• A decade after the collapse of Lehman Brothers sparked a plunge in markets and a raft of emergency measures, strategists at the bank have created a model aimed at gauging the timing and severity of the next financial crisis. And they reckon investors should pencil it in for 2020.
The good news is, the next one will probably generate a somewhat less painful hit than past episodes, according to their analysis. The bad news? Diminished financial market liquidity since the2008 implosion is a “wildcard” that’s tough to game out.
The JPMorgan model calculates outcomes based on the length of the economic expansion, the potential duration of the next recession, the degree of leverage, asset-price valuations and the level of deregulation and financial innovation before the crisis. Assuming an average-length recession, the model came up with the following peak-to-trough performance estimates for different asset classes in the next crisis, according to the note.
“Across assets, these projections look tame relative to what the GFC delivered and probably unalarming relative to the recession/crisis averages” of the past, JPMorgan strategists John Normand and Federico Manicardi wrote, noting that during the recession and ensuing global financial crisis the S&P 500 fell 54 percent from its peak. “We would nudge them all at least to their historical norms due to the wildcard from structurally less-liquid markets.”
JPMorgan’s Marko Kolanovic has previously concluded that the big shift away from actively managed investing -- through the rise of index funds, exchange-traded funds and quantitative-based trading strategies -- has escalated the danger of market disruptions. He and his colleagues wrote in a separate note Monday of the potential for a future “Great Liquidity Crisis.”
• The current world trade system is not perfect and China supports reforms to it, including to the World Trade Organization, to make it fairer and more effective, Beijing’s top diplomat said.
• France’s economy is set to grow 1.6 percent annually through to 2020 as unemployment steadily falls, the central bank forecast on Friday, trimming slightly its previous growth outlook.
The Bank of France had previously forecast growth of 1.8 percent in 2018 and 1.7 percent in 2019, but said the first half of this year was weaker than anticipated and foreign demand was now expected to be softer than previously expected next year.
The outlook also indicated France is likely to lag the broader euro zone after the European Central Bank forecast on Thursday that the bloc would grow 2.0 percent this year, 1.8 percent in 2019and 1.7 percent in 2020.
“France is still lagging on growth because France is still lagging on reforms,” Bank of France governor Francois Villeroy de Galhau told Europe 1 radio.
• U.S. Ambassador to the United Nations Nikki Haley accused Moscow on Thursday of seeking to cover up breaches of U.N. sanctions on North Korea by Russians after it pushed for changes to an independent report on sanctions violations.
The U.N. Security Council will meet on Monday over the implementation of sanctions on North Korea at the request of Washington, the U.S. mission to the United Nations said.
• Japan likely posted another month of only modest export gains in August amid rising worries over global trade friction, a Reuters poll showed on Friday.
Exports were seen rising 5.6 percent in August from a year earlier, the poll of 16 economists found, after a gain of 3.9 percent in July.
Imports likely grew 14.9 percent last month due to higher oil prices, which would result in a trade deficit of 468.7 billion yen ($4.19 billion) for the month, the poll showed.
• North and South Korea opened a liaison office on the North’s side of their heavily militarized border on Friday, setting up a permanent channel of communication as part of a flurry of efforts to end their decades old rivalry.
• Oil on Friday clawed back some of its losses from the previous session, when prices fell the most in a month, with concerns about supply countering worries that emerging market crises and trade disputes could dent demand.
Brent crude was up 3 cents at $78.21 a barrel by 0634 GMT, after falling 2 percent on Thursday. The global benchmark rose on Wednesday to its highest since May 22 at $80.13.
U.S. West Texas Intermediate (WTI) futures were up 18 cents, or 0.2 percent, at 68.76 a barrel, after dropping 2.5 percent on Thursday.
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