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.