Black swans swarming as busy June gets under way

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The Group of Seven gathering wrapped up last week with Japanese Prime Minister Shinzo Abes warning about the dangers of a new Lehman-style collapse being downplayed by his colleagues. Now this week come renewed concerns from French banking giant Societe Generale about some looming black swans on the horizon.


8 of past 10 Junes have been rough: And in the shorter term, brace yourself for a potentially volatile month ahead. June historically can be the worst for financial markets. Eight of the last ten June’s has been down, Martin Currie fund manager Michael Browne told CNBC. It is the worst month of the year in the last decade, not by a little bit but by an absolute street.

And UBS just outlined some major events coming fast and furious in June that could unsettle markets. The Swiss banks list includes three major central-bank meetings (the European Central Bank, the Federal Reserve, and the Bank of Japan), along with key votes in Europe: the United Kingdoms June 23 Brexit referendum on whether to leave the European Union, as well as Spain’s June 26 general elections.


Euro uncertainty is top risk: On the macro level, SocGen warns that risks to the global economy are tilted to the downside. It compiled its own list of so-called black swan events unexpected or surprise occurrences with the power to affect the world. Its top black swans are:

  1. Double-drag from European policy uncertainty: 40%
  2. China hard landing: 30%
  3. Sharp re-pricing of Fed expectations: 25%
  4. Sharply weaker global growth: 20%

Commenting on the risks in Europe, its analysts wrote, With a very busy political agenda lined up for the coming quarters, the risk of an event delivering an unexpected outcome remains high, be it the OMT (outright monetary transactions) judgment from the German Constitutional Court on June 21, the U.K. Brexit referendum on June 23, Spanish election on June 26, Italian referendum in October and heading into 2017, elections in France, Germany, Netherlands and possibly Italy.

Bubble building in Chinese real estate: China’s economic problems, which shocked global markets in the past year and sent gold prices soaring, haven’t gone away either. The potential for policy errors in China is substantial, and all the more so since a new bubble appears to be building in the property market, the bank wrote. The authorities are clearly keen to start recognizing and tackling the mountain of non-performing loans. The approach will be one of trial and error, with the downside risks implied in the name.

The main concern for U.S. markets continues to be the likelihood of an interest-rate increase from the Fed. SocGen sees the central bank standing pat on rates until December, but its pronouncements along the way can rattle investors.

If the Fed sends too hawkish a message, the risk is that the re-pricing could turn disorderly. On the flip side, too dovish a Fed could see bond markets unnerved by higher inflation readings and an ever tighter labor market, SocGen said.

Although it thinks the risks of a global recession have receded somewhat, the triggers remain in place. A prolonged negative market response is the most likely mechanism to take a slowdown to outright recession, it warned.

With so many uncertainties looming in the next 30 days and beyond, investors should consider adding precious metals to their portfolios as a time-tested financial insurance policy. The ride ahead could be bumpy without it.