The SVB Asset Management Economic Report, Q1 2017, is a review of and outlook on economic and market factors that impact global markets and business health.
In this edition, the team discusses the Fed's recent activity and its intentions to raise benchmark interest rates three times in 2017. The report also focuses on how the new U.S. administration will impact domestic and global economies.
The SVB Asset Management Economic Report, Q2 2017, is a review of and outlook on economic factors that impact global markets and business health.
In this edition, the team discusses the U.K.’s Article 50 notice and the FOMC’s current path towards normalization. The report also examines the Trump Administration’s first 100 days in office and current business sentiment.
The SVB Asset Management Economic Report, Q2 2017, is a review of and outlook on economic factors that impact global markets and business health.
In this edition, the team discusses the U.K.’s Article 50 notice and the FOMC’s current path towards normalization. The report also examines the Trump Administration’s first 100 days in office and current business sentiment.
Factsheet for Birla Sun Life Mutual Fund- WishfinAnvi Sharma
The scheme aims to maximize long term capital appreciation by investing primarily in equity & equity related securities of companies engaged in banking & financial services. The scheme would invest in banks as well as NBFC's, insurance companies, rating agencies, broking companies, etc.
UK retail sales in Q1 likely contracted from Q4 2016, despite their rebound in February.
Falling real wages and slowing household borrowing are likely to further dampen retail sales and consumption growth going forward.
The still large pool of available workers is seemingly limiting their wage-bargaining power, with nominal wage growth falling behind rising inflation.
Moreover, investment growth is still only making a negligible contribution to GDP growth ahead of the British government’s decision to trigger Article 50 on 29th March.
Much of the rise in inflation in recent months is attributable to imported inflation driven by Sterling’s depreciation since November 2015 with little evidence of demand-led inflation.
This situation is reminiscent of 2007-2008 when Sterling’s collapse fuelled imported and in turn headline inflation.
Should Sterling remain broadly unchanged going forward, its year-on-year pace of depreciation, currently around 9%, would slow from June onwards and hit zero towards end-year according to my estimates, in turn dampening imported inflation.
I would expect retailers to stabilise prices to maintain market share in the face of tepid demand and for wage-inflation expectations to remain modest. This was certainly the case in the 12 months to September 2009 with CPI-inflation falling from 5.2% yoy to 1.1% yoy.
The question is whether the BoE is willing to look beyond a potentially temporary rise in UK inflation – as Governor Mark Carney suggested – or whether it tries to short-circuit any self-reinforcing rise in prices.
My base-line scenario is that the BoE will look beyond the current rise in UK inflation, unless at least one of three conditions materialise:
(1) Nominal wage growth accelerates, comfortably outstripping headline inflation and driving consumption growth;
(2) Commercial bank lending picks up significantly; and
(3) Sterling depreciates materially from current levels, exacerbating imported and in turn headline inflation.
I expect that neither (1) or (2) will materialise any time soon and that while risks to Sterling are probably to the downside, Sterling is unlikely to weaken sufficiently to push the BoE into hiking. I would however expect it to keep a possible rate hike firmly on the table.
Duff & Phelps' Capital Markets Insights - Spring 2018 report states that leveraging costs and structures showed signs of increasing volatility in the first quarter of 2018, as markets reacted to rising economic growth, inflation concerns and trade tensions. Read the report for more detail.
We expect the Bank of Canada to keep its overnight
rate unchanged at 0.50% next week.
The Bank is likely to echo its recent statements that the downside risks to inflation have increased, leading to an overall dovish tone to the statement and accompanying Monetary Policy Report. We expect the Bank to remain on the sidelines until 2019.
Recent fiscal and macroprudential policies have helped ease some of the pressure off the Bank of Canada, with last week’s new housing sector measures removing some of the downside risks from household imbalances.
Capital Markets Industry Insights - Fall 2016Duff & Phelps
Middle-market issuers were greeted by strong demand this quarter from mainstream credit sources as well as those seeking higher degrees of risk and return. Macroeconomic fundamentals continued to improve, though the focus remained on monetary policy. With an increasingly stark dichotomy of views at the Federal Reserve, volatility persisted in anticipation of clearer guidance on the pace and timing of rate hikes.
Migrate Your Payments Platform Without Disrupting Your BusinessSilicon Valley Bank
Switching to a more robust payment platform can deliver benefits including better approval ratios, enhanced reporting, quicker funding, global payment acceptance and improved security. We'll review five key questions to gain an understanding of platform transition steps and share a helpful checklist for creating a project plan.
When you need tighter controls and maximum spending visibility, the way your company pays is key. Try these five tactics for sharpening your use of company credit cards.
Silicon Valley Bank presents its eighth annual Startup Outlook report, capturing the sentiment of about 1,000 tech and healthcare entrepreneurs at a time of rapid transitions around the globe.
U.K. startups are planning for Brexit, and tech and healthcare entrepreneurs tell Silicon Valley Bank that while they are less optimistic about future business conditions compared to recent years, most plan to hire and keep their headquarters in Britain.
What does 2017 hold for the Innovation Economy? In the latest State of the Markets report, SVB Analytics took a rear-view approach, identifying the factors that mattered most in 2016 and examining which trends and themes will play out in 2017.
In our annual report on the healthcare industry, Silicon Valley Bank analyzes the fundraising, investment, M&A and IPO activity of private, venture-backed biopharma, medical device and diagnostic/tools companies.
Factsheet for Birla Sun Life Mutual Fund- WishfinAnvi Sharma
The scheme aims to maximize long term capital appreciation by investing primarily in equity & equity related securities of companies engaged in banking & financial services. The scheme would invest in banks as well as NBFC's, insurance companies, rating agencies, broking companies, etc.
UK retail sales in Q1 likely contracted from Q4 2016, despite their rebound in February.
Falling real wages and slowing household borrowing are likely to further dampen retail sales and consumption growth going forward.
The still large pool of available workers is seemingly limiting their wage-bargaining power, with nominal wage growth falling behind rising inflation.
Moreover, investment growth is still only making a negligible contribution to GDP growth ahead of the British government’s decision to trigger Article 50 on 29th March.
Much of the rise in inflation in recent months is attributable to imported inflation driven by Sterling’s depreciation since November 2015 with little evidence of demand-led inflation.
This situation is reminiscent of 2007-2008 when Sterling’s collapse fuelled imported and in turn headline inflation.
Should Sterling remain broadly unchanged going forward, its year-on-year pace of depreciation, currently around 9%, would slow from June onwards and hit zero towards end-year according to my estimates, in turn dampening imported inflation.
I would expect retailers to stabilise prices to maintain market share in the face of tepid demand and for wage-inflation expectations to remain modest. This was certainly the case in the 12 months to September 2009 with CPI-inflation falling from 5.2% yoy to 1.1% yoy.
