Charts of the Week

Decoding July performance patterns: analysing the US stock market (S&P 500)

This chart analyses the performance of the US stock market (S&P 500) during the month of June. It uses data from 1928 to 2023 to show the average performance of the index up to a specific date within the month. For instance, the values on July 4th represent the average performance of the S&P 500 index up to that date for every July 4th from 1928 to 2023.

The chart consists of two sections. The first section is a simple line chart that illustrates the typical pattern of the US stock market. It shows that the market tends to have a strong start at the beginning of the month, levels off and slightly declines around two-thirds of the way in, and then rebounds towards the end. On average, by the end of July, the month-to-date performance of the market is 1.4%.

The second section is a unique bubble chart where the size of each bubble corresponds to the strength of the month-to-date performance figure. The bubble representing July 2nd, for example, has a month-to-date figure of 0.3% and is the smallest bubble. Conversely, the bubble representing July 28th has a month-to-date performance of 2.1% and is the largest bubble.

Recovery trends and real estate implications: London tube and New York subway usage

This chart looks at London Tube and New York Subway usage from 1^st March 2020 through to 2023. It uses daily data to track passenger levels across each day of the week and expresses these levels as a percentage of pre-pandemic levels. 

We can see that on average, both London and New York are seeing a gradual move back towards what was considered “normal”. London underground usage is around 80% of pre-pandemic levels, while New York City subway usage is around 70%. Could the rising trends in these charts bode well for a recovery over time in office, retail, and commercial real estate more broadly? Or will the “new normal” of reluctance to travel on Monday and Friday continue to weigh on these sectors?

Comparative analysis of government bond yields: Spain, France, Germany, and the EU

This chart uses Macrobond’s Yield Curve analysis to illustrate the full term-structure of a selection of European countries’ government bonds. We chose Spain, France and Germany, and compared this to the EU. 

The EU is paying more to borrow with its joint bonds than the bloc's leading members, denting the appeal of common issuance for those countries and emboldening opponents of fresh debt sales. During the global bond sell-off of the past year, the EU's borrowing costs rose more swiftly than those of many member states.

Today, they have risen above French borrowing costs, even though the EU's AAA credit rating outshines France's AA status. At shorter maturities, Brussels’ yields are even higher than those paid by Spain and Portugal - long considered among the bloc's riskier debt markets.

Deflation concerns in China: Unravelling the rapid decline in CPI

As the world is gratefully watching the apparent cooling of US inflation, the latest CPI numbers from China are potentially dropping too quickly, raising concerns about deflation in the world’s second biggest economy.

In the heatmap above, we have decomposed the China CPI data, highlighting a rising trend in red and a slowing trend in blue. The latest headline CPI number dropped to 0% in June, but we can still observe a significant rise in Clothing and Tourism, which may have been boosted by China’s reopening. Worryingly, there are large areas of blue in Food and Energy, which sum up to 45% of the weight of the headline CPI. Specifically, pork and beef prices are cooling down significantly, as well as fuel and transportation.

Fiscal balance trends in emerging markets: Impact of falling energy prices in Middle East and Africa

This chart looks at fiscal balances across a universe of emerging markets, and expresses them as percentages of their respective GDPs. Bars represent the 2023 value, while markers represent the 2022 values. Countries are colour-coded by the region they belong to, as shown by the legend.

This colour coding helps shed light on some interesting broad trends across emerging markets. Firstly, we can see that nearly all Middle Eastern countries’ fiscal balances have worsened, perhaps as a result of falling energy prices. African countries seem to have improved their situations over the last year, possibly for the same reason?

Unveiling UK immigration trends: Shifts in EU and non-EU migration and labour shortages

This chart examines UK immigration levels from 2010 to the end of 2022 using data on long-term migration. The figures are based on rolling 12-month estimates and are categorized into EU immigrants, Non-EU immigrants, and British. Over time, EU migration has gradually decreased while Non-EU immigration has increased, with a significant shift occurring after Brexit. Given overall immigration has actually increased, it is interesting that the UK suffers from acute labour shortages and the jury split on whether the pandemic or Brexit is to blame.

