PERSPECTIVES

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

 August 2017 Inflation Dashboard - Global Inflation: Improvement

  • Despite 4 weaker-than-expected US CPI prints, TIPS outperformed their nominal counterparts by 24bps in July. Global linkers have also begun to perform in recent weeks, with exposure to FX enhancing returns this year.
  • TIPS were supported by a rebound in oil and commodities, as well as by a dovish turn by the Fed
  • The global economic backdrop continues to be supportive, with firm PMI prints pointing to manufacturing strength and reduced downside risks
  • EM continues to perform well, supported by the combination of firmer commodities and a softer dollar, along with a slightly less hawkish Fed.

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

 

Archived commentaries: