- Bank of America indicated this week that High-Grade MUNIs should deliver a strong performance in the second half of 2022. These safe-haven securities will benefit from a more stable interest rate outlook and the concerns of a recession. They see a more stabilized rate environment in which MUNI supply/demand factors will be rationalized. They also encourage retail to add to their positions as this is an opportunistic environment. These comments support what a growing number of analysts (Chase, UBS, CITI, Barclays, Morgan Stanley, and Oppenheimer) are saying in support of MUNI investing. The DRL Group distributed an article on 7/12 echoing this.
- Expectations for future US inflation (three years ahead) fell to 3.60% in June from 3.90% a month earlier, the most significant drop since January. The three-year outlook as a comparison hit a high of 4.20% last October.
- Fitch rating service indicated it upgraded more US public finance ratings than downgraded in the 2nd Q of 2022. As we have been suggesting, at this time, we do not have a credit issue; this is purely a pricing issue based on rising rates. We should continue to see reports like this from other rating agencies as states, and local municipalities are flush with cash.
- As for the FOMC meeting - FED Atlanta president Bostic said the US economy could cope with a higher rate hike and repeated his support for another “jumbo” move this month (75bps, I think) at the next meeting. He indicated he is "confident" that the economy can handle another hike, as we saw in June. Bostic, however, does not vote on policy changes this year. Other members of the FOMC committee are not so sure about the 75bps move. Bostic does not have “voting” authority at this time.
- Florida posted a $21.8B surplus in the fiscal year that ended June 30, the highest in the state's history. This trend is common in other states as well. These "increased" surpluses are due to solid tax collections, which have outpaced demand. Preliminary numbers for the June collection alone are about $950MM above expectations.
- I read last night that Amazon and the Port Authority of NY and NJ scrapped plans for a new air cargo facility at Newark Airport. This decision is the direct result of activists criticizing Amazon and the build. Amazon decided they did not need the hassle and moved on. A credit rating downgrade will not impact Newark; however, it is disappointing to see such activists persuade a giant to "move on" as it would have helped the city and airport, resulting in an upgrade.
David Loesch
dloesch@drlgroup.net
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