Chart of the Week : Geopolitical Risk Index rises to a two-decade high
Head of Macro Analysis
Summary: In today's 'Macro Chartmania', we focus on the Geopolitical Risk Index (GPR) - a geopolitical risk benchmark which gets back to 1899.
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The Geopolitical Risk Index is based on the work of D. Caldara and M. Iacoviello (“Measuring Geopolitical Risk”, working paper, Board of Governors of the Federal Reserve Board, 2017). The methodology is rather simple as it counts the occurrence of words related to geopolitical tensions in leading international newspapers. As far as I know, this is the only geopolitical risk benchmark that gives a historical perspective since it gets back to 1899.
The GPR spikes around the two world wars, at the beginning of the Korean War (1950-53), during the Cuban Missile Crisis (1962), after 9/11 and now after the Ukraine invasion by Russia. It now stands at a two-decade high at 281 – close to the levels reached after 9/11 (the peak was at 303). This is the fourth highest level on record. The GPR is updated on a monthly basis. Given the evolution of the crisis in Eastern Europe, the April print is likely to keep moving higher, in our view. Contrary to the VIX, the correlation between the GRP and most financial instruments or assets (e.g. gold for instance) is poor. This is however an interesting indicator. This time, it does not only reflect the rise in geopolitical risk but also a profound paradigm shift in security policies for Europe and the rest of the world following the invasion of Ukraine.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
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Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.