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Charts of the Week

Headline-making data and analysis from our in-house experts

IMF flags rising debt levels as fiscal pressures mount

What the chart shows

This chart displays the debt-to-GDP ratio across various global economies, segmented into three sectors: general government, households and nonprofit institutions serving households (NPISHs), and non-financial corporations. Key groupings, such as the G20, Emerging Markets, and Advanced Economies are also highlighted to provide a broad perspective on global debt distribution.

Behind the data

In its October 2024 Fiscal Monitor, the IMF projects that global public debt will exceed $100 trillion by the end of the year, with the global debt-to-GDP ratio expected to approach 100% by 2030. Rapid debt accumulation is concentrated in major economies, including the US and China, but the pace and composition of debt vary significantly worldwide.

The IMF identifies several key risks to public debt: rising costs from technology innovation, climate adaptation, demographic pressures, political volatility, and optimism bias in economic projections. To address them, it has introduced a “debt-at-risk” framework to help policymakers assess various debt scenarios under adverse conditions.  

The analysis shows that, under current fiscal policies, most countries will be unable to stabilize their debt-to-GDP ratios without further adjustments. The IMF recommends gradual, people-centric fiscal adjustments to safeguard growth, warning that deep cuts to public investment could harm long-term economic stability. However, countries with strong fiscal institutions are better positioned to protect critical investments, even during crises.

Rising rates trigger historic losses on US investment securities

What the chart shows

This chart displays the unrealized gains and losses on US investment securities from 2006 to the present, focusing on two key categories: ‘available for sale’ and ‘held to maturity.’ It shows the value fluctuations in these securities for each year. The chart highlights the impact of recent interest rate hikes on banks’ balance sheets.

Behind the data

The recent historic surge in interest rates has had a notable impact on banks’ balance sheets, significantly reducing the market value of Treasuries and government-backed mortgage securities. As rates rise, the value of these securities falls, leading to substantial unrealized losses. Even though the Fed has started a rate-cutting cycle, these unrealized losses remain elevated, currently exceeding $500 billion. This is considerably higher than those observed during the Global Financial Crisis (GFC), highlighting the scale of recent rate increases and their prolonged effects on asset valuations.  

US yields defy expectations in latest Fed cutting cycle

What the chart shows

This chart shows the response of US 10-year Treasury yields to the first rate cut in each of the past seven Fed rate-cutting cycles. The initial cut in each cycle is marked as Day 0, with yield movements tracked over the following 50 days.  

Historically, yields have tended to decline within 50 days of a cut, reflecting market expectations of slower economic growth and further easing. In contrast, in the current cycle, the 10-year yield has climbed about 50 basis points in the 50 days since the Fed’s cut on 19 September.

Behind the data

Normally, Fed rate cuts signal slowing economic growth and lower inflation expectations, which often lead to lower long-term yields. However, this cycle has been different. Despite the recent cuts, the US economy remains strong, with consumer demand and the labor market showing resilience. This economic strength has tempered expectations for further easing, and as a result, yields have risen rather than fallen.  

At the same time, investors are worried about another bout of inflation amid political uncertainty ahead of the election – further driving yields upwards. The potential for impactful policy shifts could alter inflation expectations, and markets are closely watching how yields may respond after the 5 November election.  

Trump election odds and Treasury yields in lockstep as inflation fears grow

What the chart shows

This chart tracks two significant indicators related to the US macroeconomic and political outlook. The blue line reflects the 10-year US Treasury yield, while the green line represents the probability of a Trump election victory according to Polymarket odds. Both lines have demonstrated a strong correlation, generally moving in tandem over the past four months, with notable increases through September and October.    

Behind the data

The simultaneous upward movement in both 10-year yields and Trump election odds reflects a convergence of economic and political factors, heightening investor anticipation of inflation pressures.  

The first is the Fed’s recent policy actions. In September, it cut rates by 50 basis points, signalling a significant shift in monetary policy despite a robust labor market and overall economic growth. This aggressive easing has fuelled fears that inflation could re-emerge. Investors have thus adjusted their expectations, leading to a rise in long-term yields as they demand higher returns to offset anticipated inflation.  

The second factor is the increasing likelihood of a second Trump presidency. Markets anticipate that his proposed policies—such as large tariffs, tax cuts and expansive deficit spending—could be inflationary. With Trump now favoured to win, yields are adjusting in line with his rising odds, reinforcing expectations of higher inflation if these policies materialize.

Pessimistic sentiment persists across China’s key economic sectors

What the chart shows

This chart shows the historical z-scores of China’s consumer, manufacturing, and real estate sentiment indices from 2000 to the present. A z-score represents the number of standard deviations a data point is from the mean, allowing us to see how sentiment levels deviate from long-term averages. A z-score near zero indicates sentiment close to historical norms, while extreme positive or negative scores indicate unusually high or low sentiment.

Behind the data

Despite recent monetary and fiscal stimulus packages, sentiment in China’s main economic sectors—consumer, manufacturing and real estate—remains pessimistic. Although consumer spending and manufacturing activity are expected to be primary growth drivers, sentiment indices suggest that confidence has not yet recovered. The real estate sector, facing significant structural challenges, shows particularly low confidence. Given all this, achieving the government’s 5% growth target for this year and in the coming years will be challenging. The data shows that while short-term boosts from stimulus measures may help, more structural reforms may be needed to address underlying weaknesses and restore long-term confidence.

