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July 5, 2024

USA in focus: Elections, debt ceiling, employment and treasury yields

This week's charts cover the key financial and economic trends shaping the US – from the ongoing dynamics of the US debt ceiling and Treasury yield curve inversions to the fluctuating job market, with the 2024 presidential election adding an extra layer of uncertainty. The charts also highlight the performance of the US dollar amidst monetary policy shifts as well as drawdowns in the cryptocurrency market.
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Usama Karatella
Denys Liutyi
Hank Rainey
Siwat Nakmai
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Biden's odds plummet as Trump takes lead in presidential race

What the chart shows:

This chart from PredictIt illustrates the fluctuating odds of various candidates winning the 2024 presidential election, based on betting market data. As of July 5, 2024, Donald Trump leads at 58 cents per share with approximately a 58% chance, while Joe Biden's odds have dropped to 23%.

Behind the data:

This significant shift in Biden's odds coincided with the first presidential debate on June 27 in Atlanta, Georgia. The debate performance sparked concerns among both Democrats and Republicans about Biden's fitness for a second term, particularly due to his age (he would be 86 by the end of his potential second term.) This has led to increased speculation about alternative Democratic candidates, with California Governor Gavin Newsom and Vice President Kamala Harris seeing their odds rise to 22% and 6%, respectively. The coming weeks will reveal whether Biden's debate performance has a lasting impact on his re-election prospects. 

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US job market faces pressure as downward revisions signal potential slowdown 

What the chart shows:

This chart shows the revisions to US nonfarm payrolls (NFP) from 2021 to the present, highlighting the differences between initial release estimates and the latest adjustments. The green areas indicate periods where revised data showed higher job additions than initially reported, while the red areas show periods where job additions were revised downward. The dotted line represents the non-recessionary average of 157,000 new hires per month.

Behind the data:

Despite monetary policy restrictions, the US job market has shown resilience, reflected in the better-than-expected NFPs in several months over the past quarters and years. NFPs have also consistently exceeded the non-recessionary average since early 2021. However, since 2023, there has been a downward revision trend (red areas) with only occasional upgrades (green areas), a contrast to the more frequent positive adjustments seen in 2022. The upcoming {{nofollow}}release for June (scheduled for 5 July) will be closely watched, with expectations of a slowdown to approximately 180,000–190,000 job additions.

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Elevated US debt burden poses risks to future economic stability

What the chart shows:

This chart displays the US debt ceiling and the current debt levels from 1995 to the present. The blue line represents the total public debt subject to the limit, while the red and green areas show the periods when the debt was above and below the statutory limit, respectively. The grey bars indicate US recession periods.

Behind the data:

The US debt ceiling, a limit set by Congress on the amount of federal debt, has been a critical issue. The debt limit of $31.4 trillion has been suspended from June 2023 to January 2025, when Congress must raise it or risk a default on its debt, following the November 2024 presidential election. The {{nofollow}}suspension aims to prevent a catastrophic default that could freeze financial markets, potentially wiping out trillions of dollars in household wealth and negatively impacting economic activity and employment conditions. Recently, the IMF warned of the {{nofollow}}adverse consequences of high debt levels, such as higher fiscal financing costs and rollover risks. 

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Record yield curve inversion continues without a recession

What the chart shows

The top section illustrates the spread between 10-year and 2-year Treasury yields since the 1970s, with periods of inversion (where the 2-year yield is higher than the 10-year yield) highlighted in red. The bottom section quantifies the number of consecutive trading days the yield curve has remained inverted, which is often considered a predictor of economic downturns. 

Behind the data

Historically, an inversion between the 2-year and 10-year Treasury yields has been viewed as a warning sign of an economic downturn. However, this time, it appears to be an exception – for now. As the chart shows, July 2024 marks the 24th consecutive month of yield curve inversion without a recession, the longest streak on record. This is comparable to the 1970s when the US faced high inflationary risks and thus high policy interest rates. Similarly, the current period has seen a prolonged inverted yield curve, though there are hopes for avoiding a recession. 

As monetary policy enters an easing cycle, the 2-year bond yield—more closely tied to the Federal Funds rate—could be more vulnerable to downward pressure than the 10-year bond yield. This could result in a reduced yield curve inversion or even a return to a normal upward-sloping shape for the US Treasury yield curve. Economic conditions that normalize over time would also contribute to this shift.

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S&P 500 seasonality suggests stronger returns at start of July 

What the chart shows

This chart depicts the seasonality of the S&P 500 index since 1928 by comparing the performance of the first (left dashboard) and last 10 (right dashboard) trading sessions of each month. It shows the average return, median return and the percentage of time the index was up during these periods. The chart also includes the standard deviation of returns to indicate the volatility and the distribution of returns within specified ranges. 

Behind the data

Focusing on the first 10 sessions of the month, July stands out with the strongest historical returns with a mean of 1.55% and a median of 2.07%. More so, across the first 10 trading sessions of the S&P 500 in July since 1928, returns have been positive 72% of times.

Looking at the last 10 sessions of the month, December stands out with a mean of 0.99% and a median of 1.15%. Returns have also been positive on 75% of occasions.

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US dollar defies expectations with strong gains in 2024 

What the chart shows

This chart shows the contributions of various currencies to the changes in the US Dollar Index (DXY) since the start of 2024. Each color represents a different currency, with the height of each segment indicating its contribution to the overall index's performance. 

Behind the data

2024 began with consensus expectations of a weaker US Dollar due to stretched valuations. However, nearly halfway through the year, the dollar index (DXY) has gained around 4.4% year-to-date, raising questions about whether the consensus has changed.

The case for a weaker dollar in 2024 was based on deteriorating fiscal and trade deficits and a narrowing interest rate differential with other major economies. As the year unfolded, resilient growth and slower progress on inflation in the US pushed back rate cut expectations.

Meanwhile, other major central banks embarked on monetary policy easing ahead of the Fed. Consequently, as shown in the chart, the greenback gained broadly against all the currencies in the DXY. While long-term fundamentals still indicate that the dollar is richly valued, higher-for-longer rates in the near term could continue to support a stronger-for-longer dollar.

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Crypto market declines despite Bitcoin ETF boost 

What the chart shows 

The chart displays the recent drawdown dynamics of the 16 biggest cryptocurrencies by market capitalization, indicating the percentage decline from their previous peak values. We can see significant declines across the various cryptocurrencies, with some experiencing drawdowns of over 80%.

Behind the data

During the spring, the crypto market experienced euphoria after the U.S. Securities and Exchange Commission approved the first 11 Bitcoin spot ETFs in January 2024. Following this approval, many cryptocurrencies soared significantly. However, once Bitcoin entered a stable period, many of its peer coins declined.

Recently, there have been drastic drawdowns in meme-inspired coins such as Dogecoin and Shiba Inu, as well as in some notable projects like Cardano, Avalanche and Ripple, all of which have dropped by around 80% from their peaks. Polkadot's situation is particularly concerning, as it approaches an all-time low despite its technical promise and robust development community.

On the other hand, the relative stability of Bitcoin and Tether during this period reaffirms their positions as more reliable assets within the cryptocurrency ecosystem. Toncoin's rise to an all-time high amidst this turbulence is intriguing and suggests that investors are still seeking new opportunities with perceived strong potential.

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