null Mellon Webex Series: Quarterly Economic Outlook October 2019
Macro & Market

Mellon Webex Series: Quarterly Economic Outlook October 2019

00:34:43
Macro & Market Video
October 2019
Mellon Webex Series: Quarterly Economic Outlook October 2019

In this quarterly update on economics and financial markets, Chief Economist Vincent Reinhart explains his global economic outlook. Specifically, global manufacturing is in recession because of heightened uncertainty about trade policy. However, the US is relatively better positioned because trade policy matters less to us than to our trading partners. As a result, the Federal Reserve needs to ease less than commonly believed in order to support sustained economic expansion and return inflation to its 2 percent goal, which has significant consequences for many important asset classes.

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These risks are magnified in emerging markets and countries since they generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. The strategy may use alternative investment techniques (such as derivatives) which carry additional risks. The low initial margin deposits normally required to establish a position in such instruments may permit a high degree of leverage. As a result, a relatively small movement in the price of a contract may result in a profit or loss that is high in proportion to the amount of funds actually placed as initial margin and may result in a disproportionate loss exceeding any margin deposited. Transactions in over-the-counter derivatives may involve additional risk as there is no exchange on which to close out a position, only the original counterparty. Such transactions may therefore be difficult to liquidate, to value, or to assess the exposure. The strategy may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments.

The Firm sector models use regression analysis such as multi-linear data inputs, panel data, and probit function. Variables that the models take into account are: PMI, US Core CPI, Fed Fund rate, 3-month Libor, 3-month T-bill rate, foreign purchases of US Government bonds, Commodity Indices , Capacity Utilization, Deficit as a percent of GDP, S&P 500 return, Chicago Fed Index, IGOV, US output gap, Europe Core CPI, US unemployment rate, EU unemployment rate, and slope of the yield curve. Assumptions made are that samples are representative of the population for the inference prediction; regression residuals are approximately normally distributed, uncorrelated, and have constant volatility; no high degrees of multi-colinearity in the independent variables; variable sensitivity remains constant in the short term; and no structural shift in the short term.

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