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Global Risk Watch

Risk intelligence e-Newsletter provides an overview of various corporate management risks from a global perspective featuring key events that occurred over the past month and need to be carefully examined for risk management purposes. The Center for Risk Management Strategy (CRMS) as part of the global Deloitte Tohmatsu Group provides you with experienced analysis on risk management and financial regulations.

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Global Risk Watch

27 April 2018  Vol.37
Jittery Emerging Economies Await a Season of Politics / Review of the Fundamental Review / US Core CPI Growth Rate the Highest in A Year
The perfect conditions that advanced economies have enjoyed may see a hint of cloud; the US, EU, and Japan have slightly felt a shift towards economic growth deceleration. The countries may, sooner rather than later, run up against a wall that limits their economic growth. Evidence of this can be seen in the US, where signs, however small, have appeared to show that wages and prices are creeping up once more.


30 March 2018  Vol.36
The Creeping Shadow of Global Discord / Commitment to code of conduct: the FX Global Code / The State of Exports to the US
Last month’s concern that wages and prices in the US would shoot up have abated somewhat. Consequently, there has been a decline in fears that the current goldilocks conditions of the bond and stock markets will collapse.
This decline was mainly thanks to wage and price numbers published in March, of which expansion rates have significantly calmed as compared to February.

28 February 2018  Vol.35
Will 2018 also be the year of fiscal policy? / Enhanced cryptocurrency regulation / Will the Big-Boned Policy point to fiscal reforms?
Some of my readers might be a little confused by this month’s title – “Will 2018 also be the year of fiscal policy?” as I had just last month I asked “Will 2018 be the year of monetary policy?” This is not necessarily me changing my mind, but instead it means that both monetary and fiscal policies are likely to be facing significant changes during this year in a somewhat combined manner.

31 January 2018  Vol.34
2018: A year of challenges for major central banks? / Towards the enhanced Pillar 2 / Recessions and the Flattening Yield Curve
As we enter 2018, interest rates in developed countries have finally started to move. 10-year US Treasury yields topped 2.6% and the rising long-term interest rates in the EU and even Japan are notable. In a robust economy such as we are currently experiencing, (and as the labor market has tightened in response) it would not have been unusual had long term interest rates started to rise long before now.

28 December 2017  Vol.33
U.S. tax cut – what it means for the economy / The real race begins now: the final agreement on the Basel III reform / Fiscal risks associated with large scale tax cuts
Stock prices continue to rise to new heights thanks to calm consumer prices and interest rates as well as a booming global economy. 3Q GDP growth was revised up in the US and Japan, confirming perfect economic conditions in many developed countries. 
3Q GDP growth was revised up in the US and Japan, confirming perfect economic conditions in many developed countries.

12 December 2017  Vol.32
The consequences of “stagnant prices” / Prescription for conduct risk / A brief look at wage trends
The stock market remains as strong as ever despite some sporadic uneasiness emerging like the sign of major correction.
Also, 3Q GDP growth in the US, EU and even Japan outperformed their potential growth rates by a large margin.
In China while the gradual deceleration of GDP growth continues, the growth rate itself remains robust thanks to strong consumer spending as well as investments into infrastructure and labour saving devices. 

6 November 2017  Vol.31
The curious strength of emerging economies / The “last few meters” towards an agreement; the Basel III reforms / Rising wages pushing inflation acceleration
All around the globe stock prices remain sky-high.
Particularly in the US, we are seeing historically high stock prices continue to climb.
Even in Japan, stock prices have attained a twenty one year high level of JPY 21,000.
The strong global economy, in particular the US economy, is one of the reasons for the current bull market, but so also is the fact that prices have not yet shown any sign of rising in the US. 

29 September 2017  Vol.30
The Chinese economy at risk of facing several structural challenges / Dilemma between transparency and liquidity / Deferring the debt ceiling issue to end of year
Personal consumption indices have shown some weakness lately in the US economy, but some price indicators have finally begun to show signs of strength and increase.
The political arena is still in “turmoil” conditions. Nonetheless, the Federal Reserve Bank (FRB) will likely begin changing its monetary policy stance (shrinking the B/S from October, possible rate hike in December). 

