PERSPECTIVES

New Century Advisors’ market commentaries offer a unique and insightful perspective on capital markets topics.

 

July 2017 Inflation Dashboard: Fronts Collide

  • Three weak CPI prints, rising oil volatility, a Fed bent on removing monetary accommodation, and diminished hopes for fiscal and regulatory salvation combined in a perfect storm for TIPS breakevens in Q2
  • TIPS have bounced back in the last couple of weeks, led by oil and yet another strong TIPS auction
  • The global economic backdrop has been more supportive, with strong PMI prints pointing to continued manufacturing strength and reduced downside risks
  • But there too, falling energy prices and global central bank hawkishness have weighed on developed market linkers
  • EM continues to perform well and we’d argue that the sector provides a global disinflationary hedge in addition to the more commonly attributed benefits of diversification and commodity exposure
  • We conclude with an expanded section of charts looking at some of the trends and developments in the inflation data and market positioning

June 2017 Inflation Dashboard: Patience Challenged as Risks Mount

  • The strengthening global economy continues to take a back seat to rising energy volatility and domestic political risks
  • Oil resumed selling after OPEC and non-OPEC exporters voted to extend production limits
  • Fiscal stimulus and tax and regulatory reform, once upside risks to domestic growth and inflation, have given way to political risk with the Justice Department naming a special counsel to oversee the Russia investigation
  • The Fed is still expected to hike rates again later this month, but the path going forward is increasingly uncertain
  • TIPS valuations remain supportive from a fundamental standpoint as breakevens remain cheap to inflation forecasts

May 2017 Inflation Dashboard: Fundamentals Call for Patience

  • Unpacking the weak March CPI print
  • Energy risks flare up again, but food tailwinds pick up
  • Front end BEIs continue to look fully valued and increased oil volatility warrants caution
  • Intermediate and longer dated BEIs remain compelling

 Looking for the Fat Pitch

  • ‘Fat pitches’ are rare, but the market will occasionally throw smaller, chubby pitches.
  • Major index rule changes cause dislocations.
  • 15% of the investment grade utilities sector dropping out of the index
  • Opportunity to acquire high quality credits at discounts

 April 2017 Inflation Dashboard: Fundamentals vs. Technicals

  • The Trump reflation trade stalled in March as markets await policy progress
  • Energy tailwinds are set to fade, while food tailwinds emerge
    • Front end BEIs look fully valued and increased oil volatility warrants caution
    • Intermediate and longer dated BEIs remain compelling
  • Fund flows have slowed
    • Trump traders are the wild card; look out if they lose faith in the reflation theme

 

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