Charts of the Week

Jobs revisions underline Fed’s September rate cut

What the chart shows

The chart displays the annual revisions of US nonfarm payrolls through April-March cycles from 1980 to 2024, highlighting the negative revision average, revision’s 5^th percentile, and percentage point errors.

Behind the data

The US nonfarm payrolls were {{nofollow}}revised downward by 818,000 jobs over the 12 months through March 2024, a 0.5% reduction from the original total figures.

This marks the largest downward revision since 2009, far exceeding the average negative revision of 243,000 and even surpassing the 95%-confidence Value-at-Risk (VaR) estimate of 602,000. It underscores growing concerns about the strength of the US labor market.

However, the negative revision was not significantly above {{nofollow}}Bloomberg’s estimate of 730,000 and less severe than the upper-bound prediction of 1m.

As Federal Reserve (Fed) Chair Powell will deliver his crucial speech at the {{nofollow}}Jackson Hole Symposium, the jobs revision will play a role in determining rate cuts looking ahead, broadly anticipated to begin in September.

Persistent cyclical core PCE poses risks to Fed’s easing cycle

What the chart shows  

The chart illustrates the decomposition of US core PCE inflation into {{nofollow}}cyclical-acyclical and {{nofollow}}demand-supply components. It also compares these to pre-COVID averages for cyclical and demand-driven contributions.

Behind the data

US core PCE inflation is one of the Fed’s inflation gauges in considering monetary policy implementations, while the central bank is facing moderation in inflation and jobs and is poised to enter an easing cycle. The cyclical and demand-driven parts may associate more with the Fed than other considerations. This is because cyclical inflation reflects overall economic conditions instead of industry specifications, while {{nofollow}}the Fed controls demand rather than supply.

Recently, compared to pre-COVID norms, the US core PCE inflation has remained in excess in cyclical aspects despite normalization in demand-driven factors. So, there still exist inflationary risks.

US GDP growth surpasses expectations despite weak leading indicators

What the chart shows  

The chart compares the year-over-year growth of US real GDP with that of the {{nofollow}}Leading Economic Index (LEI). It also illustrates LEI averages during recession periods and at the start of recessions and GDP-LEI z-score differentials.

Behind the data

US GDP growth for Q2 2024 {{nofollow}}exceeded expectations, led by {{nofollow}}strong private consumption and inventory accumulation. With the upcoming second estimate on August 29, the LEI—which includes economic and financial components such as new manufacturing orders, consumer expectations for business conditions, and the S&P 500—typically serves as an indicator of economic activity and potential recessions.

However, recent years have revealed discrepancies between GDP and the LEI, with the LEI contracting despite solid GDP growth. Although the LEI has recently risen above recessionary norms, it remains below levels typically observed at the start of recessions.

Amid the potential for avoiding a recession, the alignment between macroeconomic and sentiment indicators remains debatable.

Sectoral sentiment in the Eurozone reflects mixed economic outlook

What the chart shows  

The chart presents the recent z-scores and distributional statistics of the Euro area’s {{nofollow}}economic sentiment composite, covering five sectors from the EU Business and Consumer Surveys.

Behind the data

Aside from the economic {{nofollow}}stagnation for over a year, the eurozone's economic sentiment has remained relatively low, hovering around the 25^th percentile. By sector, sentiment in industry, services, and among consumers is also pessimistic, with industry sentiment worsening, while consumer sentiment has improved over the past 12 months. Additionally, retail and construction sentiment has declined over the past year, with retail near the median and construction moderately above it.

With mixed sentiments across economic sectors and a low composite level, the euro area seems struggling to turn optimistic.

Changing correlations highlight varied investment dynamics

What the chart shows  

This chart examines the relationship between the average monthly total returns of the S&P 500 and 10-year Treasury notes over various time periods. It illustrates how the correlation between US stocks and bonds varies based on the time horizon, ranging from one year to 50 years, with values between these points interpolated linearly.

Behind the data

In the short term, such as one year or less, the returns of stocks and bonds are positively correlated, meaning they tend to move in the same direction. However, as the lookback period extends, this correlation decreases, indicating a weakening relationship.

