Charts of the Week

September 23, 2022

OECD youth unemployment, Brazil and Japan

This week’s charts cover elevated youth unemployment, the dollar’s dominance, the end of China’s decades-long trade deficit with South Korea, and Japan’s widening trade deficit. They also take a deep dive into Brazil: Lula is set to retake power from Jair Bolsonaro, even as the nation has avoided the inflation and energy crises seen elsewhere in the world.

Julius Probst PhD, with contributions from Arnaud Lieugaut, Patrick Malm and Karl-Philip Nilsson

<span id="Youth-unemployment-is-a-multiple-of-adult-levels">Youth unemployment is a multiple of adult levels</span>

It often takes a while for young people to “stick” in the job market. 

According to research by the Organisation for Economic Cooperation and Development, there are several reasons for this. Employers often look for job experience, and people entering the workforce don’t have it. And there’s also the tendency for the young to “shop around” as they choose a career.

This chart shows the relationship between youth (age 15-24) and adult (age 25-64) unemployment in OECD countries. In all countries, youth unemployment is higher. In countries with a high rate of adult joblessness, such as Italy and Brazil, youth unemployment approaches a staggering 30 percent.

Macrobond users, access the chart here

<span id="King-Dollar-is-defeating-almost-all-challengers-in-our-heat-map">King Dollar is defeating almost all challengers in our heat map</span>

The dollar has strengthened mightily this year as a historically rapid rate-tightening cycle by the Fed combines with the greenback’s safe-haven status in a volatile world. 

The following heat map shows just how few currencies have made gains of any kind against the dollar in 2022. Blue denotes a currency that has strengthened against its US counterpart, while the much bigger red zone indicates currencies that have weakened. 

It's notable that some Latin American “commodity currencies” showed some strength against the dollar early in the year, beneficiaries of the inflation that has seen energy and metal prices rise. However, advances by the Colombian and Chilean pesos have reversed, leaving the Brazilian real as one of the only gainers against King Dollar.

(Brazil’s experience, which is driven by an aggressive central bank rate-hiking cycle of its own, informs our subsequent series of charts.)

Macrobond users, access the chart here

<span id="Most-bets-are-on-Lula-in-Brazilian-election">Most bets are on Lula in Brazilian election</span>

Brazil’s general election is scheduled for Oct. 2. As of today, Luiz Inacio Lula da Silva has an 80% probability of regaining the presidency he held from 2003 to 2010, according to PredictIt, a New-Zealand based election-betting platform. 

The PredictIt market has shown Lula steadily gaining on incumbent Jair Bolsonaro, as our chart shows. A Lula win, which would follow Latin America’s broad leftward trend, would mark an impressive comeback for the former president, who was once jailed for money laundering and corruption. Those convictions were nullified by the nation’s supreme court last year. 

The candidates differ on many issues, including the Amazon rainforest, which has seen an increase in deforestation under Bolsonaro. The incumbent has also faced various scandals and criticism over his handling of the pandemic. 

Unlike many economies, the inflation environment has been relatively positive for the incumbent, as our subsequent charts will show.

Macrobond users, access the chart here

<span id="Brazilian-inflation-is-broadly-easing">Brazilian inflation is broadly easing</span>

While inflation is a hot political issue in many countries, it is perhaps somewhat less so in Brazil. 

Brazil is the world’s fourth-largest exporter of commodities, whose prices have soared. That’s made the real one of the few currencies in the world to appreciate against the US dollar, pushing down the cost of imports. Its central bank also started hiking rates in March 2021, and only recently halted what had been the world’s most aggressive tightening cycle.

Nevertheless, inflation remains a key electoral topic. As our chart shows, it peaked at 12 percent year-on-year in April, a 19-year high. However, it has been steadily easing since then as fuel prices decline (expressed in the orange “transport” segment of the chart). 

It’s also worth keeping an eye on food and beverages, in dark blue. This segment disproportionately impacts lower-income Brazilians and has seen year-on-year inflation of about 13 percent.

Macrobond users, access the chart here

<span id="Full-Brazil-hydro-reservoirs-mean-no-energy-crisis-is-likely">Full Brazil hydro reservoirs mean no energy crisis is likely</span>

Not all nations are experiencing a historic energy crisis of the kind seen in Europe. Brazil benefits from being the world’s second-largest hydro-electric power producer by installed capacity – as one might expect for the Amazon River nation. Hydro generates enough power to meet two-thirds of the nation’s electricity demand.

Brazilians thus watch the levels of their reservoirs carefully. The rainy months – December to March, usually – are critical.

As our chart of stored hydroelectric energy shows, more than halfway through the nation’s dry season, Brazil appears to be in the clear. The orange line indicates that 2022 has been near the top of the range for fill levels. This compares with 2017 (purple) and 2021 (red), where droughts created an energy crisis.  

This is a good sign for consumers’ electricity bills (and inflation). It’s also a positive indicator for water-hungry agriculture, one of the main pillars of the economy; Brazil is the largest crop producer in the world.

Macrobond users, access the chart here

<span id="Japanese-trade-deficit-hits-a-historic-high">Japanese trade deficit hits a historic high</span>

Moving from one of the world’s best-performing currencies to one of the worst, we examine Japan’s trade deficit and its effect on the sinking yen.

As the yen slides to a 24-year low against the dollar, the nation’s imports have become more costly. Combined with ever-rising energy prices, the nation’s trade deficit has reached a historic high of 2.82 trillion yen. 

As our first chart shows, imports are rising at more than double the pace of export growth. The nation has posted 13 consecutive months of trade deficits, as our second chart shows – the longest streak since the mid-2010s.

Tip: Macrobond clients can use the "change region" function on this chart.

Macrobond users, access the chart here

<span id="Middle-East-energy-imports-are-a-burden-for-Japan">Middle East energy imports are a burden for Japan</span>

Breaking down Japan’s trade deficit by region in our next chart shows how surging energy costs aren’t being matched by an offsetting uplift from traditional export markets.

The bar representing imports from the Middle East has been widening, reaching more than 1.4 trillion yen. Net exports to the US have dropped more than 8 percent month-on-month; exports to Asia excluding China more than halved month on month. Japan has a 577-billion-yen deficit with China, its biggest trading partner.

Macrobond users, access the chart here

<span id="Yen-devaluation-boosts-Japan-export-values-but-quantities-shipped-stagnate">Yen devaluation boosts Japan export values but quantities shipped stagnate</span>

Both Japan's import and export figures are inflated by the rapid yen depreciation, as our chart shows.

The Bank of Japan has not joined the global monetary tightening cycle; in fact, it hasn’t changed its policy rate since 2016. The central bank could begin hiking rates to remedy the loss of foreign reserves, but policy makers could be reluctant to do so given current domestic economic conditions.

Macrobond users, access the chart here

<span id="Covid---19-snaps-27---year-Chinese-trade-deficit-with-South-Korea">Covid-19 snaps 27-year Chinese trade deficit with South Korea</span>

It’s a throwback to the earliest days of China’s economic boom, when Jiang Zemin was in charge.

In May, China snapped a 27-year, nine-month streak of trade deficits with South Korea, as our chart shows. Before August 1994, it was South Korea that ran a trade deficit with China.

This reversal is driven by several factors. But one root cause is China’s “zero Covid” lockdown policy, which has slowed the economy and constrained movement. China is also more self-sufficient in goods it used to import from South Korea.

Macrobond users, access the chart here

All written and electronic communication from Macrobond Financial AB is for information or marketing purposes and does not qualify as substantive research.

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