Navigating Market Swings

Insights from the J.P. Morgan Global Markets and Risk Management Symposium

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March 14, 2019

Optimism confronted healthy skepticism at the J.P Morgan Global Markets and Risk Management Symposium in Miami, where 100 corporate clients gathered to discuss the state of financial markets amidst geopolitical tensions and slipping global growth.

“The two-day conference featured Research analysts, traders and salespersons who provided granular insight into economic data and market structure for corporate clients who hedge exposures to swings in global markets – such as fluctuations in currencies, commodities, interest rates and equities,” said Brad Tully, head of North America Corporate Derivative Marketing, who organized the conference.

Companies in attendance hailed from diverse industries ranging from consumer and industrial corporates to energy and technology firms.

Dollar Bears

In his opening remarks, Tully shared results from a survey conducted with corporate client attendees beforehand. A portion of participants who responded held a bearish outlook for the U.S. dollar, with 75% expecting the greenback to move lower.

“I have been a dollar bear and I remain a dollar bear,” said Claudia Jury, global co-head of Currencies and Emerging Markets Trading, speaking on a panel in front of chief financial officers, treasurers and finance managers. “But it is important to compartmentalize views based on different time horizons. Moreover, when thinking about foreign exchange markets at the moment, you need to distinguish between emerging markets (EM) versus developed markets. We continue to believe that higher yielding EM FX will outperform G-10 FX.”

Nearly 75% of the respondents believed that the USD is biased weaker for the remainder of the year

A New Narrative

In a new era of global uncertainty, talk of a looming recession was another discussion point – a significant change in narrative from last year’s conference.

“Last year we were up here on this stage discussing synchronized growth and bullish markets,” said Kim Hernas, head of North America Corporate Interest Rates Derivative Marketing. “This year there was more focus on whether we are going to see recession – in the U.S. or globally – and when it’s going to kick in.”

According to Thomas Pluta, global co-head of Rates Trading, U.S. interest rate markets are almost fully pricing in a 25 basis points rate cut by the end of 2020.

“While it is reasonable to consider a risk of recession given forward-looking economic indicators, I think the rates market is getting ahead of itself by pricing in a cut by 2020,” said Pluta. “Many of the factors that were weighing on sentiment in the fourth quarter have reversed sharply – specifically the direction of equity markets and other risk assets, the government shutdown and the U.S. trade dispute with China.”

Chairman and CEO Jamie Dimon discussed this shift in market sentiment in a keynote interview with Jury, outlining a more positive outlook: “I think the market opened up in January, took a deep breath and realized that wages are still going up, jobs are still going up, homes are still being built and cars are still being bought,” said Dimon. “I think we have decent growth and the Fed is taking a little bit of a pause – and it may be just a pause – we’ll have to wait and see.”

quote Created with Sketch. Last year we were up here on this stage discussing synchronized growth and bullish markets. This year there was more focus on whether we are going to see recession – in the U.S. or globally – and when it’s going to kick in. Kim Hernas Head of North America Corporate Interest Rates Derivative Marketing, J.P. Morgan

Global Growth, the Federal Reserve and Geopolitics

In research published prior to the conference, J.P. Morgan's chief U.S. economist Michael Feroli dialed back his call for four rate hikes to one given the Fed's dovish pivot at the January Federal Open Market Committee (FOMC) meeting, which he believes could be the beginning of a policy shift in its thinking of inflation objectives.

This shift in the Federal Reserve’s stance underpinned discussions in over a dozen panels corporations attended, which included a chat with head traders Jury, Pluta and Jeff Katz addressing the risk horizon for global commodities, currencies and U.S. interest rates. Katz is global head of Commodities Trading.

“Jeff, Claudia, and Thomas outlined some pretty complex topics – geopolitical, market conditions – and distilled them in a way where our corporate clients could consume the information and apply it to the way they think about their business,” said Librada Killian, head of North America Corporate FX Derivative Marketing.

Former U.K. Prime Minister Tony Blair concluded the conference with Tully, shedding light on developments across the Atlantic as the U.K. grapples with Brexit.

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Benchmark Reform: Moving Away From LIBOR

Discussions also revolved around accounting, cash and investing from a treasury perspective and changes in market structure – notably on dealing with one of the biggest challenge facing the finance industry – the transition away from the London Interbank Offered Rate (LIBOR).

“One of the topics we spent a lot of time on, both onstage and with our clients, was the transition from LIBOR,” said Tully in remarks after the conference. “A number of clients have asked to engage further on the topic in terms of preparation at their companies in addition to views from J.P. Morganon how we are handling the move.”

The Global Markets and Risk Management Symposium ran in conjunction with two other J.P. Morgan conferences that assembled over 1,000 participants from across the world: the Global Emerging Markets Corporate Conference and the High Yield and Leveraged Finance Conference.

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