Global equity returns show elevated risk amid macro uncertainty

What the chart shows

This scatter chart depicts the relationship between MSCI All Country World Index (ACWI) returns and global macro risk (using the Citi short-term global macro risk index) over the past ten years. It highlights their inverse correlation, depicted through a fitted linear trend line, alongside one and two standard error bands, which help illustrate the degree of deviation from the trend.

Behind the data

Although global stock indices have generally risen over the past decade, this chart underscores the persistent financial vulnerabilities associated with elevated debt levels and a growing disconnect between geopolitical tensions and financial market performance. By comparing global equity returns with global macro risk, we can see that MSCI ACWI returns over the past month are positioned between the +1 and +2 standard error bands, suggesting they may be moderately overvalued relative to historical trends. This positioning may indicate an increased level of risk relative to typical macro conditions. Increased vigilance in investment decisions may be needed because global equity markets may be pricing in a level of optimism that could be vulnerable to shifts in macro risk factors.

Argentina leads emerging market bond returns amid reform push

What the chart shows

This chart ranks the annualized gross performance of government bonds across 12  emerging markets, using the ICE BofAML fixed-income indices, which track USD-denominated bonds across all maturities. The highest-performing markets are ranked at the top for each year.

Behind the data

Argentina's bonds have recently surged to the top, reaching a critical psychological threshold for international investors with a remarkable 72% year-to-date return. Since taking office last December, President Javier Milei has implemented a series of reforms to curb government spending, narrow the fiscal deficit, and foster a more investor-friendly environment. These measures appear to have significantly boosted investor confidence, driving Argentina's bonds to new highs.  

Other emerging markets trail Argentina’s returns, led by Pakistan and Egypt. Pakistan’s bonds have demonstrated stable returns, maintaining a consistent position within the rankings. Egypt’s bonds have posted a sharp rise, delivering nearly 32% in returns this year – up from just 5% in 2023. This underscores a significant shift in emerging market performance, highlighting how fiscal and policy changes in specific economies can drive notable variations in bond market returns.

Chart packs

Fiscal imbalances, political risks and global economic uncertainty drive market sentiment

US government deficit surges despite strong economic conditions

What the charts show

Both charts use outlays and receipts data from the US Treasury to illustrate how government revenue supports current spending. The first chart breaks down the sum of government receipts over the past 12 months. It also highlights the $1.83 trillion deficit – the gap between revenue and spending.

The second chart builds on this, showing the 12-month rolling sum of receipts as a percentage of total spending and how the composition of these receipts has evolved over time.

Behind the data

Over the past year, the US government has spent $6.75 trillion but only collected $4.92 trillion in revenues, leaving a $1.83 trillion shortfall. This deficit, accounting for 27% of all government spending, is financed through the issuance of Treasury securities, effectively borrowing to cover the gap.  

Such hefty deficit spending raises concerns about sustainability, especially given the current economic environment. The US economy is experiencing solid GDP growth, a healthy labor market and cooling inflation – conditions typically associated with lower deficit spending. However, the fact that the deficit remains so large during a period of relative economic strength suggests that it could balloon even further during the next downturn or recession. Without significant adjustments to revenue or spending, the government’s reliance on borrowing is likely to increase, adding further pressure to fiscal sustainability.

10-Year Treasury yields diverge from macro conditions, signaling inflation risk

By Huw Roberts, Head of Analytics, Quant Insight

What the chart shows

This chart consists of two panels, each offering a perspective on the relationship between US 10-year Treasury (UST) yields and macroeconomic conditions. The bottom panel tracks the "Qi Fair Value Gap.” The grey horizontal line separates periods where UST yields are either "too high" (above) or "too low" (below) compared to fair value based on macroeconomic inputs. The chart highlights how the 10-year UST yield has stayed mostly below its fair value until recently, indicating that yields are now above macroeconomic expectations.

The top panel compares the actual UST 10-year yield with the Quant Insight (Qi) model value, which represents the expected yield based on macroeconomic factors. Grey boxes highlight instances where the yield "catches up" to macro conditions. Recent data shows that UST 10-year yields are at their highest divergence compared to what macro conditions would suggest, signaling that current yields may be overextended relative to fundamentals.

Behind the data

There are two key takeaways from the Qi model. First, the ‘Qi Fair Value Gap’ indicates that 10-year UST yields currently screen as approximately 12.5 basis points too high relative to aggregate macroeconomic conditions. This divergence of +0.5 sigma is modest, but it's the largest positive gap observed in the past year. This suggests that while yields are not drastically misaligned, they are now at an elevated point compared to the macroeconomic backdrop.

Second, the model highlights the sensitivity of 10-year yields to inflation, while showing minimal response to GDP growth. This reinforces the view that USTs are no longer serving as a hedge against recession risks, but rather are reflecting inflationary concerns. Despite the dominance of the inflation-driven short-duration narrative, these yield levels may not be ideal for initiating new bearish positions on bonds, as yields have already ‘caught up’ to macroeconomic factors.

Betting markets show nearly 50% chance of Republican sweep in 2024

What the chart shows

This chart tracks Polymarket betting odds for the balance of power following the 2024 US elections. It helps visualize how market sentiment has shifted over time regarding these potential election outcomes.  

Behind the data

As the 2024 election approaches, financial markets appear less anxious about the political uncertainties than initially expected. Market participants seem to have grown more comfortable with the range of potential outcomes. According to Polymarket betting odds, there is now an almost 50% chance of a Republican sweep, where Donald Trump wins the presidency and Republicans control both the House and the Senate. Conversely, the odds of a Democratic sweep under Vice President Kamala Harris have diminished, while the likelihood of a split Congress – whether under Trump or Harris – continues to fluctuate.

