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 5-8%. 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.