Markets Dismiss Global Risks

Simmering fears of a global trade war; an embarrassing political scandal in Japan; rapid job-turnover inside the White House; and the threat of faster interest rate hikes in the United States.

In any other era, this concoction would be a perfect recipe for heightened market volatility. But in recent months, markets have brushed aside risks and recurring bad news on geopolitics to stay focused on positive macro-economic cues, Reuters reported.

And Guy Debelle, the Australian central banker who oversaw a review of global foreign exchange standards, says it doesn’t make sense. On Friday, the Reserve Bank of Australia deputy governor said in Sydney he finds it “puzzling that measures of volatility do not seem to embody much uncertainty”.

“I have expected that volatility would move higher structurally in the past and this has turned out to be wrong,” Debelle said. “But I think there is a higher probability of being proven correct this time.”

For Paul Dales, Sydney-based chief economist at Capital Economics, markets are “taking all of this in their stride as the global economy is fairly strong and is expected to stay strong both this year and next... it is probably right that the recent events shouldn’t derail that.”

Investors got a taste of what the spike in volatility might look like when in early February fears of faster US rate hikes hammered world shares. That sell-off was short-lived, though, and equity prices are now not too far from their February highs.

A gauge of market volatility .VIX is near all-time lows, while most estimates of the term premium for 10-year treasuries are around zero, or even negative, despite projections of multiple rate rises by the US Federal Reserve this year and next.

This comes at a time the world is seeing the first synchronized global growth since 2007, with strong corporate earnings and blistering job-creation. Higher rates could all but dampen the optimism and that is just one of the many risks.

Global CCI Rises

This month’s global consumer confidence Primary Index has risen to 50.6, tying the record high set in January 2018 since Ipsos started tracking in 2010, Ipsos.com reported.

The Primary Index is a measure of consumer attitudes in 24 countries regarding the current and future state of local economies, personal finances, savings, and confidence to make large investments, as measured monthly by Ipsos.

These findings are based on data from Thomson Reuters/Ipsos’ Primary Consumer Sentiment Index collected in an ongoing survey that has conducted 17,500 interviews monthly since January 2010.

Nine countries saw a significant increase in their Primary Index score, with South Africa, Turkey, Hungary, Brazil, France, the US, Belgium, Britain, and Poland all seeing an increase of at least 1.5 points or more. The most significant changes were seen in South Africa (+7.4), Turkey (+3.3), and Hungary (+3.2). Argentina (-5.7), Russia (-2.2), and Saudi Arabia (-2.1) saw the largest decreases in their Primary Index scores.

Once again, China (70.3), India (65.0), Sweden (63.9) and the US (62.8) scored the best marks among the 24 countries included in the index. Russia (40.8) has broken out of the list of countries scoring below 40 and now leaves Italy as the lone country with an index below 40 at 38.6.

Three subsets of the Primary Index, the Jobs Index reflecting perceptions of job security, the Investment Index, reflecting perceptions of the investment climate, and the expectations index, reflecting perceptions of future economic expansion, are up globally.

March’s global Ipsos Jobs Index (57.7) has risen 0.4 points over the past three months and has risen 2.8 points since this time last year. Belgium (61.0) experienced the largest Jobs Index gain over the last three months with an increase of 4.0 points.

Conversely, Argentina saw the greatest decline, seeing their index fall 5.0 points to 49.1. The US (71.8) has taken the position with the highest Jobs Index mark, a distinction held by Sweden (71.1) in last month’s poll. China rounds out the top three with an index of 71.0. Brazil (34.7), continues to record the lowest Jobs Index score among the 24 countries surveyed.

The global Expectations Index score saw the largest increase and now stands at 59.6, up 1.4 points over the last three months. Ten countries saw significant increase of at least 1.5 points including South Africa, up an incredible 16.3 points to 63.3, Hungary, up 5.7 points to 59.6, and Turkey, up 4.3 points to 49.5. France (+2.3), Brazil (+2.1), Great Britain( +2.0), Italy (+1.8), Mexico (+1.7), US (+1.7), and Australia (+1.5) round out the list of significant increases.

Three countries recorded decreases of 1.5 points or more, with Argentina (-3.9) experiencing the largest drop. China (73.8) and India (71.1) report the highest Expectations scores, while Turkey (49.5) reports lowest.