China faces deflationary pressures despite stimulus efforts

By Saeed Amen, Co-Founder, Turnleaf Analytics

What the chart shows

This chart compares realized and forecasted year-over-year non-seasonally adjusted (YoY NSA) Consumer Price Index (CPI) for China. The green-shaded area tracks actual realized CPI. From October 2024, it shows two lines projecting future CPI trends: the blue line represents Turnleaf Analytics’ model forecast, while the grey line shows the benchmark consensus forecast from the Asian Development Bank (ADB.)

The Y-axis ranges from -1 to 5, capturing potential deflation and inflation up to 5%. The key takeaway is that both forecasts predict inflation to remain well below 2% over the next 12 months.

Behind the data

In late September, Beijing introduced monetary and fiscal measures to boost demand and stabilize the weak property market, aiming for a 5% growth target in 2024. Despite these efforts, price pressures remain low, reflecting subdued consumer confidence.

Around 70% of household wealth is tied to real estate, which has declined by 3.36% over the past year. Rising youth unemployment (+13.11% YoY) has further weakened demand, spilling over into key sectors like manufacturing and exports. Deflationary risks are intensifying, with liquefied petroleum gas exports dropping nearly 30% in the past month and steel and sheet metal inventories down 15.7% and 29.4% month-over-month, respectively. Vehicle exports also fell 27.3% MoM, exacerbated by the EU’s recent decision to impose tariffs on Chinese electric vehicles.

While Beijing’s stimulus aims to mitigate these issues, the weak property market, declining exports and low consumer sentiment continue to weigh heavily on China’s economic outlook.

Global earnings revisions tilt downward amid economic uncertainty

What the chart shows

This chart tracks broad equity earnings revisions—net up and downward changes—over the past 100 trading days for major markets in global stock benchmarks. It compares current earnings revisions with those from three, six and 12 months ago. The chart also displays the interquartile ranges and the 10th to 90th percentile ranges to provide insight into the historical distribution of revisions for each country.  

Behind the data

Amid ongoing economic uncertainty, global risk appetite has fluctuated, while there has been a general trend of downward earnings revisions across multiple countries. Notably, France, China and the UK have seen the most significant net downgrades, with revisions falling below the 10th percentile, indicating substantial pessimism. Canada, South Korea, Brazil, the US and India also experienced net earnings downgrades. Japan, while still reflecting some negativity, is closer to neutral, suggesting relatively stable earnings prospects.

In contrast, Taiwan stands out with significant net upgrades, indicating more positive revisions and a brighter earnings outlook.

The data underscores the downside risk to earnings in many regions, suggesting that investors may need to adopt more vigilant and flexible strategies.

Gold hits new highs while platinum group metals show signs of cooling

What the chart shows

This chart uses Z-scores to compare the historical price dynamics of seven precious metals: gold, silver, and five platinum group metals (PGMs): platinum, palladium, iridium, rhodium and ruthenium. The Z-scores provide a standardized measure of each metal’s price relative to its 30-year rolling average.

Behind the data

The recent surge in gold prices has captured significant attention in 2024, with the metal reaching multiple all-time highs as investors flock to safe-haven assets amid economic uncertainty. Silver has also begun to climb, driven by similar demand dynamics. Both metals reflect heightened market anxiety, leading to a strong bid for traditional store-of-value commodities.

In contrast, the price movements of the PGMs have remained relatively stable over the past year, suggesting more subdued demand. Given that these metals are crucial to electric vehicle (EV) production – particularly for catalytic converters – their price stagnation may signal a potential cooling of growth in the EV industry.

China’s fiscal surge, US election uncertainty, space sector growth and ESG's long-term potential

China’s credit surge may struggle to fuel growth

What the chart shows

The chart tracks China’s credit impulse (a measure of new credit as a share of GDP) offset by three months to align with the Li Keqiang Index, which measures total bank loans, electricity consumption and rail cargo volume. This reflects the strong five-year rolling correlation between the two measures.

Behind the data

China has rolled out fiscal measures, including bond issuances worth 6 trillion yuan ($850 billion), following earlier monetary steps. This move is expected to inject liquidity into the economy, possibly pushing the credit impulse into positive territory and spurring economic activity. However, with economists voicing doubts about the country meeting its 5% GDP growth target as we enter Q4 2024, the effectiveness of these measures remains in question.

Rocketing toward long-term gains

What the chart shows

This chart compares the performance of the MSCI Space Explorer Index, which tracks companies in the space exploration industry, against the broader MSCI IMI (which includes large, mid and small-cap stocks), particularly after key space missions. The aim is to assess how space-related milestones influence market sentiment compared to general market performance.

Behind the data

SpaceX’s successful Starship test flight, where the Super Heavy booster was recovered using mechanical arms, marks a significant step toward rocket reusability – a development that could revolutionize space travel economics. The heatmap shows how various space missions have led to mixed reactions in the space exploration sector, with notable market fluctuations. With each new milestone, investors are increasingly evaluating whether this sector is poised for long-term growth or if challenges like regulatory hurdles and cost efficiencies will temper enthusiasm.  Here is an alternative visualization of the chart:

Polling vs betting: Can Harris hold her lead in critical swing states?  

