Chart of the Week - Reacceleration Risk
Move over recession risk, new macro risk scenario just dropped!
You’ve heard about recession risk — and are probably sick of hearing people(such as me) talk about recession risk! So let’s switch it up, the underappreciated risk that is currently sitting off most people’s radar is… the opposite!
We’re talking reacceleration risk
But wait a minute, why am I calling it a risk when reacceleration sounds like it would be a good thing?
Well, first: we kind of need to talk about prospective but unknowable things in the future as risks because a risk is just another way of expressing the concept of uncertainty. Also and in that vein you can have upside risks and downside risks.
OK, makes sense, but still some questions…
Why should we think about reacceleration risk? How will we know it’s happening? What do you even mean reacceleration??
What: reacceleration would basically be an end to the economic slowdown that we have seen in many of the survey data e.g. the global manufacturing PMI in the chart below. But as implied in the word reacceleration (to accelerate once again), it would mean an upturn in surveys like the PMIs, a turnaround in the decelerating growth rates seen across hard data series like trade and industrial production, and generally more buoyant GDP growth.
How: we will know its happening when and if the PMIs turn higher again (see chart below), and there’s a few other indicators to track, but that probably gives you 80-90% of the information.
WHY: this is important, we want to track this risk and think about it because — Yes, an upsurge in growth would be good all else equal, supportive for risk assets like global equities and commodities, etc.
…but…
It’s actually also an actual risk in the traditional “risk = bad” sense.
Picture this: growth reaccelerates, capacity still tight, inflation still elevated, commodity prices go up…… inflation goes up.
So reacceleration risk also means (inflation)resurgence risk.
Resurgence risk = no rate cuts, maybe hikes, higher bond yields, 1970’s redux fear.
..or simply, “Higher For Longer” risk comes back online.
That would be bad for bonds, bad for growth stocks (if it happened quickly and bond yields spiked in a short space of time), and in a roundabout way would increase the odds of recession, government debt spiral, etc, etc.
But it would be good for commodities (the key hedge in that scenario).
So an interesting risk to monitor, off most people’s radar, and with meaningful macro-market implications. And the chart below provides a good lens on this, and in fact with the policy pivot that is already clearly underway (lead mostly by Emerging Markets at this point) — reacceleration is actually quite plausible given the emerging evidence (in fact the chart below is actually saying that the PMI is going to do exactly that — reaccelerate).
Key point: Start thinking about reacceleration risk.
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Topics covered in our latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and dug into some intriguing global macro & asset allocation issues on our radar:
Market Update: mixed performance across global equities
Fixed Income: treasuries fluctuating, credit spreads lower
Chinese Stocks: update on China A-Shares
Commodities: technicals and triggers for metals and the GSCI
Emerging Markets: is the inflection point still in play?
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Callum Thomas
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