31 August 2017  Vol.29
The world after the coming recession / The Trump administration proceeds with financial regulatory reform / Long rain to cool down the overheating economy?
Developed countries, especially Europe and Japan, continue its strong growth streak.
On the other hand, there is no sign yet that indicates the rise in prices and wages will accelerate in the United States and Japan.
Against this backdrop, long-term interest rates that showed signs of temporary rise in July have now returned to its original low levels. 

28 July 2017  Vol.28
The background of a possible concerted policy shift by leading central banks / Japanese banks need to step up for IRRBB implementation / Normalization of monetary policies equal further yen depreciation?
The global macroeconomic and market condition in the past months had been seen as somewhat weird as the strong macroeconomic indicators and stock market movements [or a recently emerging hawkish stance of the Federal Reserve Bank (FRB)], and a bullish bond market (or a continued or even declining low interest rates) coexisted.

30 June 2017  Vol.27
The FRB as being hawkish / Banco Popular and Monte dei Paschi / Concerns loom over not only Brexit, but inflation
Risk-on trends carries on in the risk asset market.
U.S. stock prices are embracing consecutive days of record highs while an upward trend continues for Japanese and European stocks.
Despite a decision of the Federal Reserve Bank (FRB) for a rate hike, currencies of emerging economies also remain highly stable, so much so that certain countries like Russia and Brazil managed to lower policy rates.

31 May 2017  Vol.26
The dark side of the current robust economy / Investigation report on the illegal sales practices of a major financial institution / Adverse wind creeping up on the stable Asian economy
The risk-on trend is regaining momentum in the stock markets of advanced countries, which have once looked losing steam due to political turmoil, rising geopolitical risks and some uncertainty over the U.S. economy.

28 April 2017  Vol.25
Would the normalized Trump regime be able to hold back rewinding of the Trump rally? / Restoring the Glass-Steagall Act / Is the U.S. personal consumption headed to a deceleration trend?
After witnessing the strong momentum that has consecutively renewed record highs, the U.S. stock market has finally come to a standstill.
This is mainly due to the revoked submission of the Obamacare alternative bill, which signalled a clear red card for the Trump regime whose capability in policy execution has already been questioned.

29 March 2017  Vol.24
Are we better to focus on the impacts of re-emergence of “left” rather than “far-right” in Europe? / The prospects of the global financial regulation / ECB’s stance and the tone of prices
The global economy has been notably robust.
A tone for inflation has been reinforced in the advanced countries, and previous dovish modes have been changing in monetary policies as evidenced by the first FRB (Federal Reserve Board) interest rate hike of this year.
As a result, interest rates are gradually rising.

28 February 2017  Vol.23
Challenges Facing Post-deflation Monetary Policies / The U.S. Presidential Executive Order and Global Financial Regulation / Reconsideration of Primary Balance Surplus Target
The expansionary fiscal policy being proposed by the new Trump administration is about to change a major trend that has dominated the global economy to date.
In the face of deflation, many of the advanced economies have been dependent on “ultra” loose monetary policies.
They are “ultra” because, within the lower limit of 0% policy rates, many countries introduced unconventional measures such as quantitative easing and negative interest rates.

31 January 2017  Vol.22
Will a reality TV show becomes your new reality? / The extension of Basel III agreement and impact of new administration in the US / US corporate profit and the strong dollar
The "Trump rally" is still going on in the markets and has yet to show signs of cooling down. In the meantime, Donald Trump took the oval office as the 45th President of the United State.
The policy platform (or no policy) of new Trump administration has obscurely but little by little taken into a shape through appointment of key cabinet members and his messages through Twitter account.

28 November 2016  Vol.21
Premonition of ‘Inflation’ / Basel Committee and the Prospect of International Regulation / Will the Market Goes Back Where it was at the Beginning of This Year?
The "Trump rally" is still going on in the markets where the US dollar has been further strengthened, stock prices have been further boosted and bond prices have been further down in advanced nations.
Actually, the US stocks have recently renewed its new historical peaks and also Japanese stocks have reached a high for the year in the midst of the plummet of the Yen value against the US dollar.