What the chart shows

This chart compares polling data from 14 swing states with betting odds, providing a snapshot of the US election race. The left column shows polling averages from FiveThirtyEight, while the right column presents Polymarket betting odds. For example, a 62.6% polling figure for Kamala Harris in in California indicates that of the votes cast between her and Donlad Trump, Harris is expected to win 62.6%. Both major candidates typically poll slightly lower overall in each state as third-party candidates capture a small portion of the vote. To simplify the chart, potential third-party votes have been excluded.

Behind the data

The US election is shaping up to be decided by a few critical swing states, with Pennsylvania, Michigan, Wisconsin, and Nevada showing the tightest contests, according to Polymarket odds.  Although Harris holds a polling lead in these states, betting markets still slightly favor Trump, reflecting his past outperformance of polling predictions. This gap between polling data and market odds suggests that investors are factoring in historical trends more heavily than current polls.  

ESG vs energy: How regional differences shape risk-adjusted returns

What the chart shows

This chart compares the 10-year Sharpe ratios – a measure of risk-adjusted returns – of ESG stocks (MSCI ESG Leaders Index) and energy stocks (MSCI Energy Sector Index) across developed markets including Australia, Canada, Europe, Japan, the UK and the US.

Behind the data

ESG stocks are often seen as aligning with broader social and environmental goals, but how do they perform against traditional energy stocks? To explore this, we analyzed the risk-adjusted returns of ESG stocks versus counterparts in the fossil fuel sector using the 10-year Sharpe ratio.

In markets like Australia, Canada, Europe and the US, the ESG leaders have outperformed traditional energy stocks, demonstrating their potential for both ethical and financial returns. However, in Japan and the UK, oil and gas stocks have delivered comparable or even superior risk-adjusted returns, highlighting how regional factors such as energy policies and market structures can influence investment outcomes.  

Can innovation drive profits? The link between R&D spending and earnings

What the chart shows

This scatter chart examines the relationship between R&D spending and earnings per share (EPS) across 23 developed and emerging markets over the past decade, highlighting how investments in innovation can drive profitability.

Behind the data

Our analysis reveals a positive correlation between higher R&D spending and EPS, particularly in markets like the Netherlands, the US and Denmark, where sustained innovation investment has contributed to robust profit growth. However, Switzerland, despite similar levels of R&D investment, has seen lower earnings, indicating that that heavy spending on innovation alone doesn’t always guarantee success. Greece, with historically weak earnings, likely reflects the impact of low innovation investment, through broader economic factors also play a role.

This suggests that while R&D spending is often a critical driver of growth, market-specific conditions can heavily influence the outcomes.

Chinese equities show relative attractiveness

What the chart shows

This chart presents the earnings yield gaps – the difference between stock yields (the inverse of P/E ratios) and bond yields – of China’s A-shares and large-cap stocks over the past 15 years. It includes the mean, as well as ±1 and ±2 standard deviation bands, illustrating how current yields compare to historical trends.

Behind the data

China’s recent monetary easing has supported a stock market rally, which has reduced the earnings yield gaps. Despite this, the equity risk premia remain above long-term averages, signaling lingering skepticism about the impact of China’s stimulus measures. This skepticism has pushed risk premia up to +2 standard deviations, yet Chinese stocks continue to look attractive when compared to bonds.

Rising storms and market shifts

Modest decline in US mortgage rates challenges expectations of housing market boom

What the chart shows

This chart shows consensus forecasts from Blue Chip Economics for the average US mortgage rate over the next six quarters. The blue line represents the mean forecast for each quarter. The grey box highlights the 25th to 75th percentile range, while the green box represents the 10th to 90th percentile range.

Behind the data

Even though the Federal Reserve (Fed) is expected to continue cutting interest rates over the coming quarters, US mortgage rates are projected to decline much more modestly. This is likely because the anticipated Fed Funds rate cuts have already been largely priced into current mortgage rates. As a result, the average mortgage rate is expected to decrease by only 34 basis points from now until the end of Q1 2026.  

This forecast contradicts a common narrative in the US housing market, which suggests that decreasing interest rates will spark a new boom in mortgage demand. However, if mortgage rates do not drop significantly, this demand may not materialize as expected.  

Term premium poised for upside amid Fed easing and elevated bond volatility

What the chart shows

This chart illustrates the decomposition of the 10-year US Treasury yield into its components from two perspectives: risk neutrality and term premium, further broken down into breakeven inflation and real yield from 1999 to the present. It also highlights periods of recession during this timeframe.

Behind the data

Considering the periods of relatively high inflation – both before the Global Financial Crisis (GFC) and after the COVID pandemic – recent risk neutrality and inflation expectations appear close to their historical norms. At the same time, long-term real interest rates have already leveled up.

The term premium shows some upside room, as it was positive pre-GFC but has remained flat lately. This upward risk is also reflected in the heightened bond-implied volatility observed in recent years.

Despite the Fed's easing cycle, upward pressure on bond yields could stem from the term premium.

Surge in major hurricanes across the US as climate volatility intensifies

What the chart shows

This chart tracks the number of hurricanes in the US across different five-year time periods from 1855 to the present. The hurricanes are categorized according to the Saffir-Simpson Scale: major hurricanes (Category 3, 4 and 5) and regular hurricanes (Category 1 and 2.) The Y-axis shows the total number of hurricanes in each five-year period.

Behind the data

Hurricane Milton left a trail of destruction across Florida when it made landfall on Wednesday. The Category 5 storm came just two weeks after Hurricane Helene, which also caused widespread destruction and fatalities.  