The question is whether the BoE is willing to look beyond a potentially temporary rise in UK inflation – as Governor Mark Carney suggested – or whether it tries to short-circuit any self-reinforcing rise in prices.
My base-line scenario is that the BoE will look beyond the current rise in UK inflation, unless at least one of three conditions materialise:
(1) Nominal wage growth accelerates, comfortably outstripping headline inflation and driving consumption growth;
(2) Commercial bank lending picks up significantly; and
(3) Sterling depreciates materially from current levels, exacerbating imported and in turn headline inflation.
I expect that neither (1) or (2) will materialise any time soon and that while risks to Sterling are probably to the downside, Sterling is unlikely to weaken sufficiently to push the BoE into hiking. I would however expect it to keep a possible rate hike firmly on the table.
Duff & Phelps' Capital Markets Insights - Spring 2018 report states that leveraging costs and structures showed signs of increasing volatility in the first quarter of 2018, as markets reacted to rising economic growth, inflation concerns and trade tensions. Read the report for more detail.
We expect the Bank of Canada to keep its overnight
rate unchanged at 0.50% next week.
The Bank is likely to echo its recent statements that the downside risks to inflation have increased, leading to an overall dovish tone to the statement and accompanying Monetary Policy Report. We expect the Bank to remain on the sidelines until 2019.
Recent fiscal and macroprudential policies have helped ease some of the pressure off the Bank of Canada, with last week’s new housing sector measures removing some of the downside risks from household imbalances.
Capital Markets Industry Insights - Fall 2016Duff & Phelps
Middle-market issuers were greeted by strong demand this quarter from mainstream credit sources as well as those seeking higher degrees of risk and return. Macroeconomic fundamentals continued to improve, though the focus remained on monetary policy. With an increasingly stark dichotomy of views at the Federal Reserve, volatility persisted in anticipation of clearer guidance on the pace and timing of rate hikes.
Migrate Your Payments Platform Without Disrupting Your BusinessSilicon Valley Bank
Switching to a more robust payment platform can deliver benefits including better approval ratios, enhanced reporting, quicker funding, global payment acceptance and improved security. We'll review five key questions to gain an understanding of platform transition steps and share a helpful checklist for creating a project plan.
When you need tighter controls and maximum spending visibility, the way your company pays is key. Try these five tactics for sharpening your use of company credit cards.
Silicon Valley Bank presents its eighth annual Startup Outlook report, capturing the sentiment of about 1,000 tech and healthcare entrepreneurs at a time of rapid transitions around the globe.
U.K. startups are planning for Brexit, and tech and healthcare entrepreneurs tell Silicon Valley Bank that while they are less optimistic about future business conditions compared to recent years, most plan to hire and keep their headquarters in Britain.
What does 2017 hold for the Innovation Economy? In the latest State of the Markets report, SVB Analytics took a rear-view approach, identifying the factors that mattered most in 2016 and examining which trends and themes will play out in 2017.
In our annual report on the healthcare industry, Silicon Valley Bank analyzes the fundraising, investment, M&A and IPO activity of private, venture-backed biopharma, medical device and diagnostic/tools companies.
Silicon Valley Bank presents its eighth annual Startup Outlook report, capturing the sentiment of about 1,000 tech and healthcare entrepreneurs at a time of rapid transitions around the globe.
U.S. startups are emerging from a healthy recalibration, and tech and healthcare entrepreneurs tell SVB that while they are less optimistic about future business conditions compared to recent years, they expect to hire, see improved exit paths and plan to tap venture capital to grow.
The IPO Window Reopens:
We finally saw the IPO window crack open in Q3 2016, as proceeds from technology M&A are leaving investors flush with cash to reinvest and driving demand for IPOs and follow-on offerings.
In this third-quarter update on State of the Markets, my team analyzed investment and exit data to identify key trends impacting clients:
1. The number of IPOs exceeded private IPOs for the first time since Q2 2013, as crossover investors’ interest in large pre-IPO financings dropped off.
2. In the U.S., the pace of unicorn exits in Q3 exceeded new entrants.
3. After plummeting in the first half of 2016, values of publicly traded unicorns showed signs of recovery.
Learn more by reading the new State of the Markets report. As with any review of the markets, conditions can turn quickly. We are, however, confident that the fundamentals driving innovation will be strong through the end of 2016.
Using Business Architecture to Facilitate a North American Business Model at ...Daniel Lambert, M. Sc.
Presentation made by James Pickens, ERE Technology Strategy and Analytics Lead at the TD Bank, by Colin Leung, Manager – Business Management Technology at the TD Bank, and myself at BBC 2016 on Nov. 2 2016. For additional information please view the information on this webpage: http://biz-architect.com/building-business-capability-bbc-2016-from-nov-2-4-2016-in-las-vegas/
On November 8, 2016 Donald Trump was elected president of the United States. His election sparked protests across the United States and demonstrated how divided the nation is on President Trump. He assumed office on January 20th, 2017, with an approval rating of only 48%, one of the lowest of any incoming president in history. He banned travel to the US from 7 Muslim countries, insulted the leaders of Germany, Mexico, and Australia, pulled America out of the Transpacific Partnership, threatened protectionist tariffs and taxes on foreign imports, and he packed his cabinet with pro-Taiwan and anti-China pundits.
Borrowing costs for middle-market debt issuers generally declined during the third quarter, despite a modest increase in leverage levels and little change in benchmark rates. The Fed, as expected, left benchmark interest rates unchanged in the third quarter, but did announce a program to gradually reduce its balance sheet from $4.5 trillion (a result of recessionary quantitative easing) to $3 trillion over the next three years. Thus, the prevailing combination of low borrowing costs, high leveragability and a generally benign default rate outlook, presents an attractive backdrop for issuance. This "perfect storm" of market conditions provides a compelling (albeit narrowing) window for middle-market issuers.
U.S. MarketBeats provide an overview of quarterly CRE activity and trends, a snapshot of current economic and capital market conditions as well as market-level statistics on key metrics.
The U.S. economy in 2016 was characterized by steady growth in the face of uncertainty. The year began with steep declines in global equity markets in response to concerns about a slowdown in China, the Europe replaced Asia as the focal point of global anxiety after the Brexit vote. In the fourth quarter, the U.S. unexpectedly elected Donald Trump as President. Despite uncertainty, the economy continued to add an average of 180,000 jobs per month during 2016.
Standpoint: Global Reflation by Kevin Lings STANLIB
Fears of sustained deflation and stagnant growth in the United States and Europe have been replaced by a more optimistic growth outlook as well as concerns about rising inflation. This has driven developed market equities higher, but also weakened major bond markets.
Mr. William McConnell evaluates the 2016 economic conditions, concluding that real growth is at a stall despite full employment. This white paper is part of a three part series. William McConnell will publish a white paper focused on the state of the construction industry next month, followed by the state of the surety industry in July, 2016.