Exploring UK real income trends: Assessing the impact of parliamentary terms on income growth from Blair to Sunak

This chart looks at real income growth across percentile bands over the course of the last 6 parliaments in the UK. Starting from Blair’s landslide victory in 1997, through his second term (the kaleidoscope has been shaken), all the way to Sunak today, we look at how real incomes changed over the course of parliamentary terms. We highlight the 10th and 90th percentiles in midnight blue and crimson red respectively to display the divergence in real income growths. All other grey lines in between represent the other income percentile bands (20th, 30th, 40th, 60th, 80th).It's clear that UK income growth has been declining for some time but what could the culprits be? The GFC? Austerity? Brexit? The pandemic? Or perhaps it is the combination of them all...

The much tighter labour markets of southern and eastern Europe lead the OECD

This dashboard visualises the tight state of labour markets across the OECD member nations. The green dots representing present-day unemployment rates are well to the left of the red dots (the 2000-2022 average) for almost every country.

(ECB President Christine Lagarde recently remarked that service-sector companies scarred by the pandemic may be engaging in “labour hoarding,” even as rates rise, fearful of being unable to recruit should growth strengthen.)

The nations are ranked from top to bottom by their divergence from that historic norm. 

The cluster of former “peripheral” eurozone members that suffered the most in the early 2010s is notable at the top – as are central and eastern European nations that might be said to have completed their post-Communist transitions: Slovakia leads the table with a remarkable 7.3 percentage point reduction in unemployment.

‍Inflation-adjusted gold prices are high, but they’ve been much higher

With gold prices hovering near their all-time high in nominal terms, our chart adjusts this classic inflation-hedge investment to reflect inflation.

This histogram’s X axis breaks down daily gold prices since 1968 into buckets USD 150 wide. The current USD 1,800-1,950 range is highlighted in red: as of yesterday, gold was trading at about USD 1,915 per troy ounce (compared with the all-time high – unadjusted for inflation – of USD 2,072 in 2020).

The Y axis tracks the absolute number of occurrences in a given range; the frequency (percentage) is shown above each bar. 

For the curious, the inflation-adjusted peak gold price was USD 3,300 in the 1980 spike (which was driven by high inflation, oil shocks and geopolitical upheaval). 

Inflation has obviously supported gold once again, but central-bank purchases have too: these institutions reportedly hoovered up 1,079 tonnes of bullion in 2022 – the most since records began. This trend is not unrelated to geopolitical upheaval: central banks in China, India and Russia are concerned about how US sanctions froze reserves held in dollars, euros and pounds.

‍The US manufacturing construction boom offsets residential weakness

US construction has been resilient through a historic rate-hiking cycle. That’s partly due to a backlog of pandemic-delayed projects. But it’s also a result of President Biden’s ambitious industrial policy programs. 

The Inflation Reduction Act and the CHIPS Act aim to boost domestic investment in clean-energy technology and repatriate the production of key supply-chain products, such as semiconductors. (European observers have worried that the continent’s companies will divert investment to the US as a result.)

Our chart visualises two decades of US building activity, breaking down the year-on-year rate of change by contributions from residential construction, manufacturing and everything else. 

The overall rate of change today is flat – a stark contrast to the plunge (and abandoned projects) that followed the subprime meltdown and GFC. A pullback in residential has been offset by manufacturing construction reaching a multi-decade high.

As the second panel shows, the absolute level of spending on manufacturing construction has more than doubled in just two years, reaching USD 200 billion. 

Swiss inflation is back in the pre-pandemic comfort zone

Remember the pre-pandemic days when a 2 percent inflation target was the de facto standard for many central banks? Switzerland recently became the first developed economy to head back to the “old normal,” perhaps giving hope to other inflation-fighting central bankers.

CPI and core CPI, excluding food and energy, are both back inside the Swiss National Bank’s target range, as shown in grey on our chart.

