20180801-NATIXIS-Flash_Economics__Donald_Trump_has_unified_global_financial_markets_5页_833kb

Flash Economics Summary

Core Content

This document, titled Flash Economics, explores the correlation between global financial markets and the perception of protectionist risk, particularly focusing on the impact of Donald Trump's policies. It highlights that financial markets worldwide have become increasingly synchronized in their movements, driven by a shared risk factor: the risk of protectionism originating from the United States.

Main Points

1. Global Financial Markets Are Unified by Protectionist Risk

• Observation: Since the first quarter of 2018, global financial markets have reacted not to their individual fundamentals but to changes in the perception of U.S. protectionist risk.
• Impact: This has led to a significant increase in the correlation between different markets, suggesting that a single risk factor now dominates market behavior.

2. Principal Component Analysis (PCA)

• Methodology: PCA is used to analyze the variance in financial market data (stock indices, credit spreads, exchange rates, sovereign CDS, etc.) over different time frames (daily, weekly, monthly).
• Findings:
  • The first principal component explains a substantial portion of the variance:
    • 26% in daily data (2002–2018)
    • 34% in weekly data (2002–2018)
    • 38% in monthly data (2002–2018)
  • In the recent period (March 2018–July 2018), the first principal component explains:
    • 37% of the variance in daily data
    • 44% of the variance in weekly data

3. Correlation with Risk Perception Index

• Correlation Coefficients:
  • Daily series: 0.35
  • Weekly series: 0.56
• Conclusion: The first principal component is strongly correlated with the risk perception index, indicating that protectionist risk is the dominant driver of market movements.

4. Conclusion

• Summary: Since Q1 2018, the perception of U.S. protectionism has become the primary factor influencing global financial markets.
• Key Insight: The correlation between markets has increased significantly compared to the 2002–2018 period, suggesting a shift in how financial markets are driven by global risk factors.

Key Information

• The document compares various financial indicators across different regions, including:
  • Stock market indices in the U.S., Eurozone, Japan, and China
  • High Yield credit spreads
  • Exchange rates, sovereign CDS, and stock indices of emerging markets (excluding China)
  • Yield spreads of peripheral Eurozone countries
• The data visualizations (Charts 1A, 1B, 2, 3A, 3B, 4, 5A, 5B, 6A, 6B) and Table 1 support the analysis.
• The analysis is based on daily, weekly, and monthly data and uses principal component analysis to identify dominant risk factors.

Disclaimer and Legal Information

• The document is intended for professional and qualified investors only.

• It is strictly confidential and not a personalized investment recommendation.

• No liability is accepted for any use of the document or its contents.

• The information is not verified or independently analyzed by Natixis and is based on public data.

• The document is subject to regulatory restrictions in various jurisdictions, including:

  • France: Supervised by ECB and regulated by ACPR and AMF
  • Germany: Supervised by ACPR and subject to limited regulation by BaFin
  • Spain: Rated by Bank of Spain and CNMV
  • Italy: Regulated by Bank of Italy and CONSOB
  • Dubai: Authorized by DFSA and available only to Professional Clients
  • Hong Kong: For professional investors only
  • Canada and Australia: Only available to specific types of clients
  • U.S.: Available only to major institutional investors

• The views expressed in the report are personal opinions of the authors and may differ from one another.

• The report is not an offer or solicitation for any investment and should not be relied upon as a complete analysis.