BlackRock Investment Institute | October 2021

Macro dashboard

  • Oct 14 – Our G7 Growth GPS – our proprietary gauge of activity relative to consensus expectations – has eased further in recent months as the economic restart matured. The absolute level of the GPS for the euro area and UK are relatively high compared with the U.S., reflecting some catch up on the restart.

    Oct 14 – Our G7 Growth GPS – our proprietary gauge of activity relative to consensus expectations – has eased further in recent months as the economic restart matured. The absolute level of the GPS for the euro area and UK are relatively high compared with the U.S., reflecting some catch up on the restart.

    Given that the Growth GPS is designed to track the near-term activity outlook, it lags 12-month-ahead consensus expectations. But the outright levels give color on the speed of the restart and pace of growth, still well above pre Covid-19 trends in many economies. See the sparkline charts for historical detail.

    Financial markets are reflecting some nervousness about higher inflation, sparking a retreat in global equities from their all-time highs in September. We have seen our financial conditions indicators pull back from their peaks, led by the U.S. Yet overall financial conditions remain very supportive of growth.

    Recent inflation data continue to be noisy, now influenced by higher oil prices and the crunch in some energy markets such as natural gas. Our Inflation GPS focuses on core inflation and suggests that there are now downside risks to inflation in many G5 countries. The temporary factors pushing up inflation during the restart this year are not what underpins our medium-term expectation for a higher inflation regime.

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Growth GPS vs. consensus

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 traditional economic data. How it works: read more

For G7 countries the GPS shows where the 12-month consensus GDP forecast may stand in three months’ time for each economy. The yellow line shows the current 12-month economic consensus forecast for each economy, based on forecasts reported by Consensus Economics. 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.

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.

Sources: BlackRock Investment Institute and Consensus Economics, . Notes: The GPS shows where consensus GDP forecast may stand in three months' time. The yellow line shows the current 12-month economic consensus forecast, as measured by Consensus Economics. Forward-looking estimates may not come to pass.

Growth GPS trends since 2015

Sources: BlackRock Investment Institute and Consensus Economics, . Notes: The GPS shows where consensus GDP forecast may stand in three months' time, except in China which uses the Caixin composite Purchasing Managers' Index. Forward-looking estimates may not come to pass.
 

BlackRock Financial Conditions Indicator

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, euro area 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. For full details, see A tale of tighter conditions.

Sources: BlackRock Investment Institute and Bloomberg, . Notes: The green line shows the rate of GDP growth implied by our financial conditions indicator (FCI), based on its historical relationship with our Growth GPS. The BlackRock Growth GPS (orange line) shows where the 12-month forward consensus GDP forecast may stand in three months’ time. The FCI inputs include policy rates, bond yields, corporate bond spreads, equity market valuations and exchange rates. Forward-looking estimates may not come to pass.
 
 

BlackRock Inflation GPS

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 shows where core consumer price inflation may stand in six months’ time for each economy. The yellow line shows the actual reported core consumer price inflation for each economy.

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.

Sources: BlackRock Investment Institute and Consensus Economics, . Notes: The inflation GPS shows where core (excluding food and energy) consumer price inflation (CPI) may stand in six months' time. Forward-looking estimates may not come to pass.

Inflation GPS trends since 2015

Sources: BlackRock Investment Institute and Consensus Economics, . Notes: The inflation GPS shows where core (excluding food and energy) consumer price inflation (CPI) may stand in six months' time. Forward-looking estimates may not come to pass.
 
 

BlackRock Trade Nowcast

Trade tensions are likely to be a persistent concern for markets, in our view. To get a live read on how trade dynamics are evolving in the face of protectionism, we have developed a real-time indicator of trade growth. The reported global trade data typically have a lag of one quarter. Our trade nowcast incorporates live information from 50 publicly available time series that are related to international trade, including business surveys, timely Asian trade data, freight volumes, technology sector activity and capital spending orders. We aggregate this information to get a glimpse on the near-term outlook for trade growth. For full details, see The danger of elevated trade frictions
Sources: BlackRock Investment Institute, CPB World Trade Monitor, US Bureau of Economic Analysis and World Steel Association, with data from Refinitiv Datastream, July 2021. Notes: The chart shows the three-month annualised percentage change in real global goods trade volume (in yellow) and a real-time "nowcast" (in orange) of where that trade volume may stand in three months' time. The nowcast uses principal component analysis based on 50 indicators, such as exports from South Korea and Taiwan, German manufacturing surveys and the export order components of global PMIs, to track global trade activity. Forward-looking estimates may not come to pass.
 

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