To be sure, the Swiss had one of the least severe inflationary episodes among developed economies, and the SNB remains cautious, saying more rate hikes are likely in the coming months. 

‍In search of the Fed’s “supercore inflation” for wages

Federal Reserve Chair Jerome Powell introduced a new concept this year with “supercore inflation,” which excludes housing from core personal consumption expenditure (PCE) metrics – aiming to zoom in on prices for services, and by extension, wages.

The “supercore” economic indicator doesn’t actually exist, so we decided to create it. 

This chart tracks overall core PCE (which excludes food and energy), core PCE for goods, the housing components of the PCE. We then calculated a services PCE excluding housing and added it to the chart.

The four lines are quite divergent. While goods inflation has faded strongly, the soaring housing component has only recently peaked after accelerating for more than two years. 

“Supercore inflation” has stubbornly plateaued for longer, running at about 4.5 percent. No wonder Powell has been hinting that more rate hikes are coming. 

‍China’s weak yuan: undervalued or still overvalued?

When China reopened, its currency rose – but the gains were short-lived as economic optimism faded. The yuan touched seven-month lows this week as a gauge of services activity fell more than expected. Meanwhile, the PBOC has implied it will move to support the currency if needed.

Given this context, is the yuan overvalued or undervalued? Our chart applies two analyses: Purchasing Power Parity (PPP) and Interest Rate Parity (IRP). It compares the spot CNY-USD rate to a theoretical exchange rate that perfectly reflects these theories. The second panel shows periods of “overvaluation” (2019-21) and undervaluation, which is the case today. (Macrobond clients can click through to see the methodology, which involves FX rates, CPI and bond yields.)

PPP theory suggests identical goods should be traded at the same price across countries – and FX movements should thus reflect relative inflation, which is higher in the US. PPP theory thus suggests the USD should depreciate.

As for IRP, it assumes an international market with free flow of capital (which, of course, isn’t the case for China). An arbitrage opportunity, or “carry trade” generating easy profit from borrowing in low-yield countries to invest in high-yield ones, will arise if exchange rates don’t reflect interest rate parity. IRP theory would call for the yuan to appreciate to about 7 per dollar.

‍What did equities do after past tightening cycles?

The Fed “pivot” is taking a long time to arrive, with futures trading now anticipating the first rate cut might not occur until mid-2024. In anticipation of that day, what lessons does history have for equity performance?

This chart shows how the S&P 500 performed in the 12 months that followed the end of the last six hiking cycles. We also added the average performance for these six time periods. (The chart uses only price return, ie. capital appreciation, ignoring dividend income.)

The only 12-month period with a negative return was the one that followed the dot-com crash.

Japan is employing ever more immigrant workers

With an aging population causing a labour shortage in some industries, historically immigration-averse Japan has been welcoming more and more foreign workers. As the Wall Street Journal recently wrote, it’s also loosening regulations, potentially letting them stay in the country for good.

As our charts show, the numbers have quadrupled in just 15 years – and the foreign-born now account for 2 percent of the total labour force. The effects in the services, retail and hospitality sectors are easily seen in this visualisation. 

The number of foreign-born construction workers is small, but also notable, taking an upturn in the run-up to the 2020 Olympics.

‍More nations join the US-led disinflation

This visualisation tracks inflation in developed markets before, during and after the pandemic. 

Red squares indicate months where inflation was speeding up; blue squares represent decelerating inflation; and the white line measures the percentage of countries where price increases were accelerating year on year.

The peak global inflation in the winter of 2021-22 is clearly visible – as is the inflation slowdown that broadened in 2022-23. The US and Canada were first to experience sustained disinflation, with Europe following.  

Two decades of central bank decisions: DMs vs EMs

Aiming to visualise a truly global perspective on how monetary policy has evolved, this chart aggregates inputs from central banks around the world – split into a selection of developed and emerging markets. It shows whether a central bank’s most recent move was a hike or a cut.