As the chart shows, the rising number of major hurricanes hitting the US since 2020, compared to the previous peak of seven major hurricanes between 1915 and 1919, is notable. With five major hurricanes already recorded this decade, and the National Oceanic & Atmospheric Administration (NOAA) yet to include hurricanes Helene and Milton, the tally will likely set a new record once updated. The increasing frequency of severe hurricanes points to broader patterns of climate volatility, which may be contributing to this trend.  

China's economic stimulus sparks surge in tech investment

What the chart shows

This chart visualizes weekly net fund flows to China using data from Emerging Portfolio Fund Research (EPFR). The data is categorized into four groups of stock market sectors.

Behind the data

In late September, the People’s Bank of China (PBoC) announced an ambitious plan to revive the struggling Chinese economy by implementing significant fiscal stimulus. The market’s response was swift, with both institutional and retail investors substantially increasing their exposure to Chinese assets. By the end of September, these inflows had reached their highest level in 2024, signaling a renewed confidence in the country's economic outlook.

However, the inflows were notably sector-specific. While several sectors experienced a moderate uptick in interest, the technology and telecommunications sector attracted a disproportionately large share of the capital. Does this show of investor preference for tech-driven industries reflect optimism about China’s digital economy?

Chinese equities lead global markets amid stimulus-driven rally

What the chart shows

This chart displays the 2024 year-to-date performance of Chinese, regional and global equity indices, with a focus on quarterly performance. It gives a clear visual comparison of how these indices have fluctuated throughout the year.

Behind the data

In late September, China's stimulus—monetary easing and fiscal support signals—triggered rallies in Chinese equities. Large cap stocks, with significant representation in the consumer discretionary and communication services sectors, fueled market optimism, growing by about 22% in Q3 2024. During the same quarter, the MSCI China and CSI 300 indices also posted significant gains of about 21% and 16%, respectively.

However, as Q4 2024 began, skepticism surrounding the sustainability of fiscal expansion led to more cautious market sentiment, which tempered further gains in Chinese stocks. Despite this, Chinese equities continued to outperform both regional and global indices year-to-date.

China's automotive growth outpaces profitability, while US and Europe find balance

What the chart shows  

This scatter chart compares the compound annual growth rate (CAGR) over a 15-year period with the return on equity (ROE) of the Automobiles & Components industries in the US, Germany and China to show the potential for long-term financial growth and profitability across the three markets.

Behind the data

Last Friday, the EU Commission voted to impose definitive tariffs on China-made battery electric vehicles. The decision sparked mixed reactions, with many politicians supporting the move as a way to protect Europe’s automotive industry, while major European carmakers, such as Mercedes-Benz and BMW expressed concerns over potential market disruptions and cost increases. This European initiative mirrors a similar action taken by the US earlier this year and is seen as a direct response to China’s rapid expansion in the global auto market, driven by competitively priced vehicles.

The chart shows the impact of these measures. Both US and European carmakers show a positive correlation between CAGR and ROE, meaning that as profitability (ROE) increases, so does the long-term growth rate (CAGR). In contrast, the Chinese automotive industry demonstrates an inverse relationship, where a higher CAGR is associated with a lower ROE. This trend may indicate that Chinese carmakers are prioritizing rapid expansion and market share over short-term profitability, particularly as they aggressively price their vehicles to compete in global markets.  

Dollar eases, shipping struggles, and hedge fund hiccups

US dollar weakens against Asian currencies as Fed begins rate cuts

What the chart shows

This chart displays the year-to-date (YTD) performance of the US dollar (USD) against a range of global currencies. It ranks currencies from the largest YTD appreciation to the largest depreciation.

Behind the data

As the US labor market has been showing signs of softening and the Federal Reserve (Fed) has started its easing cycle with an oversized rate cut, the USD’s strength has begun to unwind. While the US Dollar Index (DXY) has remained above 100, the dollar has depreciated significantly against several Asian currencies, including the Malaysian ringgit (MYR) and Thai baht (THB), with drops of 7-9%. Conversely, the USD has appreciated the most against Latin American currencies like the Mexican peso (MXN), as well as the Turkish lira (TRY). As the Fed continues its dovish policy, the USD may face further downward pressure.

US labor market weakens as majority of states face rising unemployment

What the chart shows

This chart tracks unemployment trends from January 2019 to August 2024 for all 50 states in the US as a group. It highlights whether their unemployment rate has increased, decreased or remain unchanged compared to the previous month. According to the latest data recorded, 31 states experienced an increase in unemployment, five saw a decrease, and 14 had no change.

Behind the data

The US jobs market is showing signs of softening. The national unemployment rate has climbed from a low of 3.4% in 2023 to 4.2% as of October 2024. This increase has not been spread evenly across states. Rhode Island, South Carolina and Ohio have seen the largest increases in their unemployment rate over the past year, each climbing by more than a percentage point. Conversely, unemployment rates have fallen in Arizona, Mississippi, Connecticut, Wisconsin, Iowa, Maine, Tennessee, Arkansas and Hawaii.

Given that promoting maximum employment is one of the Fed’s dual mandates, continued labor market deterioration could prompt more aggressive interest rate cuts from the Federal Open Market Committee (FOMC).

Chinese 10-year bonds show low sensitivity to global macro factors

What the chart shows

This chart illustrates the sensitivity of the 10-year Chinese government bond (10y CGB) to various global macro factors including GDP growth, inflation expectations, central bank policies, credit markets, and commodities, based on data from Quant Insight. Sensitivity coefficients show how many basis points (bp) the bond yield could change for each one standard deviation (s.d.) shift in a macro factor, with data spanning the past ten years.

