Every three months, SocGen puts out its famous “black swan” chart, showing the firm’s risk outlook going forward.
These are the events that, while unlikely, would absolutely rock markets and ripple through the economy.
“Risks to our central scenario remain tilted to the downside. Turning points in US monetary policy are delicate operations to manage and the fear is set to be a replay of 1994,” they said.
1994 was when the Federal Reserve arguably tightened monetary policy too soon, triggering a violent treasury market sell-off.
“The aim of forward guidance is clearly to manage such risks. A disorderly market move holds the greatest risk for the most vulnerable emerging economies. Further risks in the US centre on the fiscal decisions to be taken in Washington in early 2014. In the euro area, risks appear more balanced relative to our below-consensus central scenario,” SocGen writes.
“Fast-track political solutions — including full delivery of banking union — hold the greatest upside potential. China’s reform transformation will create short-term uncertainty; the danger is a hard-landing — the temptation the being to adopt further credit stimulus.”
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