The Covid-driven emergency stimulus of early 2020 was unprecedented in its breadth: nearly 100 percent of the world’s central banks were cutting rates. By contrast, during the global financial crisis of 2008-09, a few EMs were still hiking as developed markets slashed rates.

The current cycle is also showing a divergence between the two groups. A few emerging markets have started cutting rates this year, but no developed markets have. (Strictly speaking, Japan’s last move was a cut, but that was in 2016, when it moved to negative interest rates.) 

Inflation has resulted in downward real GDP revisions

Macrobond’s revision history function lets users see how perceptions of the recent past contrast with the final analysis. In this case, we examine economic growth adjusted for inflation. 

The macro story of 2023 is how the US has avoided recession (or, at least, postponed it). But stubborn inflation is offsetting some of that good news.

Data published yesterday confirms that for three consecutive quarters, real GDP has been revised downward from the initial estimate. 

Waning equity yields: even three-month Treasuries have caught up

Last week we examined the death of TINA – the narrative during the ZIRP years that “there is no alternative” to investing in equities. After more than a year of rate hikes, there are definitely viable alternative investments today.

This week’s chart revisits the topic. We tracked the S&P 500 earnings yield with the yields from top-rated (Moody’s Aaa) US corporate bonds and three-month Treasuries over recent decades. (The second panel expresses this relationship a different way, tracking the yield spread versus three-month Treasuries for the US stock benchmark and top-rated corporates.)

The current moment is the first time that all three yields have roughly converged since 2007. And for the first time since the early 2000s, the S&P 500’s earnings yield has crept below the three-month Treasury yield.

The corporate bond line is even more notable: debt issued by the strongest companies is yielding less than short-term Treasuries – the first time that has happened since at least 1989.

Equity risk premiums are at the lowest since the GFC

Following on the previous chart, we examine the limited allure of equities through another prism. Stocks are supposed to be riskier than bonds in exchange for higher returns over time – but increased risk comes with less reward these days.

The chart above uses FactSet data to calculate a simplified “equity risk premium” for US stocks: it subtracts the 10-year Treasury yield from the equity earnings yield. 

The risk premium is at its lowest since 2007, edging outside the one-standard-deviation range of the past two decades. 

Equity valuations are high, and bond yields have risen significantly, limiting the excess returns investors can generate from stocks. 

‍Labour participation after Covid

This chart tracks different countries’ participation rate – defined as the percentage of the population that is either working or actively looking for work.

The workforces of major economies have made up all the lost ground from the pandemic – and in some markets, trends are defying demographic change.

In Australia, Japan, and the euro area, participation is higher than it was at the start of 2019 – even as the population ages.

The UK is different from its Continental neighbours. Early retirement surged after the pandemic. Long-term sick leave is also pushing down labour force participation.

Chinese households avoid borrowing

Is China’s great reopening stuttering? Bank lending gives cause for concern: domestic credit growth has been weaker than expected, and there’s an interesting bifurcation in the data.

As our chart shows, on a twelve-month cumulated basis, new lending is growing year-on-year. But demand is solely driven by non-financial enterprises.

Since January 2022, new household loans have been shrinking, as seen by the swath of orange-coloured bars in negative territory – something rarely seen in the previous few years.

This is the context for this month’s rate cuts by the central bank, which is keen to boost the recovery.

The Fed dot plot creeps toward tighter for longer

The Federal Reserve “dot plot,” the de facto monetary-policy forecast, entered the lexicon about a decade ago. It polls seven Fed board members and presidents of the 12 regional Feds. The resulting 19 dots show where central bankers see the Fed funds rate going.

This chart compares dot plots for the two most recent Federal Open Market Committee meetings in March and June.

The June 14 FOMC saw the Fed hit the pause button on rate hikes, saying it wanted to “assess additional information.” But look at the dot plot from that meeting and a more hawkish tone emerges.

Most members now expect the fed Funds rate to average 5.6 percent during 2023, compared with the current 5-5.25 percent range, indicating that additional hikes should be expected in the near term.