2 November 2016  Vol.20
“Winners” and “Losers” in the New Trump Presidency / Financial Regulation Policy of the Trump Regime / Long-term Interest Rate Control
While the world has become increasingly accustomed to “unexpected” events, with this month’s event, the “expected world” may itself have started to been seen collapsing.
Mr. Trump’s victory in the U.S. presidential election was astonishing enough to provoke this sense of uncertainty.

28 October 2016  Vol.19
Narrower Paths for Major Central Banks Now Face the Risk of Being Clogged by Another European Shock / Consequences of Endless Misconduct by Major Financial Institutions / Whether Inflated China Debt is Close to Crisis / Emerging Countries Business Risk Series -Cambodia-
The global market has seen some turbulence but generally remained stable as the Bank of Japan’s announcement of “new framework” of its monetary easing and the US FRB’s (Federal Reserve Board) decision to delay the rate hike were more or less in line with market expectations.

29 September 2016  Vol.18
Global Financial Market is in a “lull” before facing a possible “super typhoon” / Signs of Conversion from Capital Oriented Regulations to Best Practice Oriented / Change in the Shape of the Yield Curve
The calm global financial market we discussed in August has continued into September.
Of course, it is hard to predict the outcome of the US FRB’s (Federal Reserve Board) FOMC (Federal Open Market Committee) and Bank of Japan’s Monetary Policy Statement which are scheduled for 20th or 21st of September, but if the outcome stays in line with market expectations, it is possible for the “lull” market to continue for a while.

1 September 2016  Vol.17
Central Banks are Faced with Deepening Agony as Monetary Policy Reaches its Limits / Conduct Risk Measures at a Crossroads / Coping with China’s overcapacity problem

At the beginning of July, the global financial market saw numerous events such as Brexit referendum in the UK and attempted coup d’état in Turkey.
Since then, the market managed to overcome the EU-wide stress test results and financial crisis in Italy, whilst steady growth of employment figures have also been confirmed in the US.
Meanwhile, for another interest rate hike the US FRB (Federal Reserve Board) remains cautious, and this has spurred a Gordilocks situation in the global market.

29 July 2016  Vol.16
Overheating Financial Market Brought on by a ‘Fearful’ Spate of Stress Events / The Impact of Strengthening Regulations in Asset Management Industry to be Noted / After the Brexit, Conflicting Signals of Uncertainties in Stock and Bond Markets
The UK referendum held on June 23rd resulted in surprise for the market with the EU-exit camp capturing the majority.
Further, as soon as the global market finally began to restore some stability from the financial chaos caused by the referendum result, a large-scale terrorist attack turned up with a truck running into a crowd of people on the Bastille Day celebration in Nice, France, and this was followed by an attempted coup d'état in Turkey.
The world has indeed seen a turbulent month.

30 June 2016  Vol.15
Concerns for Brexit Reveals some Weaknesses in the Japanese Economy / Moving from Increased Regulation to Emphasizing Supervision / Looking at State-owned Enterprise Reforms from Fixed Asset Investment

The global markets have continued to keep its composure.
Compared to last month, the prospects for the US and Chinese economies have somewhat exacerbated, but this has further confirmed the outlook of interest rate hike postponement by the FRB (Federal Reserve Board) in the US.
This factor, combined with a steady crude oil price, actually laid out a rather “friendly” environment for the global assets market and foreign exchange markets of emerging economies.

20 May 2016  Vol.14
Widening Populism is Becoming an Annoying Imbalance for World Economy / Panama Papers: a New Seed of Headache for the Financial Services Industry? / Another Sign of Real Estate Bubble in China

The global markets have continued to keep its composure.
Compared to last month, the prospects for the US and Chinese economies have somewhat exacerbated, but this has further confirmed the outlook of interest rate hike postponement by the FRB (Federal Reserve Board) in the US.
This factor, combined with a steady crude oil price, actually laid out a rather “friendly” environment for the global assets market and foreign exchange markets of emerging economies.

