As JPMorgan (JPM) holds its investor day, attention turns to CEO Jamie Dimon and potential succession plans. But Citigroup’s (C) CEO Jane Fraser made waves with a rare blog post on Friday, offering her perspective on global economic shifts.
Fraser Highlights Strategic Self-Interest Over Cooperation
In her post, Fraser reflected on the changing landscape of globalization, noting that the new phase is less defined by cooperation and more by “strategic self-interest.” She argued that long-held assumptions are being challenged not only by tariff announcements but also by what she called a “deeper confidence shock,” which is affecting markets globally.
Market Signals Show Shifting Risks
Fraser observed that the market’s reaction to these shifts indicates a reevaluation of risks. While Treasury yields are rising and equity markets remain volatile, the U.S. dollar has weakened at times when it typically strengthens. Fraser pointed out that investors are not just pricing in near-term risks but are questioning the stability of long-standing certainties, as seen in the movement of capital.
Fraser on Shifts in Capital Allocation
Fraser highlighted significant shifts in capital allocation, with pension funds and asset managers moving towards Japan, India, and parts of Europe. Hedge funds have been selective, not chasing the equity bounce in April, and sovereign wealth funds are diversifying more aggressively. She also noted a rise in hedging against the U.S. dollar, an indicator of deeper uncertainty in the markets.
Tariff Impact on Corporate Profits
Fraser also pointed to the looming impact of tariffs on corporate profits, which will become more apparent in the third quarter. According to Trivariate Research’s Adam Parker, the effects of tariffs take time to show up in earnings, with the third quarter potentially experiencing a slowdown in corporate profits. Fraser echoed this sentiment, noting that tariffs add “sand in the gears of growth,” causing friction that may impact growth over time.
Uncertainty Persists Despite Some Relief
Although inflation showed signs of cooling and a temporary trade agreement between Beijing and Washington was reached, Fraser cautioned that uncertainty still remains. She noted that many companies are pausing decisions, delaying capital expenditures, and holding off on hiring, as they prepare for second- and third-order effects such as demand shocks and supply chain disruptions.