For 2024, most of the policy makers are plotting higher rates than they were three months ago. Expectations are creeping higher for 2025, as well.

Scatterplotting the UK inflation crunch

The inflation surge is easing in many countries, but its stubbornness in Britain is proving to be a global outlier. Data this week showed that the consumer price index rose 8.7 percent in the year to May, defying expectations of a slowdown.

This chart breaks down that CPI number, showing the components with the highest and lowest inflation (the x-axis), adding their month-on-month trends, and cross-referencing these sectors with their weighting (the y-axis).

Food is heavily weighted in the CPI and has been experiencing by far the most pronounced inflation, approaching 20 percent in the previous month. The year-on-year pace slowed in May, but remained well above 17 percent.

Restaurants and hotels also have a heavy weighting, and inflation in that segment accelerated slightly from a month earlier. (That’s the kind of services inflation might be worrying the Bank of England the most, showing how higher wages are feeding into core inflation measures that exclude food and energy.) Healthcare has a smaller weighting, but also showed a notable inflation pickup versus April.

TINA no more as alternatives to equities look good

Amid a decade-plus of low rates, many investors came to believe “there is no alternative” to equities – a mantra known by its acronym, TINA. But as rates go higher, other investment alternatives are increasingly attractive. (Or, TARA. “There are reasonable alternatives.")

This candlestick chart aims to show the power of Macrobond’s data by examining the post-1990 range and recent trends for the S&P 500’s earnings yield, corporate credit, six-month Treasury bills, and three-month cash deposit yields. The latter three all offer returns that are competitive with the US stock benchmark and are significantly above their median historical yields – and much higher than they were at the start of 2022.

At their current yield of around 4.5 percent, stocks aren't really on track to deliver inflation-busting returns – and are riskier than these other investments.

The monetary experiment in Turkish central banking

Turkey followed an unconventional monetary-policy approach in the years before President Erdogan’s recent re-election: cutting key interest rates and letting inflation soar to multi-decade highs. Capital fled Turkey, aggravating the collapse of the lira. The central bank’s reserves withered as it attempted to maintain currency stability.  

As this chart shows, the historic relationship between rates and inflation was shattered in 2021 – a stark contrast from the central bank’s hard-fought battle to tame inflation two decades earlier.

Following his re-election, Erdogan appointed a new central bank chief with a mandate to bring down inflation. The recent jump in the repo rate from 8.5 percent to 15 percent reflects yesterday’s central bank meeting; monetary tightening probably isn’t over.

Journalism keeps shedding jobs

Traditional media companies, unable to find a sustainable response to free content on the Internet and fragmenting audiences, have been shedding staff for two decades now (a subject close to COTW’s editor’s heart).

This year, there was another blow: an advertising cutback as the economy slows. (Perhaps AI will replace editors at a large scale next.)

This chart tracks the calendar-year progress of layoffs in the US media industry in recent decades. As of May, 2023 has had the most layoffs of any calendar year up to that point. The only years showing similar patterns were recessionary: 2001, 2008, 2009 and 2020.

Recent high-profile cuts occurred at the Los Angeles Times and Washington Post. New platforms aren’t immune: the Athletic, a high-profile disruptive online sports-journalism platform bought by the New York Times just last year, is letting go 4 percent of its journalists. And perhaps most notably, Vice Media has filed for bankruptcy.

Producer prices fall across the OECD but CPI stubbornly refuses to follow

This chart compares how companies and consumers are experiencing inflation across the OECD nations.

The producer price index (PPI) is a measure of the average change in prices that an economy’s domestic producers receive for their output. It’s often considered a leading indicator for consumer price inflation (CPI) – with the lag in recent years estimated at about three months.

In the most recent quarter, we’ve seen PPI drop for most OECD countries – but CPI is still increasing for almost all of them, though it’s slowing.

