Three potential Black Swans for 2018
By Sonia Rach, 27 Dec 17
Global financial markets have enjoyed a sustained period of remarkable calm, but will that continue into 2018? AJ Bell’s investment director Russ Mould proposes three potential ‘Black Swan’ events that could surprise markets and taint the year ahead.
The unemployment rate fell marginally to 4.3% in the three months to October 2017, the joint lowest unemployment rate since 1975 according to the Office for National Statistics (ONS).
These rates are also at multi-decade lows for the US (4.1%), Germany (3.6%) and Japan (2.8%), respectively.
However, Mould said the market is trying to “have it both ways” by buying into the global reflation/growth narrative and doing so without pricing in any risk of inflation.
He added: “If tight labour markets do finally prompt higher wages and a wider, faster advance in broad inflation readings then there could be trouble ahead for two reasons.
“The first is companies will have to invest in fresh capacity, or more staff, or higher pay, or all three. Corporate profit forecasts do not factor in such a rise in costs, especially in the USA, where investors are paying what is a high price by historic standards for what are historically lofty profits and margins – valuations leave little margin for error.
“The second is that central banks may start to tighten policy more quickly than the markets currently think.”