Friday 21st October 2016

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Visual Capitalist: Black Swan risks heading into 2016

SocGen’s latest evaluation still sees steep downside risk to market

by Jeff Desjardins | posted with permission of Visual Capitalist

Visual Capitalist: Black Swan risks heading into 2016

The Chart of the Week is a Friday feature from Visual Capitalist.


Société Générale has come out with its most recent list of what the bank considers to be potential “black swans” to the market.

France’s third-largest bank publishes this list as part of its Global Economic Outlook. As several users have pointed out in the past, we are indeed aware that black swans are by nature unlikely and extremely difficult to predict. We agree with this, but we do find SocGen’s list a useful way of understanding some of the upcoming risks in the market that could sway investor sentiment and opinion.

In the latest edition of the report, which was published this week, the bank still sees an excess of potential downside risks to the global economy. The greatest of these risks, slated at only a 10% probability but with maximum impact potential, is a new global recession. The report mentions as well that a hard landing in China could have similar effects.

Downside risks and their probability:

  • 45%–Great Britain leaves the EU (impact: low)

  • 30%–China’s economy has a hard landing (impact: high)

  • 25%–U.S. consumers save more than expected (impact: medium)

  • 10%–Fed hikes too late (impact: medium to high)

  • 10%–New global recession (impact: high)

Upside risks and their probability:

  • 20%–Stronger investment and trade (impact: medium to high)

  • 15%–More fiscal accommodation (impact: medium)

  • 10%–Fast track reform (impact: low)

One risk that could be added to the mix is some sort of a deflationary spiral. These are words that no central banker wants to hear, but signs of deflation are popping up all over the market. For example, as we showed in a recent chart, nearly all commodities got hammered over 2015.

The impact of such a spiral would be catastrophic, and the Fed has limited means to combat such an event. That said, it is tough to discern whether deflation will continue to be found sprinkled benignly throughout the economy, or if it could somehow snowball into the full-on death spiral.

Black swan indeed.

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