In this issue of Economy Matters, we analyse the recent Fed rate hike and Euro Zone economic prospects, in the section on Global Trends. We have covered data trends in GDP, IIP, Inflation, Monetary Policy and Trade in the Domestic Trends section. Find out the results of 2QFY16 In Corporate Performance section. Taxation section covers the views of Sumit Dutt Mazumder, former Chairman of CBEC on GST. The Sectoral Spotlight for this issue is on Financial Conditions Index for 3QFY16. Read Focus of the Month, to know about ‘Skilling India’, wherein experts from diverse areas present their views.
The Economic Outlook for 2017 by Kevin LingsSTANLIB
South Africa is searching for higher economic growth in a global environment increasingly shaped by rising nationalism, higher levels of trade protection and a fall-off in the effectiveness of monetary policy.
In this issue:
1. TD Wealth Asset Allocation Committee: Market outlook: the year ahead
2. TD Economics: A foundation for uncertain times
3. TD Wealth: New principal residence exemption rules
Rising Confidence in Economic Outlook: Investors are optimistic about the market but are pensive regarding holding strategy against rising interest rates.
LBS Asset Allocation August Update - July 28, 2017Mark MacIsaac
Global economic data continue to point to robust and synchronized economic growth with the release of stronger-than-expected ISM surveys, German IFO business climate survey and Chinese Q2 real GDP growth data.
For the first time, SVB surveyed technology and life science entrepreneurs based in Canada. Like their counterparts in the US, UK and China, Canadian startups are optimistic about the year ahead even amid economic volatility. And while eager to hire and fundraise, they recognize the challenges they face. Most startups say Canadian government support of the innovation economy is having a positive impact. When it comes to gender parity, 60 percent of Canadian startups have at least one woman in an executive position. Looking ahead, we asked which technologies will have the most promise a decade from now: Canadian startups say AI and life science.
The outlook for the Chinese tech sector is strong, with a large number of startups saying they expect more M&A opportunities. Access to talent and raising capital remain challenging. Compared to the US and UK, a higher percentage of Chinese startups have women in senior company roles and at least one woman on
the founding team.
For the 10th year, Silicon Valley Bank is proud to present
our Startup Outlook Report. The innovation economy has
expanded greatly in the US and abroad in the past decade,
and so has Startup Outlook. In our first report, we surveyed
300 people, most of them in California. The 2019 report
includes the perspectives of nearly 1,400 technology and
healthcare founders and executives primarily in major
innovation hubs across the US, the UK, China and, for the
first time, Canada.
Trends in Healthcare Investments and Exits 2018 - Mid-Year ReportSilicon Valley Bank
In our mid-year Healthcare Investments and Exits report, we analyzed the fundraising, investment, M&A and IPO activity of private, venture-backed biopharma, medical device and diagnostic/tools companies.
The SVB State of the Markets report provides a quarterly update on the health and productivity of the global innovation economy. This quarter's report includes a special section on the booming Chinese tech industry.
Our annual report finds significant numbers of startups continue to have no women in leadership, yet a growing percentage have programs in place to change that.
In our annual Healthcare Investments and Exits report, SVB analyzed the fundraising, investment, M&A and IPO activity of private, venture-backed biopharma, medical device and diagnostic/tools companies.
Silicon Valley Bank's Startup Outlook 2018 captures perspectives from US technology and healthcare entrepreneurs on the opportunities and challenges they see ahead for startups.
US startups tell SVB they are entering 2018 with confidence:
- Nearly two of three US startups believe that 2018 will be better than last year
- The number that plan to hire is at a five-year high
- Most startups expect M&A activity to stay strong
- Venture capital remains the go-to source for future funding
Read more at http://bit.svb.com/2DLLcgZ
How Paperless Payables Can Streamline Ops and Improve Cash FlowSilicon Valley Bank
Digitizing your accounts payable can make your whole company more agile by simplifying accounting and monitoring costs. Use Silicon Valley Bank’s checklist to help with your company’s transition to paperless payables.
Trends in Healthcare Investments and Exits: Mid-Year 2017Silicon Valley Bank
In our mid-year 2017 report on healthcare investing, SVB analyzed the fundraising, investment, M&A and IPO activity of private, venture-backed biopharma, medical device and diagnostic/tools companies.
Investment and fundraising in the healthcare ecosystem saw a banner first half of 2017, driven in part by advancements in artificial intelligence and machine learning for healthcare applications and a surge in Series A investments, particularly in biopharma.
Silicon Valley Bank's Life Science and Healthcare Startup Outlook Report examines how the industry's executives view 2017's opportunities and challenges. The report includes startups' thoughts on public policy issues as well as their expectations for fundraising and hiring.
Paying your suppliers by credit card is a smart financial move that is good for cash flow, financial management and overall expense reduction. But to access these gains, your vendors must first agree to accept your card payments.
Four months in, 2017 is shaping up to be a year of harvesting and replanting for the innovation economy.
The SVB Analytics team examined the private-company growth propelled by the large capital raises of 2014-15
and the subsequent plunge in large investments and exits in 2016. Given the activity we’ve seen in the first
quarter of 2017, we are forecasting significant harvesting of returns resulting from the last decade of sweeping
innovations.
Key insights from Silicon Valley Bank's Startup Outlook Report. SoCal startups are fueled by a flourishing ecosystem that includes a growing number of local equity capital sources from both venture capitalists and corporate investors. While their outlook is cautiously optimistic, they continue to hire.
Silicon Valley Bank 2017 State of the Wine Industry ReportSilicon Valley Bank
The Silicon Valley Bank 2017 State of the Wine Industry Report identifies trends and current issues facing the U.S. wine industry and offers data and observations wineries can use to develop their business strategies.
Silicon Valley Bank's wine report is based on its in-house expertise as one of the largest bankers to the West Coast wine industry for nearly 20 years, a proprietary database of more than a decade of winery financials, ongoing research, and an annual survey of 500+ West Coast wineries. Learn more at http://www.svb.com/wine-report/.
Major Forecasts for 2017:
- Wines sold between $12 and $25 will grow in demand as will high-end luxury wines with an established brand. We expect to see small price increases in these segments, with volume and price drops for bottles priced under $9.
- Premium wine sales will increase between 10 and 14 percent above 2016 levels.
- Per capita consumption faces crosscurrents with retiring wine-loyal baby boomers being replaced by less affluent millennials who are ambivalent about their alcoholic beverage of choice. If economic conditions continue to improve, however, per capita consumption should be slightly higher in 2017.
- Today, millennials are beginning to affect the lower price range of premium sales. Their presence is most visible in the $8 to $11.99 red blend category, but they gradually will shift from blends to varietal wines or imports as their incomes grow.
- Even with winery M&A facing headwinds from higher interest rates, winery acquisitions should remain quite active through 2017.
- Farm labor supply and costs are the dominant concerns in the wine business in 2017.
