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 25^th to 75^th percentile range, while the green box represents the 10^th to 90^th 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.