Note Norway, the nation with the most pronounced PPI drop. We’ve written about the nation’s peculiar “hyper deflation” before – a byproduct of its hydrocarbon-dependent economy and year-on-year comparisons to the price surges that followed Russia’s invasion of Ukraine.

A heat map for natural catastrophe vulnerability

We’ve repeatedly highlighted concerning weather-related data. As the climate becomes more volatile, which nations are most vulnerable to catastrophe – and which ones have best prepared themselves to cope? 

This chart measures these dangers using indexes designed by Germany’s Alliance Development Works. They differentiate between exposure to disaster and state vulnerabilities – such as deficiencies in state “coping capacity” (such as infrastructure, insurance and healthcare) and future-oriented “adaptive capacity” (reduction of disparities, climate protection and disaster prevention). More information on the methodology can be viewed here.

The Philippines, India and Indonesia have the worst overall scores, which is concerning given the anticipated multi-year disruptions from El Niño – the Pacific Ocean phenomenon that affect Southeast Asia. 

China, on the other hand, has by far the world’s worst exposure to natural disasters, but has been building its state capacity – resulting in an overall benign score. A similar trend is seen in Japan. 

The up and down arrows measure whether nations have made progress in the various categories versus 15 years earlier – or if dangers for citizens are getting worse.

Currency volatility over the decades

Currencies have been in the news during this tightening cycle as “King Dollar” demolished all rivals in 2022 and retreated this year. There was also a bumpy ride during the US debt ceiling drama.

However, on a historic basis, recent years have not been all that volatile, as our chart shows. 

We measured historic volatility for eight of the G-10 currencies against the dollar by applying a month-on-month percentage change and standardising the results. Using the resulting Z-score (a statistical measure of deviation from the norm), we generated volatility “bubble sizes” for moments in time.

The 2008 financial crisis stands out as a period of unanimous volatility against the greenback. It’s also of note that several currencies appear to have been more volatile pre-2000. Japan’s yen experienced more sustained volatility after the 1985 Plaza Accord.

Britons scarred by the Truss/Kwarteng episode might be surprised to see that recent sterling trading has not been especially volatile compared to the early 1990s era of “Black Wednesday,” when the pound crashed out of the European exchange-rate system. (As we wrote last year, while some UK market moves in late 2022 were historic on a weekly basis, the market turmoil was relatively short-lived.)

‍‍Projecting borrowing-cost expectations using Blue Chip

The prestigious Blue Chip forecasts, published by Wolters Kluwer, compile predictions from top US economists to generate key insights on the economy. To demonstrate their power, we chose to examine the US secured overnight financing rate (SOFR). 

SOFR is a broad measure of the cost to borrow dollars overnight while posting Treasuries as collateral. (It was developed as an alternative to the scandal-ridden Libor rate.) Effectively, it’s a measure of changing credit conditions.

Blue Chip’s survey compiled SOFR expectations from 41 institutions. This chart tracks their average and various percentile ranges.

It shows how, overall, analysts are pricing in cheaper borrowing costs – and, by implication, Federal Reserve rate cuts – from early next year. But the percentile ranges highlight the diversity of opinion. Several economists are predicting a steep decline; others, presumably concerned about financial stress or sticky inflation, predict little change. 

As El Niño returns, watch out for damage

El Niño is back. This climate pattern mostly affects Pacific-facing nations like Australia, but sometimes it can impact the global economy. Some regions experience severe droughts; others, heavy rainfall. The last time a strong El Niño was in full swing, in 2016, the world saw its hottest year on record. 

This chart displays the Southern Oscillation Index (SOI), which measures differences in sea level pressure and helps capture this climate event – and its “sister,” La Niña (a cooling event). Sustained negative values (below -7 on the chart) indicate El Niño episodes. We have highlighted the most severe events, when the SOI was below -20.

The more negative the value, the more severe the El Niño – making the sudden shift in May concerning: the SOI plunged from 0 to -18.5. 

The second panel tracks the economic costs of extreme weather, which have been gradually increasing over time. Since 2000, two notable spikes have coincided with severe El Niño events.