Behind the data

Overall, the 10y CGB shows low sensitivity to global macro factors, with yield fluctuations typically within ±1 bp for a one s.d. shift. However, certain factors have had more pronounced impacts recently. For example, iron ore prices and expectations of quantitative tightening by the Bank of Japan (BoJ) have been linked to positive effects on the bond yield, while copper prices and European Central Bank (ECB) rate expectations have contributed to more negative consequences. These insights could be useful for positioning Chinese sovereign bonds.

Global trade under pressure as shipping rates soar amid port strikes

What the chart shows

This chart compares global trade growth with key shipping rate indices to highlight the relationship between global trade activity and fluctuations in shipping costs, which can serve as a key indicator of supply chain pressures.

Behind the data

Shipping has become a major issue in recent years, impacted by events such as the pandemic, the Suez Canal blockage, and now the latest concern: the International Longshoremen’s Association (ILA) strike. Nearly 50,000 ILA members have walked off the job, halting operations at ports along the East and Gulf Coasts. This disruption has affected the flow of a wide range of goods, from perishable items like bananas and European alcohol to cars, furniture and industrial parts, potentially leading to shortages and price hikes. While many holiday goods have already been shipped, continued delays could drive up prices for perishable products and other imports, further straining supply chains and fueling inflation.

Energy stocks strongly correlate with crude oil prices but not with other sectors

What the chart shows

This chart displays the daily return correlation over the past year between MSCI US and European sectoral indices and crude oil prices (WTI and Brent). It highlights sector sensitivity to oil price movements and shows how crude oil may impact sector performance in the US versus Europe.

Behind the data

The results show strong positive correlations between energy sector equities and crude oil returns in both the US and Europe, with coefficients ranging from approximately 0.5 to 0.6. In contrast, other sectors exhibit relatively low correlations with crude, with some showing small positive or negative coefficients. While crude prices play an important role in energy stock valuations, they appear to have little influence on most other sectors.

Hedge funds lag global equity benchmarks

What the chart shows

This table presents a heatmap comparing the year-to-date (YTD) and recent performance of various hedge fund strategies – such as absolute return, multi-strategy, systematic diversified, market directional, multi-region, and fundamental growth equity – against global equity benchmarks.

Behind the data

The heatmap reveals that these hedge funds have generally underperformed stock benchmarks like the S&P 500, MSCI World, and MSCI EM indices, possibly driven by factors such as the rise of AI, the resilience of the US economy amid recent softening, continued Fed’s accommodation, and renewed stimulus from China.

So, despite being exposed to higher risks, hedge funds did not necessarily outperform equities during this period.

China’s economic challenges, rate cuts, yield curves, and currency valuations

PBoC stimulus counters manufacturing contraction amid mixed PMI signals

What the chart shows

This table provides a detailed breakdown of China’s Purchasing Managers’ Indices (PMIs) from both the National Bureau of Statistics (NBS) and Caixin, covering composite, manufacturing and services sectors. It also includes components of the NBS PMI indices. All are heat-mapped based on their percentile ranks across all available historical data.

Behind the data

The People's Bank of China (PBoC) has announced monetary stimulus that includes cutting the reserve requirement ratio (RRR) by 0.5 percentage points. It also plans to implement further interest rate reductions and inject approximately 1 trillion yuan of long-term liquidity into the economy. This move has helped alleviate concerns about economic activity, as indicated by discrepancies between the NBS and Caixin PMIs and deteriorations in several official PMI components shown in the table.

The Caixin PMI has recently shown expansion. However, the official PMIs reported by the NBS have indicated contractions in manufacturing, despite slight expansions in non-manufacturing. Across various components, contractions can be observed across the board, except for business expectations, which remain in expansion.

China’s growth target at risk

What the chart shows

This chart depicts China’s real GDP growth from 1994 to 2024, along with two measures of potential growth rates: one calculated using the Hodrick-Prescott (HP) filter – which extracts a trend from economic cycles – and another based on a post-global financial crisis (GFC) trend projected into the next 12 months.

Behind the data

Despite the government’s 5% economic growth target, China’s economy has been encountering challenges in real estate, post-COVID activity recovery, the labor market and other areas. These issues suggest that the target may not be attainable.

Additionally, the country’s potential growth rates support this concern: The HP filter indicates a potential growth rate of 4.5%, while the post-GFC trend projects growth falling below 4% in the next 12 months.

Russia and Japan buck trend of global rate cuts

What the chart shows

This table presents the key interest rates of central banks from G10 countries, China and Russia, along with the percentage of inverted spreads for each economy based on term spreads between 1-year to 10-year government bonds. Most central banks have begun their rate-cutting cycles, with exceptions being Australia, Japan and Russia. Notably, Russia and Japan have implemented rate hikes in recent months. Interestingly, while the Russian yield curve is fully inverted – indicating that all spreads between short-term and long-term bonds are negative – Japan's yield curve shows no inversion at all.

Behind the data

The widespread initiation of rate-cutting cycles among central banks reflects a global shift toward monetary easing in response to slowing economic growth amid inflation concerns. The inversion of yield curves in several economies, such as the US (46.7% inverted spreads), the UK (53.3%) and various euro area countries, signals market expectations of future economic slowdowns and potential further rate cuts. Russia's fully inverted yield curve, despite recent rate hikes, may indicate that investors expect future rate reductions or harbor concerns about the country's long-term economic prospects. In contrast, Japan's lack of yield curve inversion, even after rate hikes, suggests that the market anticipates steady economic conditions or aligns with the central bank's optimistic outlook.

