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April 28, 2022

Equity strategies, forecast revisions and Chinese copper

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Arnaud Lieugaut
Karl-Philip Nilsson
Patrick Malm
Julius Probst
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‘Sell in May and go away’ delivers mixed results

We start the week by looking at the classic ‘Sell in May and go away’ investment strategy. It involves divesting equities in May and re-investing in November to avoid the lacklustre summer period that historically has led stocks to underperform.   

Using the Macrobond Investment strategy function, we look at returns you would have achieved since 2000 if you had exited between May and October each year, with returns had you stayed invested in the S&P 500 or Euro Stoxx 50 throughout. 

You can see that the ‘Sell in May’ tactic delivered on its promise for European equities, but less so for US stocks. 

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US equity returns worst since Great Recession

Now let’s look at some of those equity returns on a more granular level. The heatmap below visualises monthly returns of the S&P 500 and the mean for each year since 2000.

You can see that so far this year, average returns are already at the lowest since the 2008 global financial crisis.  

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GDP growth forecasts revised down

It’s been an eventful 2022, to say the least, and economic forecasters have thus had to adjust their growth predictions for the year. 

Using data from FocusEconomics – now available as a Premium Dataset – we show the extent of downward GDP growth revisions for selected regions and economies. Note the severe, though not surprising, change for Russia. 

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Forecasts by FocusEconomics

Our new FocusEconomics premium dataset also allows you to chart predictions by forecaster. Here, we show the various forecasts for US inflation this year. 

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US inflation forecasts revised up

While individual forecasts varied, one trend was clearly apparent – they all expected US inflation to rise. 

Using the cross section analysis function, we charted the evolution of forecast revisions since January 2020 – broken down by median, percentiles and high/low range.

Predictions of a sharp climb in consumer prices were certainly on the mark! 

Read our guest blog by FocusEconomics economist, Oliver Reynolds, on why eurozone nations are offering wildly different forecasts for the bloc.

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US wheat prices surge to record

Rising food costs are a major contributor to inflation in the US, not helped by wheat prices surging to a record thanks to Russia’s invasion of Ukraine; the two countries supply a quarter of the world’s wheat.

We can probably expect those prices to rise even further given the poor wheat crop from US farms following an unusually dry winter in key production states. 

This chart compares the spot price for wheat with production conditions as described by farmers surveyed by the US Department of Agriculture. Note the double whammy of high wheat prices and low wheat supply. 

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Chinese copper supply dwindles

Moving to China now, where the government’s zero-Covid policy continues to grind much economic activity to a halt and disrupt supply chains. 

As this chart shows, stocks of copper in Chinese warehouses are shrinking rapidly across all locations following a top-up in supply at the start of 2022. 

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China copper supply at decade-low

To better understand the scarcity of Chinese copper, we performed a slice analysis that compares week by week supply so far this year with the weekly average over the last 10 years. 

While it’s usual for stocks to fall at this time of the year, note how the build-up ended earlier than usual – and how stocks are now at a 10-year low for this period.

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China mobility lowest in Asia Pacific

As a result of China’s harsh lockdowns, movement within its major cities, as well as in Hong Kong, has slowed significantly. 

This chart compares high-frequency mobility indicators for selected APAC countries. (As Google’s community mobility data does not include China, we used road congestion data for four of its major cities instead.) 

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Revision History
This chart features Macrobond’s unique Revision History data which shows how key macroeconomic indicators have been revised over time
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