Welcome to Thoughts on the Market. I'm Michael Zizas, head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bring you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and

financial markets.

It's Wednesday, March 11th, and 11 a.m. Eastern.

To say markets have become volatile would be an understatement.

Adding to the virus concerns now is the collapse of the OPEC-plus arrangement over the weekend,

which touched off a ramp-up in oil production in the nearly 30% decline in the price of oil.

While lower prices at the gas pump might seem good news, this time around

our economists aren't seeing it this way. First, the US has become in recent years

a net energy exporter so lower prices can actually hurt the broad economy.

Second, with virus concerns forcing more so lower prices can actually hurt the broad economy.

Second, with virus concerns forcing more people to limit travel,

there's less reason for people to spend that savings from the pump,

at least in the short term.

The intersection between these events and financial markets are everywhere, but let me give you an example from the market I follow most closely, Munis.

Oil has become an important part of the economy for many states, like Texas, Louisiana, Alaska, Colorado, and Oklahoma.

A fall in oil prices puts drilling activity and employment at risk.

Further, many states tax oil extraction, so it's reasonable to expect some budget gaps will open up, and some austerity might follow, which in turn drags on the economy.

Fortunately for the muni market, most of this risk is concentrated in high-grade securities,

and it doesn't make up a substantial part of the market.

And while we think mid and lower-rated munis are set to underperformed further,

we think the spread between higher-rated munis and treasuries has mostly priced this risk in. But that story is more exception than rule from the oil prices might be better served by a fiscal response rather than a monetary one from the Fed.

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