Macro puzzle has pieces that do not fit – SocGen

Societe Generale has warned investors that there are pieces of the current macroeconomic puzzle that do not fit.

Macro puzzle has pieces that do not fit – SocGen

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The bank’s cross asset research team said there are elements of the consensus view on the global economy that it sees as questionable, based on its own analysis.  

Firstly, SocGen said  consensus and market pricing “reassuringly” sees oil at close to $50 a barrel one year out, however a simple correction to this suggests that the consensus for dollar appreciation is more consistent with oil at $30 a barrel.

While the team acknowledged that supply and demand are the biggest factors in the oil price they warned that dollar strength could weigh on oil more than people think, and despite some recent concerns on the supply side the market remains oversupplied.

The cross asset team also noted that equity markets have “disconnected somewhat” from downward revisions to outlook for the US economy. They said it seems that the equity market believes either economists are too downbeat on growth or that hunt for yield will continue as suggested by the very limited Fed tightening still priced into bond markets.

The consensus expectation for higher bond yields but significant declines in real terms was another element SocGen questioned. The team pointed out that while consensus growth expectations have tracked lower, PE ratios have remained firm and the “hunt for yield seems to be the keystone.”

Finally, with the next Eurogroup on 24 May approaching SocGen noted that the consensus is much more bearish on the growth outlook for Greece than the Commission.

The question remains as to what the IMF will say, and it has been “very quiet” recently according to SocGen. For now it seems likely that policy of “pretend and extend” will continue, the bank noted. 

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