June 2017 Market Review
By Asset Management | June 13, 2017
The month of May began with a meeting of the Governors of the U.S. Federal Reserve on the 3rd. where it was announced that the benchmark interest rate would remain in its range of 0.75% to 1%. The FOMC meeting also saw the longstanding policy of reinvesting principal payments extended.
Continuing the week with market moving American headlines, Friday saw the U.S. employment situation report for the preceding month. The headline change in non-farm payrolls reversed last month’s weak results with a strong 211,000 month-over-month number.
Last month also saw substantial movement in crude oil markets with West Texas Intermediate crude futures collapsing to their lowest level since last November ($44). As usual, increasing U.S. crude oil production is squarely to blame for erasing any gains from the Organization of Petroleum Exporting Countries’ (OPEC) supply cut agreement which took effect in January of this year. The oil cartel held another meeting in the Austrian capital of Vienna on the 25th of May. Here, OPEC and 11 non-members agreed to extend the 1.8 million barrel per day supply cuts.
Thursday May 18th brought the release of the European Central Bank’s previous minutes. The summary of the April meeting showed increased confidence in Eurozone economic recovery. Some concerns still remain around the issues of lagging inflation and wage growth; however the overall tone of the minutes is quite likely enough to support revised forward guidance to wind down their Quantitative Easing Program.
In currency news, the U.S. dollar index, the standard measure of greenback progress against other major currencies, known as the DXY has seen a substantial pullback from its December/January highs. The decline was widely blamed on fears the White House and Congress will be too distracted by an ongoing CIA investigation to enact campaign promises of lower taxes, fiscal stimulus, and deregulation.
Looking forward, this Wednesday the 14th brings us a live meeting of the Federal Open Market Committee. The Board of Governors of the committee is expected to raise their federal funds target by 25 basis points to a 1.00 to 1.25 percent range with a 1.125 percent midpoint. Announcements concerning the unwinding of the Fed’s balance sheet are also expected to target an early 2018 commencement date.
Given the relatively high security valuations as we enter an historically softer season for market progress, we encourage diversification and selectivity. Fixed income markets appear to have digested the broadly expected Fed rate hike this week and we are staying with our ‘barbell’ approach in structuring discretionary bond portfolios.