20180807-NATIXIS-The_worrying_reversal_of_three_factors_that_have_underpinned_financial_markets_since_the_end_of_2016_5页_632kb

Flash Economics Summary

Core Content

The document titled "Flash Economics" from 07 August 2018 discusses the reversal of three key factors that had positively influenced financial markets since the end of 2016. These factors are now shifting into negative territory, which could have a significant adverse impact on financial markets.

Main Factors and Their Reversal

1. Shift from Strong Growth in Global Trade to Protectionism

• Positive Impact: Global trade growth accelerated since 2016, boosting exports and economic growth in OECD countries, which was beneficial for equity and corporate bonds markets.
• Negative Impact: The rise of protectionist measures, particularly in the U.S., and retaliatory actions by other countries are threatening this growth. This shift could lead to a slowdown in global trade, which is expected to negatively affect financial markets.

2. Shift from Low to High Risk Aversion

• Positive Impact: The election of Emmanuel Macron in France reduced political risk in Europe, leading to a low level of risk aversion that was favorable for financial markets.
• Negative Impact: Since Q2 2018, risk aversion has increased due to protectionism, geopolitical tensions, and political instability in Europe. This rise is expected to have a negative impact on equities and corporate bonds.

3. Slowdown and Stagnation in Global Liquidity

• Positive Impact: Rapid growth in global liquidity has supported financial markets and driven down long-term interest rates.
• Negative Impact: The reduction in the Federal Reserve's balance sheet, the end of quantitative easing in the euro zone, the slowdown in Japan's bond purchases, and stagnation in global foreign exchange reserves are expected to lead to a stagnation in liquidity. This will negatively affect financial markets.

Key Conclusions

• The three factors that have supported financial markets since 2016 are now reversing:
  • Rapid global trade growth is being replaced by protectionism;
  • Low risk aversion is turning into high risk aversion;
  • Rapid liquidity growth is shifting to stagnation.
• These simultaneous changes are expected to have a marked negative impact on financial markets.

Disclaimer and Legal Information

• The document is intended for professional and qualified investors only and is strictly confidential.
• It does not constitute a financial analysis or personalized investment recommendation.
• Natixis is not liable for any actions based on the information provided.
• The document is subject to various legal restrictions depending on the jurisdiction.
• Natixis is regulated by several financial authorities in different countries, including the ECB, ACPR, AMF, FCA, and others.
• The views expressed in the report reflect the author's personal opinions and may differ from those of Natixis or other entities.