What does the rest of 2016 hold for innovation companies? In a mid-year update on State of the Markets, the SVB Analytics team analyzed data from the first half of 2016 to identify key trends impacting SVB's clients.
In its mid-year report on the healthcare industry, Silicon Valley Bank analyzes the fundraising, investment, M&A and IPO activity of private, venture-backed biopharma, medical device and diagnostic/tools companies. Report author Jonathan Norris also provides his view of what's on the horizon for the second half of 2016.
Women hold influential positions in technology companies around the world, but there’s clearly room for more women in the C-suites and the boardrooms of the world’s most innovative companies. In our Innovation Economy Outlook 2016 survey of 900 executives worldwide, 63 percent say they have no women on their boards, and 44 percent have no women in executive positions, although that varies greatly when you look at it geographically.
What does the rest of 2016 hold for the innovation economy? SVB Analytics' State of the Markets Report provides a summary of key market indicators impacting the innovation economy, including venture capital funding and valuation trends, crossover investor activity, and what’s ahead for the second half of 2016.
In a new report, SVB Analytics examines the challenges facing stakeholders in the U.S. healthcare system, the solutions made possible by technology advancements and opportunities for entrepreneurs and investors.
Learn more here: http://www.svb.com/Blogs/Alex_Lee/Digital_Health__Mapping_Digital_Health_Solutions/
2. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Table of Contents
2
Thoughts 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
3. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Thoughts from the desk Perking up for 2017
Nap time is over. After a sleepy third quarter, financial markets woke up late in the year and vigorously reacted to a flurry of activity and data. The chief catalyst was
the surprise election of a new Commander-in-Chief. After initial unease, financial markets took a liking to the prospects of President Trump and a Republican
controlled Congress, seeing an opportunity for tax cuts, spending increases, and less regulation. But the anticipated fiscal stimulus, along with a more hawkish
Federal Reserve, rings in the New Year with slightly elevated uncertainty.
As the U.S. economy enters the later stages of the business cycle, the Fed announced its intentions to gradually raise its benchmark interest rate three times in
2017. Policy shifts, both monetary and fiscal, could impact confidence in the U.S. economy. Although the economy is expected to continue its growth trajectory in
the low-2 percent range, any added stimulus might push growth to 2.5 percent in the latter half of 2017. Should a meaningful spending package become reality, the
U.S. economy will likely benefit from continued robust consumer spending, rising construction activity, and a rebound in business investment. However, there are
several key risks worth monitoring. On the trade front, global markets would not react well to new U.S. protectionist policies. And should the Fed continue to remove
monetary accommodations, the dollar would be expected to rise. However, a much stronger dollar could be a drag on net exports and real GDP.
Strong recent economic data, including the decline in unemployment to a nine-year low, rising wages, and a robust recovery in energy prices should help push
inflation up to the Fed’s 2 percent preferred target in the medium term. This inflationary momentum would validate any anticipated rate hikes in 2017. Perhaps the
bigger question is: Will the current economic momentum, coupled with fewer regulatory constraints, boost economic growth beyond the Fed’s current projections?
There are, of course, risks, and any monetary or fiscal policy missteps could stall economic growth. For example, the Fed could raise rates too quickly. Or the new
administration’s trade amendments might even lead to a trade war. Given these risks, we continue to favor a conservative approach to duration and believe that an
overweight position to short maturity corporate credits is a sensible way to capture income. We also believe that a tactical allocation to government securities could
be prudent in an environment of fiscal uncertainty and less monetary accommodations.
3
4. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Overview
Following a muted third quarter, volatility has re-emerged primarily due to
the U.S. presidential election. Current market dynamics may prove to be
somewhat temporary as fiscal policy plans are laid out. However, the
Federal Reserve responded by tightening monetary policy.
At the December FOMC meeting, the Federal Reserve raised the Fed
Funds target rate for the first time in 2016, attributing the action to their
view of both realized and expected labor market conditions and inflation.
The rate increased by 25 basis points to a range between 0.50 and 0.75
percent.
Looking ahead, Fed members’ rate projections indicate a steeper path for
interest rates in 2017. Based on median rates, the Committee expects
three quarter-point rate increases in 2017.
Compared to other major economies, the U.S. stands alone as being in a
tightening mode. Other central banks continue to monitor the effects of
earlier stimulus on the economies to judge whether additional monetary
easing may be needed.
Central bank monetary policy
Economic activity has been healthy with Q3 GDP at 3.5 percent. The third
revision revealed stronger spending than was originally estimated on
services, intellectual property and construction by state and local
governments.
The latest GDP figure supported the Federal Reserve’s case for raising
the Federal Funds rate for the first time since 2015.
Consumer sentiment spiked in December following Donald Trump’s victory
as consumers viewed the win as positive for their finances and the U.S.
economy.
In 2016, the U.S. economy added over two million jobs, maintaining the
trend over the last few years of more than two million jobs added per year.
The unemployment rate has run below five percent for the majority of the
year. Minutes from the last FOMC meeting of 2016 showed that
participants anticipate the unemployment rate will run below normal
longer-run levels.
Wage growth jumped in December to 2.9 percent. If the trend continues, it
will add to future inflationary pressures and support the case for further
rate hikes by the Federal Reserve.
Domestic economy
4
5. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Overview
Major economies firmed to end 2016. Even with numerous headwinds
present –– particularly political uncertainties –– economic activity
was primarily in expansion mode, and in some areas growth was at a
healthy clip.
Canada’s economy is rebounding from low oil prices, with growth
accelerating into the year-end helped by consumer spending and exports.
The country still faces numerous challenges, including a hot real estate
market and rising household debt. Nonetheless, bank asset quality
remains steady and the country may benefit from a weaker currency and
supportive monetary policy.
Australia continued to grow through the recent commodity bust as the
economy expanded, in part, from favorable demographics. While growth
slowed into year-end and the labor market is in a mild recovery, domestic
demand has been supportive of a stable economy.
Stability in the Nordic region endures, with low oil price concerns
alleviated. While the region is marred by elevated housing prices, asset
quality at banks remains strong. In Norway, a rise in government spending
is propping up the economy, while economic conditions in Sweden remain
strong. Domestic demand and an improving labor market underpin
Denmark’s stability, while Finland’s banking system was named the
world’s safest by the World Economic Forum.
Global economy
U.S. investment grade and high-yield spreads closed 2016 at their
tightest levels since April 2015 and September 2014, respectively. At the
sector level, utilities/energy outperformed as spreads tightened, largely
due to stable oil prices following the OPEC agreement.
U.S. equities saw solid gains in 2016, buoyed by a post-election rally that
pushed the major indices close to their all-time highs.
The prospect of increased fiscal stimulus, higher inflation and a brighter
assessment of U.S growth resulted in higher U.S. Treasury rates making
it the worst-performing sector on a total return basis.
Corporate credit fundamentals remain solid overall, particularly among
larger and higher-quality companies. Credit metrics remained little
changed from the previous quarter across all sectors.
