental risks as reasons for the upgrade.

Our Take

After Hurricane Katrina, New Orleans has taken steps to better manage its environmental risks.  New Orleans has improved its levee and barrier system along with its pumping stations to better protect the city from future storms.  In addition, New Orleans has a diverse and growing economy which has led to an increase in tax revenue.  This week’s upgrade is good news for bondholders and may lead to a decrease in borrowing costs.


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.