Surprisingly few OECD economies are in recession

Markets are fretting about the prospects for a global recession. But on a historic basis, the global picture for developed markets has rarely been better than it is in 2023.

This dashboard tracks the number of countries in a recession per year. The sample universe is 35 countries, all of which are OECD member nations. 

It may not be a surprise that 2020 and 2008 stand out for broad economic trauma. Meanwhile, 2006, 2016 and 2017 were golden years. 

Three economies are in recession in 2023 and one of them is Germany – which recently dragged the entire eurozone into a recession in revised data.

‍‍Crowded houses in Europe

As Europe’s economy grows ever more integrated, cultural and economic differences remain. This chart examines the variation in intergenerational households – or overcrowding, if you’re a young person stuck at home and sharing a room. 

Eurostat defines the “overcrowding” percentage rate as the proportion of households that do not meet the following standard: one common room, one room per couple, one room per single adult, and one room per pair of children or same-gender teenagers.

Our chart indicates that under-18s are more likely to suffer from overcrowding in pretty much all member states, but particularly in Eastern European countries such as Bulgaria, Latvia, and Romania.

There are also prominent numbers of “overcrowded” adults in Greece and Italy. It’s possible that this reflects cultural traditions of young adults living with their parents for longer.

‍The sticky legacies of ECB interventions

This chart shows how the legacies of past central bank interventions get wound down very slowly.

We’ve broken down the European Central Bank’s balance sheet to show the effects of different asset-purchase programmes. The most significant increase occurred in 2015, with the launch of the PSPP (public sector purchase programme). The ECB bought “peripheral” (ie. Spanish, Portuguese, Italian and Greek) government bonds to support market liquidity. 

Most of these economies have recovered from the worst of the early 2010s debt crisis, but more than EUR 2.5 trillion in PSPP purchases still weigh on the ECB balance sheet. 

The aftermath of the pandemic is lingering, too, as seen by the green wedge stemming from PEPP (pandemic emergency purchase programme). 

The ECB said in May that its asset purchase programmes will cease reinvestments in July. But it will take years for these portfolios to mature and shrink substantially 

The darkest-coloured part of the chart reflects monetary policy operations. As the ECB tightens policy to tame inflation, it has shrunk by about EUR 1 billion over the past year. 

Central bank liquidity and stocks

Is central bank liquidity a key determinant of stock-market returns? In February, we wrote about how Japan’s unorthodox monetary policy was probably boosting global equity markets, even as the Federal Reserve was tightening.

Indeed, there is a 96 percent historic correlation between the combined balance sheets of the world’s major central banks and the performance of the S&P 500.¹

In the chart above, we track the theoretical value of what the S&P 500 “should” have been, given that correlation, against the US stock benchmark’s actual performance.

The second panel expresses this relationship in a different way, measuring the S&P’s variance from the model. The one-standard-deviation range is highlighted in gray.

As central banks drain liquidity, the S&P 500 has crept higher and is more than 1 standard deviation away from the trend. Are we headed for a correction, or will markets defy shrinking balance sheets as they did during the tech-driven surge of 2018-19? 

Rich and poor retirees around the world

This scatter chart uses OECD data to compare the mean disposable incomes of working-age people (aged 18-65) and retirees (defined as 65-plus) in different countries. If your nation is on the diagonal line, that means the two age cohorts make the same amount of money. 

If not, this gives a sense of how far your nation is from “income coverage parity”. The smaller the dot, the lower the relative income for older people in that nation. 

Retired South Koreans have the biggest income gap with their younger counterparts. But in Italy, the over 65’s make slightly more than the rest.

Tracking Australian commodity exports: LNG, iron ore and the rest

Australia’s resource-based economy is famously resilient. The last recession Down Under was more than 30 years ago.

For the last 20 years, Australia has especially benefited from China’s sustained demand for minerals and hydrocarbons.