Investment-grade corporate spreads generally tightened over 2016 and
fundamentals are expected to remain resilient in 2017.
Markets and performance
5
7. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Percent
Personal consumption Gross private domestic investment Net exports Government GDP
Economic activity has been healthy with Q3 GDP at 3.5 percent. The third revision revealed stronger spending than was originally estimated on services,
intellectual property and construction by state and local governments.
The latest GDP figure supported the Federal Reserve’s case for raising the Federal Funds rate for the first time since 2015.
The Q3 pickup in GDP was the fastest acceleration since Q3 2014. However, it is unlikely to remain sustainable given that it was driven by a jump in exports.
Despite potentially lower readings in upcoming GDP figures, growth should be strong enough to support the job market and, in turn, contribute to higher
wage growth and robust consumer spending.
GDP: Picking-up speed
GDP and components
Source: Bureau of Economic Analysis (BEA), Congressional Budget Office (CBO) and SVB Asset Management. Data as of 12/31/2016.
Note: GDP values shown in legend are % change vs. prior quarter, on an annualized basis.
7
8. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Consumption: Optimism spreads
Consumption overview
Consumer sentimentRetail and food service sales
Q3 data showed a three percent increase in consumer spending quarter-
over-quarter. While not as robust as the prior quarter growth, it is still a
strong reading.
Personal savings continued to creep down slightly. The recent downward
trend supports the view that consumers are feeling more confident in the
U.S. economy.
Retail sales came in below expectations with purchases increasing only
0.1 percent in November. The lower figure shows a slight slowdown in
recent consumer spending compared to prior months.
Consumer sentiment spiked in December following Donald Trump’s victory
as consumers viewed the win as positive for their finances and the U.S.
economy.
Source: Bloomberg and SVB Asset Management. Data as of 12/31/2016.
8
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Percent
Percent
Personal consumption (LHS)
Personal savings (LHS)
Household debt to disposable income ratio (RHS)
40.0
50.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
UniversityofMichigan
ConsumerSentimentIndex
Average
5.0
7.0
9.0
11.0
13.0
15.0
17.0
19.0
21.0
23.0
25.0
250.0
300.0
350.0
400.0
450.0
500.0
Vehiclesales($millions)
Retail&foodservicessales
($billions)
Ex autos (LHS) Vehicle sales (RHS)
9. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Employment: Solid pace
Labor force participation rateEmployment landscape
Employment to population ratio
The December payroll report of 156,000 was below expectations, but was
still strong for an economy that is largely considered at full employment.
In 2016, the U.S. economy added over two million jobs, maintaining the
trend over the last few years of more than two million jobs added per year.
The unemployment rate has run below five percent for the majority of the
year. The minutes from the last FOMC meeting of 2016 showed that
participants anticipate the unemployment rate will run below normal
longer-run levels.
The participation rate continues to hover at low levels due to baby
boomers retiring and others still out of work and on the sidelines.
Source: U.S. Bureau of Labor and Statistics (BLS), Bloomberg and SVB Asset Management. Data as of 1/6/2017.
Note: The underemployment rate U-6 defined as persons marginally attached to the labor force are those who currently are neither working nor looking for work, but indicate they want and are available for a job and
have looked for work in the past 12 months.
9
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
-1,000.0
-500.0
0.0
500.0
1,000.0
Percent
Thousands
Non-farm payroll (LHS) Unemployment rate (RHS) U-6 (RHS)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
62
63
64
65
66
67
68
Percent
Labor force participation rate (LHS) Unemployment rate (RHS)
55
56
57
58
59
60
61
62
63
64
10. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
U.S. housing: Firm footing
Home prices — indexed to 100Home sales and supply
Household formationHousing affordability
Source: Bloomberg and SVB Asset Management. Data as of 12/31/2016.
10
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Homesupply(months)
Homesales(millions)
Total sales (new & existing) Existing home supply
0
50
100
150
200
250
300
Median home price FHFA purchase Case-Schiller 20 city
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0
50.0
100.0
150.0
200.0
250.0
Percent
Affordabilityindex
Housing affordability 30 -year fixed mortgage rates
-3000
-2000
-1000
0
1000
2000
3000
4000
Thousands
11. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Inflation: Higher expectations
Crude oil and gasoline pricesCore PCE — % change from prior year
Wage growth
Core PCE continues to trend closer to the Fed’s two percent target,
supporting the December 2016 decision to raise the Federal Funds rate.
OPEC’s decision in November to reduce output by 1.2 million barrels a
day to 32.5 million for six months helped stabilize oil prices and should
apply some inflationary pressure. The reduction began in January 2017.
Wage growth jumped in December to 2.9 percent. If the trend continues, it
will add to future inflationary pressures and support the case for further
rate hikes by the Federal Reserve.
Source: Bloomberg and SVB Asset Management. Data as of 12/31/2016.
11
1.5
2.0
2.5
3.0
3.5
4.0
Annualpercentagechange
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Priceperbarrel($)
Crude oil (LHS) Daily national average of gasoline prices (RHS)
0.0
1.0
2.0
3.0
4.0
5.0
%changefromprioryear
Core PCE Fed target Monetary policy threshold
13. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Q1 2016 Q2 2016 Q3 2016 Q4 2016
Despite strengthening employment and
inflation in the U.S., the Fed refrains from a
second rate hike during the quarter as global
conditions continue to pose risks.
A recovery in oil and hawkish Fedspeak
earlier in the quarter drive interest rates
temporarily higher. The yield on the 2-year
Treasury note hits 92 basis points in May.
Following Brexit, Treasury yields experience a
period of low volatility for much of the summer. We
also saw a flatter yield curve as evidenced by the
tighter spread.
Following a period of low volatility, interest
rates break out of trading ranges and head
higher on the heels of the presidential election
given prospects for greater fiscal spending.
Central banks around the world implement
additional easing measures, with the BOJ
adopting a negative interest rate policy, China
cuts reserve requirements and the ECB
expands their asset purchase program into
the corporate bond market.
A confluence of factors in June brings rates
back down to H1 2015 levels. At center
stage is Brexit, which sent investors towards
safe havens such as U.S. Treasuries. A
disappointing employment report and a
dovish tilt from the FOMC meeting also
lowers probabilities for future rate hikes.
Solid employment reports and inflation readings
drive hawkish comments from Fed members and
temporarily increase probabilities for a rate hike. At
the September FOMC meeting, they announce a
stronger case for a rate hike, but decide to wait for
further evidence of continued progress towards their
objectives.
Continued strength in economic data
specifically, the decline in the unemployment
rate to a nine-year low, inflation hovering
around the Fed’s 2 percent target and
expectations for greater inflationary pressures
–– prompts the Fed to raise the target range
for the Federal Funds rate at year-end.