28 April 2016  Vol.13 (1 year anniversary)
Japan’s Economy Struggling in the Phase of Global Risk-Off Holidays / Perhaps the Financial Regulation Strengthening has Gone Too Far? / Uncertainties Toward Abenomics in the Future

Greetings from the Center for Risk Management Strategy, this is Tsuyoshi Oyama. I would like to thank you for your subscriptions to our Global Risk Watch Newsletter.

There has been a marked increase in the number of subscribers to our newsletter from one year ago. Subscribers (both English and Japanese combined) is nearly 4 times more than we had begun.

I believe this highlights the heightened interests in the evolving themes for risk management and financial regulations. Further, I would like to mention that we have expanded our coverage of topics to reflect your feedbacks. In recent editions, for instance, we have discussed geopolitical risks and Fintech.

Looking back, this year has been characterised by events of great uncertainties. We have seen the signs of economic slowdowns in China and other emerging markets, and the fall in the oil prices could not have escaped our attention. Europe has been confronted with the rising tide of migrants whilst coming under attacks from terrorism. The FRB’s decision to raise the interest rate has stirred discussions globally and, at home in Japan, we have witnessed further appreciation of yen and the introduction of negative interest rate. It is in the backlash of these events that we expect further economic uncertainties, casting shadows over macroeconomic health and social imbalances.

We will continue to bring you up to date with the key developments of importance to your organization, as well as broadcasting our points of view on risk management and regulatory topical issues.

As ever, I look forward to receiving your valuable insights and feedbacks to our newsletters.

25 March 2016  Vol.12
A Holiday for Global Risk-Off / The Direction of Conduct Risk Management Framework / Concerns for Economic Downturn in the US has Slightly Subsided

The risk-off sentiment that rocked the global markets since the start of the year has finally begun to ease off - thanks to a series of strong US economic indicators which corrected a prevailing pessimistic view, a stronger stance taken by Chinese authorities towards stabilizing their economy, and bottoming out of crude oil prices.

24 February 2016  Vol.11
Worsening Allergies to “Uncertainty” in the Global Financial Marketsrt / What are the Consequences of Regulatory Reforms on the Market Risk? / Significantly Revised US Monetary Policy Outlook

Since February, several events in matured economy -- particularly Japan and Europe -- has shaken the global financial markets and thereby taken over the media’s front page from economic disarray in China and emerging countries.
Actually, the recent stock price fall and exchange rate fluctuations have been manifested the worst way in Japan.

27 January 2016  Vol.10
When Stopgap Measures in Emerging Countries Fall Apart / Movement hinting to expand the regulatory scopes / Emerging Countries Once Again to face Strong Headwinds

It was just last month when the global financial market has managed to absorb the shocks from the first US interest rate hike in nine and a half years.
Entering into the New Year, however, the market has been faced with deep turmoil as the if monkey, or this year’s Chinese zodiac animal bounces around in the trees.
One of the triggers is an outright failure of the communication policy over currency devaluation in China.

24 December 2015  Vol.9
The World Economy is Frightened by The Policy Brake Which Might Further Harden Its Uphill Climbing / Loosening Banking Regulations, and Strengthening of Non-bank Regulations? / Are Rise of the US high-yield bond yields, an Indicative Warning for the Stock Market?
FRB’s interest rate hike has finally entered the countdown phase, and the focus has now shifted to the pace in rate hikes during 2016.
Meanwhile, the global financial markets saw volatilities rise once again from a temporary lull. 

27 November 2015  Vol.8
Temporary Lull? Before Another Storm in the Financial Market / The Final Phase? Framework to Resolve “Too Big to Fail” / Likelihood of December Interest Rate Hike Reemerged
The difference in opinions within the FRB among its FOMC members seem to be overcome only to conclude a December rate hike.
Indeed, since the FOMC statement in October, FRB Chair Yellen, Vice-Chair Fisher and New York Fed President Dudley’s comments, as well as brighter employment indicators published in early November sent a strong signal that an interest rate hike would occur soon. Meanwhile, the FX market in emerging markets saw a strange moment of tranquility. 

