BLACKROCK INVESTMENT INSTITUTE | MARCH 2019

BlackRock macro dashboard

  • Commentary

    April 16 – Our G7 Growth GPS has been stable for a couple of weeks, having picked up modestly from the mid-March lows. It remains nearly 25 basis points lower so far this year, implying annual GDP growth closer to trend levels just below 2%. The consensus view still appears too cautious, we believe.

    The France growth GPS was the biggest mover among the G7, falling six basis points from the prior week after February industrial production data. The GPS for Italy rose the most, up four basis points on firmer big data on household sentiment.

    Our G3 financial conditions indicator (FCI) has jumped just over 30 basis points in GDP terms from the three-year low in December, yet at 1.9% is well below the implied growth levels that prevailed last year. This suggests that the most extreme growth risks from tighter financial conditions have dissipated but conditions have not eased enough to spur a growth rebound to levels seen in the past two years.

    The Inflation GPS still points to a diverging inflation outlook. The US signal suggests core inflation should remain close to the Fed’s 2% target. But the eurozone inflation outlook looks more subdued, with core inflation likely to rise from current exceptionally low levels but still fall short of the ECB’s target. In Japan, the GPS signals limited upside in coming months at a level that remains far short of the BoJ target.

     

 
Our BlackRock financial conditions indicators (FCI) give a forward view of where our Growth GPS may head and are expressed in GDP terms. We improve on existing FCIs by stripping out financial market pricing that is tied to the growth outlook rather than risk premia. How it works: read more

The BlackRock G3 Growth GPS shows where the 12-month forward consensus GDP forecast for the US, eurozone and Japan may stand in three months’ time. The FCI shows the rate of G3 GDP growth based on its historical relationship with our Growth GPS. The FCI inputs include policy rates, government bond yields, corporate bond spreads, equity market valuations and exchange rates. The FCI has historically led changes in the Growth GPS.

Financial asset prices can both drive and be driven by the growth outlook. This problem of endogeneity (or reverse causation) means that taking a weighted average of unadjusted market prices – as some commonly used FCIs do – can give a misleading picture of financial conditions. We adjust the inputs into our FCIs to keep only the portion of financial asset prices such as real term premia that drive, rather than are driven, by growth news. We find that this improves our ability to estimate future growth.

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Regional comparison
The BlackRock Growth GPS aims to give a read on the growth outlook for G7 economies and China. It combines new sources of information – including internet searches and text mining of corporate calls – as well as a daily nowcast of traditional economic data. How it works: read more

For G7 countries the GPS (the green line in the charts below) shows where the 12-month consensus GDP forecast may stand in three months’ time for each economy. The blue line shows the current 12-month economic consensus forecast for each economy, based on forecasts reported by Consensus Economics. The nowcast (orange line) shows the GDP forecast based on our composite of traditional macroeconomic indicators. With the China GPS, we create a similar gauge of the three-month growth horizon but focus on the Caixin/Markit composite PMI because China’s official GDP target guides such forecasts and makes them less reflective of investor views on the economic outlook. Click the country flags to toggle between the nine countries we track. Click inside the charts to zero in on any time period.

The GPS builds on existing nowcasting models that exploit the information from dozens of macroeconomic indicators to forecast GDP growth – including realized activity, employment, sentiment and survey data. It draws on a wider set of information sources by incorporating proprietary big data insights from BlackRock’s Systematic Active Equity team. These include micro insights, such as consumer behavior captured through internet searches, and macro insights such as country business sentiment measured through the text-mining of corporate managers’ conference calls. Other big data inputs include online job postings, inflation chatter, satellite images, e-invoicing and traffic patterns.

The BlackRock GPS was developed by BlackRock Investment Institute and Systematic Active Equity. For full details, see Introducing the BlackRock GPS.

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United States
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China
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Eurozone
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Japan
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Germany
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France
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UK
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Italy
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Canada
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Australia
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Spain
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The BlackRock Inflation GPS aims to give a read on the outlook for core inflation in major economies. It combines new sources of information – text mining of mentions of inflation – as well as a unique daily nowcast of inflation based on a wide variety of price and wage data. How it works: read more

Our inflation GPS (the green line in the charts below) shows where core consumer price inflation may stand in six months’ time for each economy. The blue line shows the actual reported core consumer price inflation for each economy. Click the country flags to toggle between the nine countries we track. Click inside the charts to zero in on any time period.

The GPS models the relationship between rates of core inflation and a broad set of economic indicators including measures of slack, inflation expectations, and other inflation-related data such as business surveys and wages. It also incorporates a proprietary big data signal from BlackRock’s Systematic Active Equity team measured through text-mining of commentary on inflation.

The BlackRock GPS was developed by BlackRock Investment Institute and Systematic Active Equity. For full details, see Introducing the BlackRock GPS.

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United States: core CPI
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United States: core PCE
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Eurozone: core HICP
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UK: core CPI
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Japan: core CPI excluding tax
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Canada: core CPI
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