US yield curve gradually dis-inverting in 2024

What the chart shows

This chart analyzes the US yield curve from 2015 to 2024, focusing on the percentage of the curve that is inverted. The different colors depict various types of term spreads.

Behind the data

The data reveals that throughout 2024, the US yield curve has been gradually dis-inverting, indicating a shift toward a more normal yield curve structure. In the early part of the year, the proportion of spreads inverted by more than 50 basis points remained steady, suggesting sustained investor concerns about economic slowdown or later rate cuts. However, more recently, even these deeply inverted spreads have begun to decrease. This movement toward upward sloping—where longer-term yields exceed shorter-term yields—reflects growing market optimism about future economic conditions. The dis-inversion across the yield curve may signal expectations of stronger economic growth or a change in monetary policy stance by the Federal Reserve.

Quant Insight data reveals euro’s valuation gaps against global currencies

What the chart shows

This chart showcases Macrobond’s newly integrated Quant Insight dataset, offering a detailed analysis of currency sensitivities against the euro. Macro sensitivities are interpreted such as that a one standard deviation change in a macroeconomic factor will result in an x% change in the currency pair’s exchange rate.

Behind the data

This analysis of the euro's valuation against 22 different currencies reveals that euro vs. Malaysian ringgit is the most undervalued pair, with a -4.5% gap from fair value, suggesting potential appreciation of the euro against the ringgit. Conversely, the euro is most overvalued against currencies like the Russian ruble and Mexican peso, indicating possible future depreciation relative to these currencies.

By using this dataset, we can identify trends and relationships in key drivers such as commodity prices, credit risk indicators and market volatility.  

S&P 500 maintains growth amid moderate volatility

What the chart shows

This chart displays the S&P 500's annual return growth, VIX intra-year highs, and maximum drawdowns, from 1990 to the present.

Behind the data

Although markets have experienced some selloffs and uncertainties due to recurring recessionary fears, the data shows that markets are still far from extreme pessimism.

The S&P 500's year-to-date return growth remains positive. The VIX index, although spiking occasionally, closed highest at 38.6% during this year, notably lower than its significant highs. Meanwhile, the year-to-date maximum drawdown is -8.5%, which seems typical compared to previous norms.

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Are recession fears overstated?  

By Simon White, Macro Strategist, Bloomberg

The market is now considering a recession as its base case. Secured Overnight Financing Rate (SOFR) options, which assume a hard landing to be likely and a Federal Funds Rate of 3% or below by next June, now see a downturn as having a 50% probability. However, that's too pessimistic a view based on the data, which show a low chance of recession over the next three to four months.

Recession risks amid payroll trends and Sahm Rule signals  

By: Ashray Ohri, Senior Lead, Macro Research, Fidelity International

The US labour market has moved to the forefront of monetary policy decision-making after being on the dormant side of the debate for over a year. The triggering of the Sahm Rule has prompted market participants to price in recession risks and raised concerns that the labour market is nearing an inflection point, beyond which further weakening could lead to a compounding increase in unemployment. This could create a negative feedback loop of job losses, declining income and reduced spending that further accelerates job losses.

Our view is that we are not at that critical turning point yet. The rise in the unemployment rate and the triggering of the Sahm Rule can partly be attributed to an increase in labour supply, rather than an alarming slowdown in job demand or layoffs.

Accordingly, the chart above illustrates those potential tipping points by examining non-farm private payroll numbers 12 months before and after the start of the last 10 recessions, as identified by the National Bureau of Economic Research (NBER).

On average and/or at the median (orange and yellow lines in the top chart), non-farm private payrolls have typically turned negative at the start of a recession (0 = start of recession) and go on to deteriorate incrementally for another five months before hitting a floor (average peak decline is -195,000). Payrolls then start to recover, although they remain negative for at least 11 months after a recession starts. Clearly, we are not near these levels of contraction.

While these central tendencies may not be the most cautious signals, even the highest non-farm private payrolls at the onset of the last 10 recessions was 76,000 (in the Dec 1973 recession). This suggests that we are still more than 40,000 payrolls away from entering recessionary territory, with current private payrolls at 118,000 in August.

It is important to note that exceeding these thresholds will not necessarily confirm a recession, as circumstances this time may be different. Nevertheless, these serve as simple guideposts to bear in mind as we navigate this volatile cycle.

ECB’s path to easing  

By James Bilson, Fixed Income Analyst, Schroders  
Source: Macrobond, Bloomberg, Schroders, 18 September 2024

Even after the recent rally, Eurozone policy rates are priced to go only fractionally below our estimate of neutral in Europe, which is around 2%. If we see growing signs of a weakening outlook in upcoming data, more accommodation will likely be needed from the European Central Bank (ECB) to support the economy.

Given that the ECB’s September 2024 inflation forecast has inflation reaching the 2% target only in 2026, further progress in reducing domestic price pressures will be needed for the central bank to speed up its cautious start to the easing cycle.  

Semiconductor sales strong despite SOX slowdown

By Takayuki Miyajima, Senior Economist, Sony Financial Group

The SOX index is a leading indicator of global semiconductor sales. So does the recent decline in the SOX index signal a future slowdown in global semiconductor sales? At this point, I don’t see any significant change in the semiconductor cycle.

