“The BlackRock Geopolitical Risk Indicator (BGRI) continuously tracks the relative frequency of analyst reports, financial news stories and tweets associated with geopolitical risks. We have used the Thomson Reuters Broker Report and the Dow Jones Global Newswire databases as sources, and recently added the one million most popular tweets each week from Twitter-verified accounts. We calculate the frequency of words that relate to geopolitical risk, adjust for positive and negative sentiment in the text of articles or tweets, and then assign a score. We assign a much heavier weight to brokerage reports than to the other data sources because we want to measure the market’s attention to any particular risk, not the public’s.
We see geopolitical risk as a material market factor in 2019, especially in an environment of slowing growth and elevated uncertainty about the economic and corporate earnings outlook. At the center of the geopolitical debate? Increasing rivalry between the U.S. and China across economic, ideological and military dimensions. We believe these tensions are structural and long-lasting. With that in mind, we are taking a deep dive into the race between the two countries for global technological leadership.
Our geopolitical risk dashboard features both data-driven market attention barometers and judgment-based assessments of our top-10 individual risks. We show the market attention to each risk, assess the likelihood of it occurring over a six-month horizon, and analyze its potential market impact. We adjust the market impact reading for how much each risk may already be priced into markets. The greater the market’s attention to the risk, the lower the potential market impact. Lastly, we highlight assets sensitive to two key risks that are on the market’s radar screen: Global trade tensions and European fragmentation”.
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The Federal Reserve Bank of New York (FRBNY) recently unveiled the publication of three reference rates: the Secured Overnight Financing Rate (SOFR), the Tri-Party General Collateral Rate (TGCR) and the Broad General Collateral Rate (BGCR). The production of the three reference rates signaled the start of the phased transition by the Fed away from the London Interbank Offered Rate (LIBOR) to a new paradigm. This dramatic shift is part of a multi-year effort by regulators to restore market confidence and transparency in the wake of the LIBOR rigging scandal that rocked the global markets.
SOFR was first recommended as the US dollar alternative to the LIBOR back in June 2017 by the Alternative Reference Rates Committee (ARRC) – a committee comprised of board of governors of the Federal Reserve (“the Fed”), the FRBNY, financial institutions, trade groups and other regulators. The election of SOFR is the culmination of work begun by the Fed and the US Treasury Office of Financial Research (OFR) in 2014, when the ARRC was convened to create a new set of alternative reference rates rooted in actual transactions.
TGCR, BGCR and SOFR reflect transactions in the Treasury repurchase market. TGCR is a measure of rates on overnight counterparty/tri-party general collateral repurchase agreement (repo) transactions secured by Treasury securities, while BGCR measures rates on overnight Treasury general collateral repo transactions. The BGCR includes all trades used in the TGCR, as well as general collateral financing (GCF) repo trades. Of the three reference rates, SOFR was deemed to be the best alternative to LIBOR.
SOFR’s daily volume (which the FBRNY estimated at $800 billion, for underlying transactions, in November 2017) and coverage across multiple repo market segments allow for flexibility for future market evolution. Read more »
As rates have risen, investors have, once again, started asking the perennial question: Is the bond bull market over and are rates normalizing? In thinking about bond yields, it is important to keep longer-term factors in mind that have nothing to do with central bank policy. Low yields have correlated with two, related longer-term trends: low nominal GDP (NGDP) and an aging population. The reason they’re related is that an aging population means slower growth in the workforce, and in turn, slower economic growth.
An aging population impacts rates through a second mechanism. As consumers age, their borrowing and investing patterns shift. Older households tend to borrow less and demonstrate a preference for income, in the process raising the demand and lowering the supply of bonds. The net result is that older populations tend to be associated with lower real, or inflation-adjused interest rates. This dynamic has been at work for decades and helps explain why low yields predated the financial crisis.
Because the population will not get younger any time soon, what would need to change to push rates back to “normal”? In terms of the real economy, the simple answer is faster nominal growth. Looking back over the past 60 years, the level of nominal growth has been the key to understanding the level of rates. During this period, a smoothed average of nominal growth explains almost 60% of the variation in long-term rates (see the chart below).
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“Owning shares in a mutual fund or ETF has never been cheaper. According to Morningstar’s annual fund fee study, the asset-weighted fee for roughly 25,000 funds and ETFs averaged 0.518% in 2017, down from 0.562% in 2016. The 8% drop was the biggest year-over-year decline since 2000, when Morningstar began tracking the data, and represents more than $4 billion in savings for investors, according to Morningstar. Driving the decline were investor preference for low-cost funds — flows into the cheapest 20% of funds within different categories surged 60% — and fee reductions by active funds.
“The cheapest 20% of funds raked in nearly $1 trillion last year while the rest of the industry saw net outflows of approximately $250 billion,” said Patricia Oey, senior manager research analyst at Morningstar, in a statement. “The message investors are sending is crystal clear — cost counts.” Passive funds were the biggest beneficiaries of these flows, accounting for 70% of new inflows; lower cost actively managed funds accounted for the rest.
The average asset-weighted expense ratio for passive funds fell from 0.16% in 2016 to 0.15% in 2017, while the asset-weighted expense ratio for actively managed funds dropped from 0.75% to 0.72%, as investors moved funds out of costlier funds into cheaper ones. Read more »
Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher than a decade earlier, according to an analysis by the Institute of International Finance. At the same time, the ratio of debt-to-gross domestic product fell for the fifth consecutive quarter as the world’s economic growth accelerated. The ratio is now around 317.8 percent of GDP, or 4 percentage points below the high in the third quarter of 2016, according to the IIF.
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While the amount of uses in one barrel of oil is quite incredible, we still need a mind-boggling amount of the natural resource each year to sustain consumption.
Oil production per year: 34 billion barrels (incl. other liquids)
Oil market size at current prices: $1.7 trillion per year
To consider how big this actually is, we compare the annual market sizes of all major metals and minerals that are mined throughout the world:
- Gold: $170 billion
- Iron: $115 billion
- Copper: $91 billion
- Aluminum: $90 billion
- Zinc: $34 billion
- Manganese: $30 billion
- Nickel: $21 billion
- Silver: $20 billion
- Other metals: $67 billion (Including platinum, palladium, titanium, tin, moly, uranium, and more)
The total amount works out to $660 billion – just a tiny fraction of the size of the oil market.
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“Property is as safe as houses, at least until the roof falls in. Our latest tally of global housing markets shows that American house prices have recovered to a new nominal high, and in Spain and Ireland, prices are again rising at a decent clip. In the English-speaking Commonwealth countries of Britain, Canada, Australia and New Zealand, prices have risen largely unabated in recent years.
Since autumn 2014 $1.3trn of capital has flowed out of China. Some of that cash has found its way into residential property in some of the world’s most desirable cities. In America, Chinese investors bought some 29,000 homes in the 12 months to March 2016 with a total value of $27bn, according to the National Association of Realtors. Much of this money is focused on a handful of cities: Seattle, San Francisco, New York and Miami. Foreign money has helped propel skyrocketing prices in other places, too. In Vancouver, home values have risen by 47% in four years; in London they have risen by 54%; and in Auckland the rise has been a whopping 75%. The influence of foreign capital flows on housing markets is being scrutinised, particularly as affordability becomes ever more stretched.
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According to the latest data on global GDP released by the World Bank this February, the U.S. still is the world’s biggest economy – by far. As shown by this Voronoi diagram, the United States (24.3%) generates almost a quarter of global GDP and is almost 10 percentage points ahead of China (14.8%), in second place, and more than 18 percentage points ahead of Japan (4.5%) on three.
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