Unigestion’s Nowcaster indicators show inflation is on its way

Unigestion, the boutique asset manager with scale, reports that its Nowcaster indicators are highlighting stronger inflation and growth around the world.

Amidst market excitement around the possibility of an imminent Fed rate hike, Unigestion’s Nowcasters are pointing to stronger inflation and growth – with the overall trend moving beyond reflation to inflation. The stars are aligned for growth to make a longer-lasting appearance around the world.

Florian Ielpo, Head of Macroeconomic Research, Cross Asset Solutions, explained: “Why do we think that we are about to have a persistently higher level of growth? The simple answer is that the synchronicity of the growth and inflation improvement across the world will make this improvement longer lasting. Then, we expect there to be fiscal stimulus programmes, which should in turn lead to a normalisation of investment across the developed world. What is unusual in the current economic cycle is that the significant deleveraging by corporates and certain governments recently has kept investment subdued at best. This phenomenon has held back the US and European economies, which partly explains why the Fed kept on postponing its rate hikes. Now, with US consumer confidence having reached high levels, fiscal policy could be the spark needed to move GDP growth to higher levels.”
“Given this backdrop, we favour equities over credit and government bonds”, concluded Ielpo.
Unigestion’s indicators were built to provide meaningful information about current economic conditions to better inform asset allocation. This Nowcasting technology differs to conventional forecasting tools by putting an emphasis on current economic conditions – that are decisive to the investment world – while being less uncertain than forecasts.
Whilst Nowcasting is not a new concept, in increasingly uncertain economic times, research departments of central banks are heavily investing in Nowcasting technology to provide a more accurate measure of current economic conditions than the multitude of forecasts, with widely ranging horizons and often relying on data published at least a month after the quarter it pertains to, issued by international organisations.
Unigestion’s Nowcasters are designed to identify the three main market risks to any portfolio – recessions, surprisingly high inflation and market stress. These three indicators (growth, inflation and market stress) are constructed by aggregating relevant macro data series corresponding to each phenomenon, selected by team members’ experience as economists*.

*Nowcaster construction:
Growth Nowcasters – country-level indicators currently covering 85% of the world’s GDP comprising the
following components:
– The housing sector
– Durable goods consumption
– Production expectations
– Non-durable goods consumption
– Employment market
– Financing conditions for investments
– Investment perspectives
Inflation Nowcaster – only developed countries at the moment (US, Canada, the UK, the Eurozone, Japan
and Switzerland)
– Imported inflation
– Input price inflation
– Wage inflation
– Supply-side inflation
– Expected inflation
Market stress Nowcaster – incorporates three components:
– Liquidity
– Volatility
– Credit spreads