After hitting recent lows, oil prices see some
stabilization towards quarter-end as world
leaders discuss a production freeze.
Markets are focused on the broader
implications of Brexit, while central banks
such as the ECB and Fed stand ready to
provide liquidity if needed.
Looking ahead, the Fed continues to stress a
gradual approach to raising interest rates. The
Fed’s median forecast projects one interest rate
increase for the remainder of 2016.
OPEC agrees to cut production, sending oil
prices higher and creating more inflationary
pressure.
Historical interest rates: Upward trajectory
Source: Bloomberg and SVB Asset Management. Data as of December 30, 2016.
13
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Percent
2-year Treasury yield 1-year Treasury yield
14. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Central bank economic projections: Brighter outlook
14
2015 2016 2017 2018
Economic projections: United States
Change in real GDP 2.6% 1.9% 2.1% 2.0%
Unemployment rate 5.3% 4.7% 4.5% 4.5%
Core PCE inflation 1.4% 1.7% 1.8% 2.0%
Economic projections: Eurozone
Change in real GDP 2.0% 1.7% 1.7% 1.6%
CPI inflation 0.0% 0.2% 1.3% 1.5%
Unemployment rate 10.9% 10.1% 9.9% 9.6%
Economic projections: China
Change in real GDP 6.9%
CPI inflation 1.4%
Unemployment rate 4.1%
Economic projects: Japan
Change in real GDP 1.2% 1.0% 1.3% 0.9%
CPI inflation 0.8% 0.1% 1.7% 1.9%
Source: Federal Reserve, European Central Bank, National People’s Congress of China, Bank of Japan. Data as of December 20, 2016.
Forecasts are not available for all periods.
15. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
PercentFederal Reserve rate projections: Expectations accelerate
Source: Bloomberg and Federal Reserve.
Data as of December 14, 2016. Percentages below the chart reference the median forecasted rate at the end of each period.
September 2016 median 0.375% 0.625% 1.125% 1.875% 2.625% 2.875%
June 2016 median 0.375% 0.875% 1.625% 2.375% – 3.00%
March 2016 median 0.375% 0.875% 1.875% 3.000% – 3.25%
15
16. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Japan Eurozone United Kingdom China United States
Central bank Bank of Japan European Central Bank Bank of England People's Bank of China Federal Reserve
Benchmark rate -0.10 percent 0.0 percent 0.25 percent 4.35 percent 0.50-0.75 percent
Current policy
Maintaining current easing
program, which includes,
10-year rates near zero and
commitmentto push inflation
above 2 percent
Maintaining previous cuts on
refinancing rate and deposit rate
with no change to its expanded
QE program
• August rate cut in response
to EU referendum outcome
• No action taken in September
• No additional action since
February’s 50 basis points
reserve ratio cut
• Lending and deposit rates
hold steady
Considering additional rate hikes
after increasing rates by 25 basis
points in December
Inflation
Unemployment 3.1% 9.6% 4.8% 4.0% 4.7%
Analysis
No material policy changes
expected for 2017 given recent
Yen weakness
No additional action projected,
but skewed towards more
easing or refinement of current
QE program
No additional action likely near
term, with direction of inflation
and economic activity uncertain
Recent economic improvements
reduce the need for further rate
and reserve ratio cuts in 2017
Anticipating additional interest
rate increases in 2017
EasingEasing Stable Tightening
Central banks: Wait and see
Source: Federal Reserve, European Central Bank, Bank of England, The People’s Bank of China, Bank of Japan, Bloomberg, SVB Asset Management
16
0.20%
0.0% 1.0% 2.0%
0.60%
0.0% 1.0% 2.0%
1.2%
0.0% 1.0% 2.0%
2.3%
0.0% 1.0% 2.0% 3.0%
1.4%
0.0% 1.0% 2.0%
19. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Total return comparisons: Fixed income lags
All returns above are on total return basis. 2016 returns are on an annualized basis up to December 30, 2016.
FI Credit refers to BofA/ML US Corporate Bonds 1-3 year Index; Treasury refers to BofA/ML US Treasuries 1-3 year Index; Gold refers to S&P GSCI Gold Spot; WTI refers to Spot West Texas Intermediate Crude Oil;
Wilshire refers to Wilshire 5000 Total Market Index; REIT refers to MSCI US REIT Index; S&P 500 refers to S&P 500 Index.
Source: Thomson Reuters, Barclays Live and SVB Asset Management
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
WTI
57.68%
US Treasury
6.67%
WTI
78.00%
Gold
29.67%
Gold
10.23%
REIT
16.47%
Wilshire
33.06%
REIT
28.24%
S&P 500
1.40%
WTI
44.80%
Gold
31.35%
Gold
5.53%
Wilshire
28.29%
REIT
26.97%
WTI
8.15%
Wilshire
16.05%
S&P 500
32.39%
S&P 500
13.69%
REIT
1.30%
Wilshire
13.40%
US Treasury
7.31%
FI Credit
0.30%
S&P 500
26.46%
Wilshire
17.18%
REIT
7.48%
S&P 500
16.00%
WTI
7.32%
Wilshire
12.70%
FI Credit
0.85%
S&P 500
12.00%
FI Credit
5.96%
S&P 500
-37.00%
REIT
26.27%
WTI
15.10%
S&P 500
2.11%
Gold
6.96%
FI Credit
1.45%
FI Credit
1.12%
Wilshire
0.70%
Gold
8.60%
Wilshire
5.61%
Wilshire
-37.23%
Gold
23.96%
S&P 500
15.06%
FI Credit
1.75%
FI Credit
3.69%
REIT
1.26%
US Treasury
0.63%
US Treasury
0.56%
REIT
7.10%
S&P 500
5.49%
REIT
-39.05%
FI Credit
11.59%
FI Credit
4.15%
US Treasury
1.55%
US Treasury
0.43%
US Treasury
0.36%
Gold
-1.51%
US Gold
-10.50%
FI Credit
2.38%
REIT
-17.84%
WTI
-53.52%
US Treasury
0.80%
US Treasury
2.40%
Wilshire
0.98%
WTI
-7.08%
Gold
-28.26%
WTI
-45.76%
WTI
-30.50%
US Treasury
0.89%
Assetclassreturns
19
20. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Credit cycle: Fundamentals remains resilient
While leverage remains near historic lows, operating margin across the corporate sector has been declining since peaking in late 2014.
For larger and higher-quality companies, however, operating margin has stabilized and is even ticking up slightly.
20
S&P 100 universeS&P 500 universe
Source: Bloomberg.
20.0
25.0
30.0
35.0
40.0
45.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
Percent
Percent
Operating margin (LHS) Total debt to total asset (RHS)
20.0
25.0
30.0
35.0
40.0
45.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
Percent
Percent
Operating margin (LHS) Total debt to total asset (RHS)
21. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Credit cycle: Sector breakdown
Across all corporate sectors, credit metrics showed little change sequentially from the previous quarter.
