Societe Generale is out with its latest quarterly chart of swan risks that threaten to rock the global financial markets — and “China is the dominant black swan.”
“The recent market tumult offered a flavour of the type of market response a China hard landing might trigger,” according to SocGen’s analysts. “In such a scenario we would expect to see a further, and this time, sharp decline of the renminbi (RMB).”
Continuing on that note, SocGen points to its second major risk: a new global recession. “A China hard landing or a much-deeper-than expected downturn in emerging economies in general, both have the possibility to trigger a global recession,” they write. “How business, consumers and policymakers respond to such a shock would determine whether recession in the advance economies would follow or not.”
Technically speaking, “black swan” risks are by definition nearly impossible to predict. But when they come, it’s bad. SocGen’s swan chart is just trying to show that there are major economic and geopolitical risks brewing that could cause serious problems should they come into fruition.
On the positive end, SocGen also points to three upside risks: the US looks like it will invest more, which “would also underpin productivity gains and thus ultimately real wage growth”; higher-than-expected price multipliers in Europe and Japan; and the possibility of fast-track reform.
Notably, Grexit — or a Greek exit from the euro zone — has been removed from the chart. However, the Brexit — or a British exit from the European Union — looms.
Check out all the stewing swans below.
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