SVB
201
4 4:Q3
Quarterly
Economic
Report 2017
0717-0115GUEXP103117 SVB Asset Management| Quarterly Economic Report Q3 2017
Table of contentsThoughts from the desk 3
Overview 4
Domestic economy 6
Central bank monetary policy 12
Markets and performance 17
Global economy 24
Portfolio management strategy 28
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0717-0115GUEXP103117 SVB Asset Management| Quarterly Economic Report Q3 2017
Thoughts from the deskGetting back to normal
Normalization of global monetary policies took additional steps forward in the second quarter starting with the Federal Reserve’s announcement to begin balance
sheet reduction by year-end. As expected, the Fed also followed through with another 25 basis points increase to the federal funds rate in June while hawkish
comments from the European Central Bank, Bank of England and Bank of Canada set the stage for tightening of global central bank policies.
Economic growth prospects in developed markets fueled convergence of monetary policies, again led by the United States. The fnal revision showed the U.S.
economy grew 1.4 percent annualized rate as consumer spending and exports performed better than previously thought. Moreover, GDP growth is expected to pick
up in the preceding quarters, as the Fed characterized the slow start as “transitory.” Meanwhile, growth in the eurozone surprised to the upside in the frst quarter
as the drag from net exports dissipated.
Another commonality among the developed economies is the slow pace of infationary growth. As the Fed continues to express confdence in core infation
reaching its preferred 2 percent target in the medium term, key economic indicators such as core CPI and core PCE remain stubbornly anchored around the percent
handle despite early signs of wage growth. In the eurozone defationary fear has been replaced with refationary expectations, although infation remains well
short of the 2 percent goal.
What is Phillip saying
It brings us to an interesting observation of the Phillips curve, which states that infation should accelerate as the unemployment rate declines. With the U.S.
unemployment running below 5 percent for 14 consecutive months, which is considered full employment by most economists, infation, however, remains well
below the Fed’s 2 percent target. So, the Fed has two choices: continue raising interest rates in hopes that infation will march towards the target rate or wait for
more evidence that infation will move higher before taking further action. The Fed will wrestle with this dilemma for the remainder of the year while attempting
to communicate its balance sheet exit strategy without much market disruption.
For corporate cash investors the investment landscape appears ideal. With an expanding economy, healthy and improving corporate balance sheets and a more
aggressive Fed, investors are able to take less duration risk without giving up material income.
0717-0115GUEXP103117 SVB Asset Management| Quarterly Economic Report Q3 2017
Overview
!The current unemployment rate remains lower than the Federal Reserve’s
estimated range for full employment, and infation fgures are expected to
reach the Federal Reserve’s 2 percent target by 2018. Policy normalization
remains gradual and well telegraphed to markets.
!At the June FOMC meeting, the Federal Reserve raised the federal funds rate
for the second time in 2017, citing moderately rising economic activity and a
strengthening labor market. The rate increased by 25 basis points to a range
between 1.00 and 1.25 percent.
!Looking ahead, Fed members maintain a steeper path for interest rates and
expect infation to stabilize and meet its 2 percent objective over the medium
term. Policymakers also maintain their outlook for one additional hike in 2017.
!In a separate statement, the FOMC outlined details of its plan to allow the
balance sheet to shrink by gradually rolling of a fxed amount of monthly
assets. The committee will continue to reinvest principal payments from its
agency debt and agency mortgage-backed securities and rolling over maturing
Treasury securities at the auction.
Central bank monetary policy
!Economic activity was less tepid than previously reported as Q1 GDP rose 1.4
percent annually. The rise in GDP can be attributed to increases in business
investment, exports and consumer spending.
!Despite growing at the slowest pace since 2013, consumer spending rose to a
revised 1.1 percent, while exports of industrial supplies and materials boosted
trade’s contribution to growth, rising 7 percent in the period.
!Consumer sentiment continued to fall in the second quarter due to the
uncertainty surrounding the implementation of Trump’s “pro-growth” agenda.
!Labor market remains healthy as the U.S. economy continues to add jobs at a
decent rate. However, sof wage growth remains a concern for the markets as
the data suggest more slack than initially anticipated, and any infationary
risks from the labor market remain subdued.
!Infation receded in Q2 as both headline and core PCE fell to their multimonth
lows moving away from the Fed’s 2 percent target.
!The Federal Reserveraised interest rates in June, acknowledging that the slow
start to the year was “transitory.”
Domestic economy。。。以上简介无排版格式，详细内容请下载查看