This chart breaks down Australian export revenue over the years, highlighting the ever-growing importance of iron ore, natural gas and coal. The big three commodities account for more than 60 percent of the total, compared with about 15 percent in the late 1980s.

Coal has been important for decades. But liquefied natural gas (LNG) exports are a relatively new feature of the Australian economy. The nation now jostles with Qatar for the top rung among LNG exporters.

For iron ore, China is the world’s dominant market, buying 70 percent of seaborne supply. The effect of China’s zero-Covid policy on the composition of Aussie export revenue in 2021-22 is clearly visible – as are the windfall gains that LNG exporters have reaped from higher global gas prices in the wake of Russia’s invasion of Ukraine.

What’s been displaced, share-wise? Manufactured goods and agriculture, most notably.

‍A mixed picture on our emerging markets dashboard

This dashboard assesses the most recent data points for economic activity across 10 major emerging markets. 

Using seven indicators, we break down the health of these economies. Green signifies strength; red indicates weakness. 

As oil prices decline and sanctions bite, Russia’s poor GDP performance stands out. And in the wake of Recep Tayyip Erdogan’s re-election, so does Turkey’s rampant inflation.

Indonesia suffered a particularly pronounced slump in exports due to the year-on-year price drops for coal and palm oil, two of its most important commodities.

China, the biggest emerging market, is showing a bit more green than red overall as its stock market recovers.

‍‍In search of an AI bubble index

Artificial intelligence breakthroughs have dominated headlines in 2023. ChatGPT has become a cultural phenomenon.

Cynics compare the hype around AI to past dotcom and crypto bubbles. Is there a way to compare the current craze to past investment trends?

We’ve created a mini-AI index and charted it against investment crazes ranging from 1970s gold to 1990s Asian tiger economies, as represented by the Thai stock benchmark. We also included the FAANG, which defined the late 2010s. (With the Fed-driven bear market of 2022 in the rearview mirror, it seems this Big Tech trade is back on.)

So far, there are few pure-play AI stocks; most of the hype has focused on Nvidia, a venerable chipmaker once associated with video-game graphics. It’s now seen as the dominant supplier of AI-related hardware and software. Microsoft, meanwhile, is integrating OpenAI into its Bing search tool. Both tech giants are in our nascent AI bubble index. We’ve also added Alphabet, Palantir and AMD.

Many of the interesting pure-play AI companies, like Midjourney and Hugging Face, are still privately held. As they come to the market, Macrobond users can customise their own AI indexes accordingly.

‍Visualising the whiplash from revised forecasts

Pessimism was abundant in 2022, but 2023 has seen surprising economic resilience on both sides of the Atlantic.

This chart visualises how consensus estimates for 2023 inflation (x axis) and GDP (y axis) evolved for the US, UK and eurozone from the start of 2022.

Economists consistently underestimated inflation for most of last year. As central banks hiked rates in response and the economic outlook grew darker, the arrows for all three economies headed in the same direction. Inflationary, Brexit Britain took the most rapid voyage to the lower right corner.

As optimism about growth kicked in, we see the lines “bounce” higher in unison. Only the eurozone is showing much optimism about disinflation in what remains of the year.

‍The biggest pieces of the pie in local stock markets

Most economies around the world are associated with a particular industry. The UK is dominated by London’s financial hub. Canada and Australia are known for their resources. But as this visualisation shows, sometimes national stock markets’ composition defies stereotypes.

This chart first breaks down global equities into different sectors and weights them as a percentage of total market capitalisation. We then take national and regional stock markets and compare them to that global breakdown. When a sector is overweight in a given nation compared to its global importance, we highlight the percentage in bold: perhaps unsurprisingly, tech is disproportionately large in the US, Japan and the China-dominated Emerging Markets aggregate.

The importance of banking in developed markets stands out. Even with Europe’s banks a shadow of their former, pre-GFC selves, they account for a quarter of equity capitalisation. Canada’s energy sector is disproportionately large on a global basis, but it’s still surpassed in value by the nation’s banks.