Financial markets remain volatile, with sentiment perhaps outweighing economic facts. The problem is the global economy is in a very weird place. Four factors make for volatile markets, Paul Donovan, the Chief Economist of UBS Global Wealth Management, reports.

Data is unreliable

“It is hard to see a midpoint between a slowdown and a slump. If data does not suggest a soft landing, it implies a slump rather than any other scenario. 

“Any hint that a slowdown is less likely means investors have to price in a very different, and more extreme, slump scenario.”

“Sentiment data (never the most reliable indicator) is influenced by media narrative and political partisanship. Real world data is being revised more and more often. Initial data releases will therefore surprise economic models (which extrapolate from past reality). 

“Consumers hold the balance between slowdown and slump – but consumer reaction functions are not normal, consumer balance sheets are not normal, and the labor market is just weird.”