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SocGen: The 2 Biggest Risks to the Global Economy

As the market melts higher with just about every week investors are becoming increasingly risk averse.  But as we know, stability tends to create instability.  In a recent research note Societe Generale analysts highlights the two risks to be particularly aware of as markers move higher and risks increase:

Risk 1: Earnings growth expectations weaken globally

  • Recession in Europe continues to squeeze earnings which are nevertheless fairly high overall thanks to tight control of costs,
  • Chinese industrial profits reportedly fell 5.4% yoy in July, an acceleration versus the previous month. The ferrous metals smelting sector saw the sharpest drop in profits,
  • Although earnings growth in the US remained positive, it has become less robust and could deteriorate further if economic growth stalls.

Risk 2: Potential oil shock could hurt recovery

  • Oil prices bounced back over the last two months, supported by sanctions against Iran, and more recently supply concerns,
  • Growing tensions with Iran could push oil prices higher and hurt global economic,
  • Gold traded slightly higher in August crossing its 200- day moving average on the back of QE hopes, but remained on hold ahead of central bank meetings,
  • Non-ferrous metals stabilised over the year due to weaker demand, as reflected by poor PMI readings in August – notably the HSBC China PMI down to 47.6.

Source: Societe Generale