As we are constantly bombarded with information, distinguishing the “signal” (the useful, reliable information) from the “noise” (irrelevant or misleading data) is increasingly difficult. It seems to me that since Trump’s election, the noise volume has increased further, while the range of outcome has become wider. In this context, I feel somewhat lost when I think about the year ahead economic and financial markets outlook, especially as most assets are either already priced for perfection -such as US equities and especially its predominant technology sector- or the few rare pockets of value are hidden in places where investors have thrown the towel, such as China or Europe … for perfectly understandable reasons.
Should I follow the wisdom of the crowd or favor a contrarian approach? In the latter case, what could be the triggers that will unveil potential hidden gems, or the pitfall(s) that will scupper my rather constructive scenario? Hard to say at this stage, but, in the meantime, I really feel uncomfortable about my current views, which are more or less the same as the consensus. The world is complex and prediction is inherently uncertain, but it is still possible to make better forecasts by focusing on the most reliable data and being open to revising one’s beliefs as new evidence emerges. In other words, the real challenge is not just making accurate predictions, but also having the discipline to avoid being swayed by noise, and therefore to remain open to uncertainty. As a result, that’s why we think our constructive global macro scenario remains valid. However, we have increased the probabilities of tail-risks on both sides as a noisy and unpredictable (read “not business as usual”) Trump may disrupt the overall favorable goldilocks backdrop.
Speaking about signals, treasures and favorable scenarios, a big hat tip to my colleague Edoardo, who advised me to go to “L’Isola del Tesoro” as I was looking for a restaurant in Milano, where I was spending a long week-end with my oldest daughter, in order to watch Cagliari-Verona on TV. We were right to follow his signal as we enjoyed the food, the friendly service and the decor… dominated by red and blue colors and tons of Cagliari Calcio goodies, photos and shirts from all the great players who have worm them over the past 30 years. So, I came across a treasure place belonging to one of the greatest and most enthusiast fan of the Cagliari Calcio. Last but not the least, the outcome was also favorable with the victory of our favorite club 1-0 and a great culinary and friendship experience.
Your bond’s manager, his daughter and a great Sardinian restaurant owner in Milano: when 2 big fans of Cagliari meet, magic happens!
Welcome to December! That’s the last mile rush before we close another exceptional as much as unexpected year on financial markets. But you all know the Yogi Berra saying: it ain’t over till it’s over… So, here are the last few obstacles before the finish line. As usual, the main highlights of the first week of the month will be the final PMI indices across the major economies and the US ISM indices (manufacturing today and services on Wednesday), before the climax US jobs report on Friday. The consensus expects a significant rebound in nonfarm payrolls to 200k in November after the weather-affected +12k meager gain in October, while unemployment rate should stay at 4.1% and the hourly wages growth slows down somewhat to +0.3% from +0.4% MoM (+3.9% YoY from +4.0%). Ahead of this much-awaited report, we will get the JOLTS report (tomorrow) and the ADP data (Wednesday). Let’s also keep an eye on the US business sentiment indicator, and especially on the US ISM manufacturing index, which will be released this afternoon, as it may eventually surprise on the upside as our forecasting model still points to a reading above 50 (vs. 46.5 in October and 47.6 expected by the consensus), whereas Trump’s victory has likely reignited some animal spirits.
Our ISM manufacturing index model is forecasting a reading above 50 again
In Europe, the final PMI indices should signal a contraction of the activity in both the manufacturing and services sectors in most of the main economies of the euro area. A number of German & French economic activity indicators are also due including factory orders, industrial production and trade balance: nothing brilliant is expected but there is still a hope that it could be “less bad” than thought. Elsewhere, the Swiss and Swedish November CPI will be published on Tuesday and Thursday, respectively. Turning rapidly to Asia, aside from the PMI indices for Japan and China, the economic agenda will be quite light with Japan real household consumption and income in October (Friday) and Australia Q3 GDP (Wednesday) likely the only noticeable releases to mention.
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