Part 2 Predictions, threats & opportunities with Citadel
If you are in business, you are required to look into the future. The April Breakfast #RiskSeries gave clients an insight into current economic scenarios. Econorisk partnered with Citadel to host this event and their Head of Fund Research and Portfolio Manager, Yolanda Naudé considered the threats and opportunities facing global and local economies and what lies ahead for financial markets.
Global equity markets have seen a pull-back in the first quarter of 2018 due to some good news during February such as the strengthening of the US Employment Cost Index. Yet this caused a scare regarding possible upward pressure on inflation, and consequently on short-term interest rates in America. The pull-back was also due to some less positive news during March about seemingly escalating trade tensions between the US and China.
On the health of the global economy, after some weakness (due primarily to the sharply rising oil price over the last year, and its impact on inflation) in the first quarter of the year, a recovery is expected on the demand side of the economy, which includes retails sales. Consumers globally are confident, willing and able to spend.
If you assess the global supply side of the economy by the level of manufacturing activity, then global supply is strong (but more so in developed markets than in emerging markets) according to the quarterly Global Purchasing Managers’ Index for Manufacturing. South Africa’s manufacturing sector is still lagging the rest of the emerging market peers.
US recession risk: fairly low
- Particularly in terms of US consumer confidence (which is still strong) and monetary conditions (which are still accommodative, despite the short-term interest rate hiking cycle that has commenced in that economy).
- The US leading indicator currently shows no sign of recession, but Citadel is keeping a close eye on the US unemployment rate and on the US yield curve (which depicts the difference between long-term and short-term interest rates in the US).
Overall Citadel recession scorecard for United States:
5 out of the 9 indicators that Citadel monitors, currently show moderate to low recession risk for the US.
Global recession risk: low
- On the back of the US recession risk assessment, economic indicators still point to strong global growth momentum going into 2018. This is likely to continue for the next 12 months but with some growth disappointment expected in 2019.
- Emerging market growth is stabilising and this overall global macro economic environment is generally supportive for commodity prices.
While South Africa is benefiting from leadership changes and the return of confidence; structural challenges and risks remain.
In part 3, we’ll conclude the insights from our two guest speakers at the event – “Reading between the lines”.
