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CFO optimism strong despite trade policy/geopolitical risks

Once a quarter Deloitte asks CFOs in North America and Mexico (mostly large companies with more than $1 billion in annual revenue) what they're thinking and doing. The CFO Signals survey for Q2 2018 found that CFOs are optimistic about their strategic roles within their organisations and remain bullish on their companies' prospects, despite concerns over trade policy and geopolitical risks. They also expressed concerns about global economic growth and about securing key talent.

The report found that the positive sentiment of Q1 largely continued in Q2. It stated: “Although own-company optimism and expectations for the European and Chinese economies faltered a bit, expectations for revenue, earnings, and hiring all rose again (capital spending declined somewhat, but remains relatively high). In addition, CFOs’ confidence in US equity markets appears to have strengthened, with a comparatively low 63 per cent regarding markets as overvalued (well below the above-80 per cent levels from late last year).”

Some of the main survey findings include:

  • assessments of the North American and Chinese economies hit new survey highs; expectations for Europe declined;
  • with equity markets about even with last quarter, 63 per cent of CFOs say US equities are overvalued – the lowest level in two years;
  • growth expectations for revenue, earnings, and hiring rose to multi-year highs; capex weakened for Canada and Mexico;
  • many CFOs appear to be taking on broader responsibility for business planning, IT/data, and risk;
  • CFOs’ most common prior roles are around FP&A, controllership, and other CFO positions; younger CFOs are comparatively likely to cite investor relations and strategy roles;
  • aside from technical finance experience, CFOs recommend that their successors have backgrounds that enable them to play strong roles around strategy development and implementation;
  • CFOs’ hopes for their legacies vary, but most say they want to leave behind world-class companies and finance functions that are positioned to perform even better after their tenure ends.

The survey also highlights the following key developments since the last CFO survey in Q1:

  • the US economy slowed in the first quarter, but its recovery became the second-longest on record;
  • US inflation accelerated; unemployment hit an 18- year low; wages stagnated;
  • the US Fed raised rates in March, but not in May;
  • the US 10-year bond yield hit a 7-year high; 10-year/2-year spreads hit the lowest level since 2007;
  • US equities were flat from last quarter’s survey;
  • oil prices hit their highest levels since 2014 after the US exited its Iran nuclear deal;
  • President Trump declined to rejoin TPP;
  • the eurozone economy decelerated in the first quarter. Retail sales grew slowly; inflation slowed;
  • the European Central Bank and Bank of England both left monetary policy unchanged;
  • Canada’s job market showed mixed results; the Bank of Canada left rates unchanged;
  • Mexico’s economy rebounded, driven by exports and construction; inflation decelerated. 

This item appears in the following sections:
Cash & Liquidity Management
Global Cash & Liquidity Management
Risk Management
ERM - Enterprise Risk Management
Financial Risk Management

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