文本描述
Q2
Quarterly
Economic
Report 2017
0417-0062KHEXP083117 SVB Asset Management| Quarterly Economic Report Q2 2017
Table of ContentsThoughts from the desk 3
Overview 4
Domestic economy 6
Central bank monetary policy 12
Markets and performance 17
Global economy 26
Portfolio management strategy 30
0417-0062KHEXP083117 SVB Asset Management| Quarterly Economic Report Q2 2017
Thoughts from the desk
Major global economies, directionally similar to the U.S., continue to post positive growth — though political events may add fuel to the engine or choke
off current momentum.
Across the pond, U.K. Prime Minister Theresa May invoked Article 50 to officially commence the EU divorce discussions, and key election outcomes
in France, Italy and Germany threaten to possibly increase the call to exit from the Eurozone. Nonetheless, slowdown in quantitative easing programs by
the European Central Bank, election uncertainties and early jockeying for favorable trade policies by member countries continue to weaken the British
pound and euro.
In the states, the FOMC maintained its current path toward normalization of monetary policies with an additional 25-basis-point increase to the
Federal Funds rate range in March — while signaling two additional hikes to follow by year-end. The Fed also cited further tightening in labor markets,
inflation “moving close” to their 2 percent longer-run objectives and the increasing likelihood of discontinuing its policy of reinvesting principal payments
from investment holdings. The Fed remains the only major central bank in a tightening mode, and it appears to stand alone for the foreseeable future.
Lookingat Trump’s first 100 days in office, his administration has fallen short of his campaign promises — including the inability to reform the
Affordable Care Act, decreasing odds of enacting his plan for personal and corporate tax cuts by year-end and infrastructure spending plans that are
looking to be smaller than the original $1 trillion proposal. However, with elevated business and consumer sentiment — albeit a decline from post-election
highs — markets will continue to test new highs if the President is able to roll back the Dodd-Frank Act on banking regulation, pass any form of
infrastructure spending bill and work with Congress to pass a meaningful tax reform.
What’s ahead: with inertia for additional rate hikes, we continue to position duration for intermediate-to-long portfolios to be defensive. Investment-grade
bonds offer better downside protection than government securities as compressing credit spreads and relatively attractive coupons counter price declines.
As such, we favor allocations to this security type for our comprehensive portfolios.0417-0062KHEXP083117 SVB Asset Management| Quarterly Economic Report Q2 2017
Overview
Central bank monetary policy
revision saw consumer spending improve to 3.5 percent, which continues
the solid readings over the past two quarters (4.3 percent in Q2 and 3
percent in Q3).
percent figure is still in line with the 2 percent trend we have seen over the
past couple of years.
pre-election themes of tax reform, deregulation and infrastructure spending
shifted to immigration and an unsuccessful attempt to repeal Obamacare.
and February had healthy gains of over 200,000, while March came in
below expectations at 98,000.
months, and the U-6 underemployment rate fell below 9 percent for the
first time since 2007.
supporting the March 2017 decision to raise the Federal Funds rate.
Fed’s 2 percent target to 2.1 percent for February.
Domestic economynormalization is under way as a result of a strong domestic economy and
muted geopolitical concerns.
Funds rate at consecutive meetings, citing confidence in the robustness of
the economy and its resilience to shocks. The rate increased by 25 basis
points to a range between 0.75 and 1.00 percent.
as inflation moved close to the Federal Reserve’s 2 percent target. Based
on median projections, policymakers expect at least two more rate
increases this year.
only central bank in a tightening mode. Other central banks continue to
weigh the effects of earlier stimulus measures on their economic
indicators.
0417-0062KHEXP083117 SVB Asset Management| Quarterly Economic Report Q2 2017
OverviewMarkets and performance Global economy
As most major economies continue to post positive growth, political
events are primed to either accelerate the expansion or threaten to
cause economic uncertainty.
Large-scale policy changes across a broad swath of the economy
have been discussed in the U.S. From rules on foreign workers to
health care and taxes, any actual changes to laws and regulations
could have the potential to boost economic growth and affect the
views of the Federal Reserve. At this point, it is unclear what will
transpire.
The official notification of the United Kingdom’s exit from the
European Union comes as the British economy has proved to be
resilient. Economic conditions could change depending on the
outcome of the divorce settlement. An adverse resolution would hurt
both the British pound and the euro.
Continental Europe continues to post economic gains, albeit at a
slow pace. Upcoming elections in France, Italy and Germany have
the potential to cloud financial conditions if parties advocating for
exiting the euro currency are able to advance their agenda.
U.S. investment-grade and high-yield spreads continued their tightening trend
this quarter. At the sector level, financials outperformed as markets embraced
the possibility of a regulatory-lite environment for the banking sector.
Solid gains continued in U.S. equities, lifted by an improving economic outlook,
rising consumer confidence and steady corporate earnings.
After finishing 2016 as the best performing sector, crude oil lagged in the first
quarter of 2017. Diminishing optimism surrounding OPEC production cuts and
rising domestic inventories put downward pressure on prices.
Corporate credit fundamentals remain solid overall, particularly among larger
and higher-quality companies. Credit metrics remained little changed from the
previous quarter across all sectors.
The asset quality and capital levels of U.S. financial institutions remained solid
as evidenced by the FDIC Quarterly Banking Profile result. Notably, community
bank revenue and loan growth continue to outpace the banking industry.
The Dodd-Frank Act was featured as a target in President Trump’s campaign
statements. While it is unclear whether a sweeping wholesale or partial repeal
could pass, the process will be complex and global systemically important
banks (G-SIBs) will remain subject to high international standards.
Domestic economy
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