The chart compares the SOX index with year-over-year (YoY) growth in WSTS global semiconductor sales. While both the SOX index and YoY growth have slowed in recent months, growth remains strong. Hence, there is a large probability that WSTS global semiconductor sales will continue to maintain double-digit growth for the time being, and there is no reason to be concerned about the cycle peaking just yet.

Loosening financial conditions may delay rate cuts

By Diana Mousina, Deputy Chief Economist, AMP

The Goldman Sachs Financial conditions index is a measure of overall financial conditions using market-based indicators, with different weights across countries depending on the structure of their economies.

An index above 100 indicates that financial conditions are tighter than long-term “normal” for that country, while an index below 100 indicates conditions are looser than “normal.” In the current environment, despite significant tightening in monetary policy across major economies such as the US and Australia, financial conditions have not tightened considerably relative to historical levels. And more recently, conditions have loosened again, driven by lower market volatility, rate cuts priced in by financial markets, and better equity performance.

This recent loosening in financial conditions could argue against significant interest rate cuts from central banks in the near term. But bear in mind that while financial conditions indicators are a good gauge of market conditions, they are less of a guide to actual economic conditions.

Restaurant slump signals rising pressure on US consumer spending  

By Enguerrand Artaz, Global allocation fund manager, La Financière de l'Echiquierv (LFDE)

Far from the post-Covid euphoria that saw leisure consumption soar, the US restaurant sector is now in the doldrums. According to the National Restaurant Association index, activity in the sector has fallen sharply since the start of the year. This illustrates a phenomenon seen in other survey data, namely a refocusing of consumer spending on the most essential items.

From a forward-looking point of view, it is interesting to note that restaurant activity has generally correlated with, and even slightly led, trends in retail sales. At a time when the job market is weakening, US household consumption seems to be under increasing pressure.

Bond prices remain below their historical averages

By: Kevin Headland and Macan Nia, Co-Chief Investment Strategists, Manulife Investment Management

Over the last month or so, there has been much debate concerning the Federal Reserve’s path for rate cuts. As the market started to price in the first rate cut and then the potential for more than 25 bps per meeting, yields across the Treasury curve fell, resulting in solid performance for fixed-income investors.  

That raises the question of whether the window for bonds is now closed. We believe that’s not the case and that there are still attractive opportunities. The fixed-income market is deep and diverse, offering pockets of opportunity for astute active managers, not only from a yield perspective but also from a capital gains perspective. Despite some increases in price, many fixed income asset classes remain below their post-global financial crisis average.

History suggests more aggressive rate cuts ahead

By Jens Nærvig Pedersen, Director and Chief Analyst, FX & Rates Strategy, Danske Bank

The Fed decided to go big this week by starting its rate-cutting cycle with a 50bp cut. Now the market is left wondering what comes next. Will the Fed deliver more big rate cuts and how low will it go? The market expects over 100bp of cuts over the next four meetings, suggesting the possibility of further significant reductions.

At first glance, this may seem aggressive, but history tells another story. In half of  the previous six cutting cycles, the Fed ended up cutting rates more than the market initially expected. In the other three instances, the Fed delivered cuts in line with expectations.

Yield has been a good predictor of future returns

By Niklas Nordenfelt, Head of High Yield, Invesco

A notable feature of the high yield market is that longer-term total returns have closely aligned with the starting yield.  

Chart 1 shows rolling 5-year and 10-year total returns alongside the starting yield at the beginning of each period since 2005.  

While the fit is not perfect, Chart 2 shows a strong relationship over an even longer period. It plots the starting yield to worst (YTW) on the X-axis and the subsequent 5-year annualized return on the Y-axis, showing a correlation of 0.68 between the 5-year annualized return and the starting yields.  

Always be prepared for a return of volatility

By George Vessey, Lead FX & Macro Strategist – UK | Market Insights, Convera

Currency volatility has been in the doldrums since most central banks paused monetary tightening in 2023. But this calm across markets contrasts with elevated macro and political uncertainty.  

A big question is how long this low-volatility regime can persist. We’ve witnessed such extended periods of low volatility in GBP/USD only a handful of times over the past two decades, each followed by a shock that reignited volatility. One could argue that the longer the slump, the bigger the eventual jump...

Long-term corporate bonds set to outperform as Fed easing looms

By Brian Nick, Managing Director, Head of Portfolio Strategy, NewEdge Wealth

In light of the approaching Fed easing cycle and recent softening in macro data, I examined the changing relationship between stocks and bonds.  

Investors have grown accustomed to viewing duration as a drag on their portfolios, but it's important to highlight that longer-term corporate bonds have significantly outperformed cash and cash-like instruments over the past year. Historical patterns during rate cuts and economic downturns suggest this outperformance is likely to continue.

Balancing act for Bank of England as markets race ahead

By: David Hooker, Senior Portfolio Manager, Insight Investment
A line graph with numbers and a lineDescription automatically generated

With the easing cycle just beginning, the housing market is already starting to show signs of increased activity and firmer prices. Long-term yields have declined in anticipation of future rate cuts, dragging down mortgage rates and easing financial conditions. This underscores the complex challenge the Bank of England faces: preventing markets from running far ahead of what is likely to be a gradual decline in rates.  

Against a backdrop of still elevated service inflation and high wage growth, don’t be surprised if the BoE maintains a hawkish tone in its statements as it attempts to temper market enthusiasm.

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