Reinhart Week in Review by Madison Investments 9.27.2024

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INFLATION

The Personal Consumption Expenditures Price Index (PCE) rose 0.1% in August. The Core PCE (excluding food and energy) also increased 0.1%. Year-over-year, the PCE has risen 2.2% while the core PCE is up 2.7%.

Our Take: The PCE continues its march toward the Fed’s 2% target while the core PCE has been stuck around 2.7% for the last four months. As inflation has waned, the Fed has turned its focus to the employment side of its dual mandate. For the time being, this appears to be the correct choice.

CHINA

The People’s Bank of China (PBOC) and the politburo unveiled large and unexpected monetary and fiscal stimulus packages. The announcements were made with much more fanfare and effort to draw attention to them. Monetary measures are aimed mainly at easing borrowing for property and stabilizing the stock market. The fiscal measures are also aimed at stabilizing the property market, aiding indebted local governments, and stimulating consumption. Chinese rates and equities rallied sharply as a result of the announcements, and many forecasters now expect China to hit its 5% growth goal for the year.

Our Take: This week’s actions indicate that the Chinese government recognizes that the declining property market and cautious consumers are preventing the economy from growing at targeted levels. This much stimulus is bound to lift Chinese growth in the short term. Over the longer term, Chinese growth will have to be driven by sustainable domestic consumption, and it is unclear if these measures will start a virtuous cycle of growing spending and incomes if they are not accompanied by major structural reforms.

PERSONAL INCOME AND SPENDING

Personal income and personal spending both rose by 0.2% in August.

Our Take: The income and spending reports were both below consensus estimates, supporting the Fed’s decision to cut rates.

MUNICIPALS

State and local governments have refinanced $66 billion of debt so far this year according to Bloomberg, an increase of nearly 75% compared to last year. The majority of the refunding has occurred over the last few months. It is estimated that 20% of the new municipal issuance this year has been used to refund existing debt.

Our Take: Refinancing deals have increased this year as municipalities are taking advantage of lower interest rates. Many state and local governments did not have an opportunity to refinance as rates were rising, so the opportunity to save on borrowing costs is a welcome reprieve.

About Reinhart Fixed Income
“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”). MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

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