S&P 500 debt to assets by sector
S&P 500 operating margin by sector
Source: Bloomberg, operating margin trailing 12 months data.
21
0
10
20
30
40
50
Energy Materials Industrials Consumer
discretionary
Consumer staples Health care Financials Information
technology
Telecom services Utilities
September 2016 December 2016
-15
-5
5
15
25
Energy Materials Industrials Consumer
discretionary
Consumer staples Health care Financials Information
technology
Telecom services Utilities
September 2016 December 2016
22. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Continued cost-cutting efforts have
increased the likelihood of cash
flow neutrality in 2017 if oil prices
further stabilize. Shareholder value
remains a priority for most ––
however, capping potential credit
upside. Maintaining current
production levels and following
through on targeted levels of asset
sales will be key.
Margin expansion in developed
markets is supplementing slower
growth in emerging markets as free
cash flow generation remains
steady. Excessive shareholder
spending remains a credit
challenge, as does the change in
consumer sentiment to established
brands. Consolidation has helped
profitability. Credit will remain
largely stable.
YTD sector performance and outlook: Tightening spreads
Materials sector
22
Fundamentals improve in the
metal/mining sector due to the
recovery in commodity prices,
ongoing defensive balance sheet
repair and China stimulus efforts. In
the chemical sector, portfolio
optimization, bolt-on acquisitions
and cost-cutting efforts continue
amid low organic growth prospects
and low interest rates.
Solid employment levels will
continue to drive consumption
growth, especially for travel and
leisure services. Home
improvement sales benefit from
housing market gains, while
general retail is exposed to a shift
in consumer preference, which has
shrunk growth.
Energy sector
Consumer discretionary sector Consumer staples sector
0
50
100
150
200
250
300
350
400
Investment grade CDS
IG materials OAS
0
100
200
300
400
500
Investment grade CDS
IG energy OAS
0
50
100
150
200
250
Investment grade CDS
IG cons. disc. OAS
0
20
40
60
80
100
120
140
160
180
Investment grade CDS
IG cons. staples OAS
23. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Cloud computing –– which the
industry is increasingly betting its
future on –– shows robust growth,
but overall revenue growth remains
challenging with global economic
growth lukewarm at best. Though
many maintain net cash positions,
continued shareholder spending is
driving up leverage and remains a
key risk –– as does M&A.
Profitability is improving, albeit at a
measured pace, as net interest
margin benefits from rising interest
rates and cost-cutting.
Fundamentals are stable as capital
levels, liquidity and asset quality
remain solid. Regulatory and
compliance costs are likely to
remain high in the near term as the
future of the regulatory
environment remains uncertain.
YTD sector performance and outlook: Tightening spreads
Healthcare sector
23
Industry consolidation will continue,
though the pace of large,
transformative transactions will
slow compared to recent years.
Relatively smaller transactions,
particularly in biotech, will continue
to grow. International markets
remain growth avenues, though
developed economies remain the
focus of core profitability.
The outlook is for modest global
demand with divergence in key end
markets. Defense, healthcare and
aerospace continue expanding,
while agriculture, construction and
energy may stabilize. Event risk
remains elevated with M&A and
shareholder spending amid the
backdrop of lackluster growth since
many have balance sheet capacity
to finance deals.
Technology sector
Industrials sector Financials sector
0
50
100
150
200
Investment grade CDS
IG healthCare OAS
0
50
100
150
200
Investment grade CDS
IG technology OAS
0
20
40
60
80
100
120
140
160
180
Investment grade CDS
IG industrial OAS
0
50
100
150
200
Investment grade CDS
IG financials snr OAS
25. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Canada: Handling risk
Household debt risingInflating home prices
Banks adequately fortified
Housing is booming. Vulnerabilities from rising home prices were
cushioned by down payment requirements, strong underwriting and the
recourse nature of many mortgages.
Steady growth in auto loans and credit card debt along with larger
mortgages has increased the debt load of a typical Canadian household.
However, low interest rates have softened the increased burden of debt
servicing.
Canada’s banking system remains sound as many banks have the
capacity to internally generate ample capital, which has generally been
rising. Losses remain relatively low.
Sources: Terranet and National Bank, Statistics Canada, bank annual reports, Bloomberg, SVB Asset Management.
25
12
12.5
13
13.5
14
14.5
15
120
125
130
135
140
145
150
155
160
165
170
DebtServiceRatio,%
Debttodisposaleincome,%
Debt to disposable income Debt service ratio
22
24
26
28
30
32
34
8
8.5
9
9.5
10
10.5
11
2012 2013 2014 2015 2016
Chargeoff,basispoints
Tier1CommonEquityRatio
Basel III Tier 1 Common Equity Ratio (SVB Canada bank index)
Charge-off ratio (SVB Canada bank index)
95
115
135
155
175
195
June2005=100
Teranet-National Bank Home Price Index Composite 11
26. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Australia: Expansion intact
Job market OKSteady growth
Retail sales still growing
26
Source: Australia Bureau of Statistics,Dow Jones VentureSource, National Bureau of Statistics of China, Bloomberg, SVB Asset Management.
Australia maintained growth in commodity prices through the downturn,
with GDP growth within the 2-3 percent range. Though the currency has
nominally weakened, falling inflation may provide the Reserve Bank of
Australia with scope to ease, which would provide macroeconomic
expansion support.
The labor market improved through the course of year, with
unemployment at the lowest levels since 2013. Even though part-time jobs
underpinned the improvement, and wages and hours worked remain
weak, the higher employment levels have contributed to domestic
demand.
Retail sales have drifted lower recently, but still remain economically
supportive. Consumer spending may be stronger than indicated, since
weak sales at department stores, as well as of clothing and shoes, may be
due to shifting preferences for leisure services and digital spending.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
0
0.5
1
1.5
2
2.5
3
3.5
CPI,%changeyearoveryear
GDP,%changeyearoveryear
RBA CPI trimmed mean core CPI Real GDP
5.2
5.4
5.6
5.8
6
6.2
6.4
%unemployment
Last price
0
1
2
3
4
5
6
7
%change,yearoveryear
Retail sales
27. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Nordics: Stability endures
Sweden: Powering aheadNorway: More fiscal stimulus on the way
Denmark: Rebounding domestic consumption
Norway is utilizing its sovereign wealth fund to aid the economy, which has
been dragged by low oil prices over the past two years. While GDP
showed recent contraction, the economy is expected to post positive,
albeit low, growth overall for 2016 and 2017, helped by government
spending and a stable unemployment rate.
Economic activity remains solidly positive in Sweden, with manufacturing
experiencing a recent uptick. Employment conditions remain good and
consumer confidence is solid. This favorable environment is underpinned
by the loose monetary policy of the central bank.
Denmark’s domestic demand remains in growth mode despite a recent
softening. Household consumption helped drive an economic rebound
over the past year, with spending on autos, housing and services
increasing at a good pace.
