What I’m Watching: Signposts and Theme Update

​The recent market selloff with its multiple linked triggers (inflation, fiscal expansion, past FX adjustment) and amplifiers (program trading, volatility funds and instruments, pricey valuations and desire to take profits in tax-mitigating way), seems a good time to take stock of the drivers of the macro and market environment going forward, to update you all on some of the themes/topics/opportunities I’m tracking in 2018 and beyond. The themes and framework are described in this pdf in more detail.

Many of these are longstanding topics that have driven macro and market sentiment in recent years (trade policy, fiscal stance), some may be well choreographed (CB balance sheet adjustment, energy rebalancing), even if likely to be over-estimated as exits approach. Others warrant some additional consideration in a global context (infrastructure development and finance).

I touched on many of these in my 2018 look-ahead in November, and will be updating my views as the months go on. This framework may help me and others identify how the different themes interact. No doubt, new topics will emerge or some of these topics interact.

Bottom line: Macro environment in 2018 still looks set to be relatively benign, with a pickup in global growth, and greater synchronicity of major economies (as laggards begin to catch up). Looking ahead, policy uncertainty (around trade and FX policy) suggest challenges for business planning, and greater costs to consumers, contributing to a slowdown in global growth in 2019-20, suggesting profits should follow suit. Coupled with higher rates and greater competition for capital, debt servicing issues should come more into the fray as the end of expansionary monetary policy facilitates a closer look at sovereign and corporate fundamentals. County selection matters. Price pressures are still likely to be manageable, but greater issuance of debt and equity suggests profit outlook matters. In several EM/Frontiers expect government dominated or secured investment to retain its key place.

I’ll talk more about risk scenarios in the days to come. I look forward to hearing about what I missed, what your signposts are and what scenarios you’re preparing for.

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