Avalon produces a variety of investment commentaries.
Our perspectives and quarterly commentary are issued throughout the year and cover a range of investment-related topics.
After a weak May, the June jobs report showed the labor markets resiliency with strong internals as people returned to the labor force and received higher wages on a broad sector basis. While creating 287,000 jobs is positive, it is likely that the trend will be closer to 150,000 as we progress through 2016. This lower trend is healthy for this level of unemployment. It will take a sustained increase in participation in the labor force to grow much more quickly. The consumer price index (CPI) rose 1% from a year ago in June, the same reading as May. Excluding food and energy, CPI rose 2.3% driven by a sustained surge in the cost of shelter. Weighted at about one-third of the index, shelter grew 3.5% from a year ago, and constitutes the majority of the inflation pressure present. In fact, on an unadjusted basis, the overall price index excluding shelter was negative 0.2% from a year ago.
The most disappointing economic news in the US was the second quarter GDP report; the US economy grew a meager 1.2%. The personal consumption expenditures (“the consumer”) grew at a 4.2% annual rate—the fastest pace since the end of 2014, carrying far more than its own weight. Business investment detracted, but much of the decline, about 67%, was due to oil drilling and oilfield related equipment. Overall, the US economy remains around a 2% annual growth rate.
For most of July, economic data surprised to the upside in the US. However, this is a sign of expectations declining to meet reality rather than a reacceleration in growth. Given the weak GDP print, the US Federal Reserve is likely to wait and see how the data evolves going forward, a mantra the Fed has followed since beginning to tighten policy.
The Central bank policies were largely unchanged in July. The European Central Bank chose to stay put with its current stimulus package as the effects of Brexit are not apparent, yet. ECB President Draghi stated the ECB has not discussed tapering its QE. With a limited number of levers to pull at this point, the ECB decision seems prudent. Meanwhile, Japan was rumored to be discussing ‘helicopter money’ or the direct financing of fiscal stimulus by the Bank of Japan. Furthering these rumors, Prime Minister Abe announced a $265B fiscal stimulus package ahead of the BoJ’s policy announcement. Instead of helicopter money, the BoJ announced much less stimulus than markets expected.
Following Brexit, the Bank of England held its policy rate steady at 0.50% with only one vote against doing so. Prior to the meeting, there was an 80% chance of a rate cut priced into the market. However, the statement made clear that August was likely to see some form of easing, and not simply by cutting interest rates.
The Federal Reserve left interest rates at 0.25-0.50%, but upgraded the outlook for the US economy. The statement was hawkish, aimed to keep rate hikes a possibility in 2016. The only caveats in the statement were the decline in inflation expectations and business investment. However, the FOMC continues to see inflation rising toward 2% as “as the transitory effects of past declines in energy and import prices dissipate.” Overall, the Fed remains in a tightening cycle, but it appears to be waning. The US economy is not growing particularly quickly, but it is growing. This choppy, inconsistent speed is likely to persist in the second half of the year.
The opinions expressed herein are those of Avalon Advisors, LLC investment professionals at the time the comments were made and may not be reflective of their current opinions. Nothing herein shall be construed as investment advice or a solicitation or offer to purchase or sell any securities.
Avalon Market Update
October 12, 2018
Low-Balling Inflation Puts the Fed at Risk
September 28, 2017
TPP Is Dead. What Now?
January 25, 2017
The Possibilities of Trump's U.S.
December 9, 2016
Reversal Rates Are the Next Big Challenge for Central Banks
November 23, 2016
The Good Ole Days Aren't Coming Back
October 13, 2016
The Federal Reserve's Anti-Volcker Inflation Revolt
August 24, 2016
Why the Fed Needs to Raise its Inflation Target
August 18, 2016
Is the Rest of the World Ditching America to Trade with China?
August 3, 2016
Has the Federal Reserve Become Congress's Golden Goose?
July 20, 2016
The Fed Must Avoid the 'Credibility Trap'
June 21, 2016
Why the Fed Needs to Make a Policy Error
May 18, 2016
The Fed Faces Its 'Anti-Volcker Moment'
May 9, 2016
The Fed's Critical Global Mandate
April 29, 2016
Why the Federal Reserve Is All Talk
April 26, 2016
Is the Global Middle Class Really Here to Stay?
April 12, 2016
Quarterly and Monthly Notes
Third Quarter, 2018
Second Quarter, 2018
First Quarter, 2018
Third Quarter, 2017
Second Quarter, 2017
First Quarter, 2017
Fourth Quarter, 2016
Third Quarter, 2016
Second Quarter, 2016
News | Press
Avalon Advisors, LLC Announces new Co-Chief Investment Officer
October 2, 2018
Avalon Advisors, LLC Named to 2018 Financial Times 300 Top Registered Investment Advisers
June 28, 2018
Avalon Advisors Announces San Antonio Expansion
December 21, 2016
Avalon Advisors Announcement
December 16, 2016
April 11, 2016