22 October 2015  Vol.7
Deja vu? An Increasing Dovish Stance of Monetary Policy in Advanced Economies / A Sign of Globalization of the American Way of Fund Regulation / Signs of Economic Deceleration in the US

Although the postponement of an interest rate hike in the US has brought us a brief moment of relief, Chinese and mostly resource-rich emerging countries’ economies seems to be entering into the ‘second stage’ of economic adjustment after decelerating economic growth.
This stage is represented by mounting downward pressures arising from capital stock and employment adjustments. 

30 September 2015  Vol.6
Government's Governance is Tested in the Emerging Economies / Derivative Regulatory Reforms Enter in a New Stage / A Strong Headwind Facing the Emerging Economies / Global Increase of Muslim Population

The global market has continued to reacted helplessly to various sluggish economic numbers coming out from China.
Of particular concern is a robust sell-off of RMB that had been expected to be only stronger before, thereby forcing authorities to intervene in the forex market to buy up RMB against the US dollar. 

31 August 2015  Vol.5
Chinese Economy – Becoming Uncontrollable? / Risk Appetite Framework is re-emphasized / Creeping Deflationary Risk in Chinese Economy / Increasing Global Population and its impacts

While the turmoil looming over the situation in Greece has momentarily subsided with the decision of additional financial assistance by the European Union, conversely, “China shock” has increasingly weighed on the global economy, with market participants everyday fretting over ‘how far has the Chinese economic growth actually decelerated, or ‘how big is its rippling effect on emerging economies, particularly in Asia?’

28 July 2015  Vol.4
Shaken by Greece and China / Authorities’ Stance on Conduct Risk became more and more clear / The UTokyo Daily Price Index: Rising price of Household and Miscellaneous Goods

A tumultuous month has passed.
The turmoil in Greece and the collapse of the Chinese stock markets have overshadowed the recent recovery in the advanced economies, thereby changing the tide of world economies from a risk-on to a risk-off trend.
The market appears to be regaining its composures thanks to the approval of austerity measures in the Greek Parliament, and desperate stock price-keeping-operations (PKO) by the Chinese authorities (as of July 16th).
The question remains, are these ‘shocks’ sparked by Greece and China just a transient effect or will they have longer lasting repercussions?

26 June 2015  Vol.3
Has the prospect of ‘Secular Stagnation’ receded? / Again, Critical Regulatory Reforms for the Management of Japanese Bank

In the last month’ volume, we have pointed out the synchronization of bond and equity markets, both of which have been overheated thanks to two market prerequisites that (1) single resilient US economy would lead the world economy, and: (2) Quantitative easing (QE) due to long-standing disinflation in EU and Japan would continue for a while – a wobble in both prerequisites resulted signs of fluctuations in both asset markets.

26 May 2015  Vol.2
Unrest in the Financial Assets Market / Excessive and Insufficient Regulations
Since the second half of last year, we have observed a little strange synchronization of bond and equity markets, both of which have been overheated thanks to two market prerequisites that (1) single resilient US economy would lead the world economy, and: (2) Quantitative easing (QE) due to long-standing disinflation in EU and Japan would continue for a while.

13 May 2015  Vol.1
Yellow light for US economy? / High alert for liquidity illusion

Since the second half of last year, the trend of world economy and finance mainly reflected the following factors: (1) resilient US economy: (2) QE and gradually recovering EU and Japanese economy on the backdrop of (1): (3) structural slowdown of Chinese economy, and: (4) intensified geopolitical upheaval in Ukraine / Middle East. (1) & (2) with global overheated asset market and the expectation of interest rate hike in US will eventually lead to capital outflow in the emerging market. Meanwhile, (3) led to decline in crude oil price and economic slump of emerging countries (especially resource- rich countries).
Thus, the macro-trends of (1)-(3) have set the tone of world economy even though, at times, escalating geopolitical upheaval could influence crude oil price and the outlook of EU economy in the opposite directions. 

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