Source: China Federation of Logistics and Purchasing, Dow Jones VentureSource, National Bureau of Statistics of China, Bloomberg, SVB Asset Management.
27
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
%change,yearoveryear
GDP central government spending
44
46
48
50
52
54
56
58
60
PMIindex:>50=expansion
Swedbank manufacturing PMI
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Finalconsumptionexpenditure,
%changeyearoveryear
29. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Portfolio strategy: Macro overview
Source: SVB Asset Management and Bloomberg. Data as of 12/30/16.
Past performance is not a guarantee of future results. The above is not to be construed as a recommendation for your particular portfolio.
Economy
Rates
Duration
Sector
Stable data
• Q3 2016 GDP: +3.5% (two-year high)
• Unemployment rate: +4.6% (nine-year low)
• Weekly jobless claims 2016 average: 263,000 –– below 300,000 since March
2015
• Inflation rising towards Fed targeted level
Moderate
steepening in
yield curve
• 18-month Treasuries yielding 1.03%
• 24-month Treasuries yielding 1.19%
• The two-year yield pickup over 18 months has averaged 0 to +9 basis points for
most of 2016
• Post U.S. presidential election, the yield pickup has risen above +15 basis points
Defensive
• Short and intermediate benchmarks: long duration versus benchmark as coupon
income should offset price volatility
• Intermediate plus benchmarks: stay neutral to benchmark
• Long benchmarks: shorter to manage price fluctuations and maximize
reinvestment opportunities
Overweight
spread product
• Favor corporate bond, commercial paper and asset-backed securities
• Diversify by security type, sector and issuer concentration
• As rates rise, spread product will help protect bond prices due to higher
income accruals
29
30. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Portfolio strategy: Credit risk management
Key criteria for
approved issuers
1. Strong franchise value
2. Diversified business lines
3. Strong balance sheet
4. Healthy cash flow generation
5. Strong liquidity profile
6. Robust capital to absorb
downturns
7. Management with solid
track record
8. Prudent financial policy
9. Quality and timeliness of
the disclosure
10. Strong collateral performance
and sponsor’s interest
alignment for asset backed
securities
We are highly selective in our security selection process and look to diversify by sector, sub-sector and
issuer concentration.
Our dedicated credit research team performs a rigorous examination of every issuer and ongoing credit
monitoring of all investments.
Our credit analysis incorporates a proprietary scoring system to analyze issuers, and takes into account
trading factors such as market liquidity, market depth and headline risk.
30
S&P Moody's Fitch Rating description
AAA Aaa AAA Highest credit quality
AA+ Aa1 AA+
High credit qualityAA Aa2 AA
AA– Aa3 AA–
A+ A1 A+
Upper-medium gradeA A2 A
A– A3 A–
BBB+ Baa1 BBB+
Medium gradeBBB Baa2 BBB
BBB- Baa3 BBB-
Investment grade
Source: SVB Asset Management and Bloomberg.
Past performance is not a guarantee of future results.
The above is not to be construed as a recommendation for your particular portfolio.
31. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
0.50
0.38
0.25
0.13
0.00
-0.13
-0.25
-0.38
-0.50-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
Percent
-100 -75 -50 -25 Base case +25 +50 +75 +100
% in market value
Short duration
3 month T-bill
Short duration
3-6 month T-bill
Intermediate duration
6 month T-bill
Intermediate plus
duration
9 month T-bill
Long duration
1 year Treasury
Benchmark
duration 0.25 0.375 0.50 0.75 1.0
Portfolio duration
target
Portfolio strategy: Interest rate risk management
Source: SVB Asset Management and Bloomberg.
Past performance is not a guarantee of future results. The above is not to be construed as a recommendation for your particular portfolio as individual portfolio durations will vary.
Duration (price sensitivity) analysis
We exercise a disciplined benchmarking approach to manage portfolio duration
–– positioning duration in a +/- 30% band around the appropriate benchmark.
In a rising-rate environment, where a portfolio is more susceptible to unrealized
losses, we mitigate this risk by managing average duration relative to the
benchmark and limiting exposure to longer-dated investments. This allows for
greater reinvestment opportunity to take advantage of higher anticipated rates.
*Example of portfolio with duration of 0.5 years
31
-30% Neutral +30% -30% Neutral +30% -30% Neutral +30% -30% Neutral +30% Neutral-30% +30%
32. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Portfolio Strategy Relative value curve analysis
In Q4, Treasury yields backed up across the curve
Attractive opportunities in the front end with 9th month Treasury yields
offering 18 basis points of yield pickup for an additional three months
Front-end Treasury yield curve
32
Source: SVB Asset Management and Bloomberg. Data as of 12/30/2016.
Past performance is not a guarantee of future results. The above is not to be construed as a recommendation for your particular portfolio.
Treasury CP ABS AA Ind A- Ind AA Fin A- Fin
90D 0.50 0.80 1.00 0.77 1.05 0.94 1.17
180D 0.62 1.10 1.08 0.91 1.18 1.04 1.36
270D 0.80 1.25 1.17 1.03 1.24 1.23 1.46
1Y 0.91 1.28 1.06 1.31 1.29 1.60
1.5Y 1.03 1.47 1.29 1.56 1.58 1.76
2Y 1.19 1.65 1.39 1.77 1.72 1.91
2.5Y 1.30 1.81 1.65 1.88 1.98 2.12
3Y 1.45 1.97 1.74 2.06 2.08 2.22
Commercial
paper
180 day CP yield is between 1.5 and
2 year Treasury
Asset-backed
securities
ABS provide high credit quality and price
stability
AA finance AA finance yields offer over 25 basis
points yield pickup over AA industrials
0.27
0.45 0.58
0.65 0.73 0.76
0.84 0.87
0.50
0.62
0.80
0.91 1.03
1.19
1.30
1.45
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Percent
9/30/2016 12/30/2016
+18bp yield
pickup
33. SVB Asset Management | Quarterly Economic Report Q1 20170117-0005GUEXP0517
Our team
Portfolio Management Team
Eric Souza
esouza@svb.com
Paula Solanes
psolanes@svb.com
Renuka Kumar, CFA
rkumar@svb.com
Jose Sevilla
jsevilla@svb.com
Hiroshi Ikemoto
hikemoto@svb.com
Jason Graveley
jgraveley@svb.com
President, SVB Asset Management
Lauri Moss
lmoss@svb.com
Head of Investment Strategy
and Portfolio Management
Ninh Chung
nchung@svb.com
Head of Credit Research
Melina Hadiwono, CFA
mhadiwono@svb.com
Credit and Risk
Tim Lee, CFA
tlee@svb.com
Daeyoung Choi, CFA
dchoi@svb.com
Nilani Murthy
nmurthy@svb.com
Silicon Valley Bank Partners
Teresa Quizon
tquizon@svb.com
33