Beyond a 10- to 30-year lookback horizon, the correlation between the two assets turns negative, providing investors with opportunities for diversification. After that, it gradually returns to positive figures. This pattern suggests that the relationship between the monthly returns of stocks and bonds varies significantly depending on the time frame considered, underscoring the importance of considering different time horizons when analyzing the interaction between these two key asset classes.

Consumer discretionary and IT sectors lead, while energy and materials lag

What the chart shows  

The chart depicts sustainable growth rates (SGRs) across S&P 500 sectors, representing the maximum rate of growth a company can achieve using internal revenue without external borrowing.

It is calculated as the return on equity (ROE) times the retention ratio, which is the proportion of earnings retained in the business as retained earnings.

Behind the data

SGRs across S&P 500 sectors reveal a contrast: the consumer discretionary sector is currently achieving an all-time high SGR, indicating long-term growth potential without the need for external financing. The information technology sector also shows above-average performance, countering concerns about lost momentum, particularly for companies like Nvidia. In contrast, sectors like energy and materials are showing much weaker SGRs compared to last year, signaling a more challenging outlook for these industries.

Foreign outflows reflect persistent pessimism towards Chinese equities

What the chart shows  

The chart visualizes the CSI 300 index and net foreign equity flows, derived from the Shanghai and Shenzhen Hong Kong Stock Connect, with data on both Northbound and Southbound flows.

Behind the data

Net negative cumulative equity flows from overseas could reflect pessimistic sentiment and exert downward pressure on Chinese stock performance. This trend is evident in 2021-23, where cumulative net flows were negative, and the stock index closed lower than at the beginning of the year. Meanwhile, other factors, such as the 2018 trade war and the country's first-in, first-out approach to COVID in 2020, may have also had impacts in earlier years.

Additionally, 2024 has been a challenging year for Chinese economic expectations and equity performance. Amid existing economic challenges, exchanges in China have {{nofollow}}stopped reporting certain sentiment data, including flows, underpinning {{nofollow}}reduced availability of economic indicators.

Market braces for Fed rate cuts amid sharp decline in US job growth

What the chart shows 

This chart shows the market expectations for the Federal Funds Rate (FFR) – the interest rate banks charge each other for overnight loans – and how they have evolved from the start of July and the start of August until today. We can see that market expectations for the FFR by the end of this year have notably declined, from just over 4% at the start of July to about 3.3% at the start of August and today.

Behind the data 

A sharp slowdown in the US jobs market has triggered global stock market volatility and fueled speculation that the Federal Reserve (Fed) might cut interest rates before its next scheduled meeting in September. While some analysts anticipate a half-percentage-point rate cut at the September meeting, they believe an emergency inter-meeting rate cut is unlikely, as it could exacerbate market uncertainty and panic.

Later stages of unemployment-inflation trade-offs

What the chart shows 

This chart depicts the US Beveridge Curve, which typically shows an inverse relationship between the unemployment rate and the job openings rate, and the Phillips Curve, which illustrates the relationship between unemployment and inflation – where lower unemployment is associated with higher inflation and vice versa. It compares pre- and post-COVID conditions using scatter plots and regression analyses.

Behind the data 

Before the COVID pandemic, but after the Global Financial Crisis, the US Beveridge and Phillips curves were {{nofollow}}relatively flat in a low-interest-rate environment. Following the pandemic, these curves {{nofollow}}steepened, reflecting a tight labor market with a higher job openings rate compared to pre-pandemic levels, while inflation shifted upward and stayed above the 2% target.

If these steeper relationships persist, the job openings rate and inflation could continue to normalize downward, with a gradual rise in the jobless rate that remains moderate. However, in the later stages of an economic slowdown, there may be non-linear changes, potentially leading to a scenario where the job openings and inflation decrease more slowly while the unemployment rate rises more sharply.

US core inflation exceeds developed markets

What the chart shows 

The chart compares US core inflation with the median and percentile ranges of developed market (DM) peers, and US-peer inflation differential.

Behind the data 

Following the COVID crisis – likely due to more substantial fiscal and monetary measures – US core inflation rose faster than DM peers, widening the inflation gap beyond historical norms. However, since 2023, this inflation differential has begun to normalize.

Recently, both US and DM-peer core inflation have remained above the 2% standard, with the US exceeding DM peers moderately. Given the relatively higher core inflation, the Fed might not adopt a more dovish stance compared to its peers.

Chinese new loans at multi-year lows

What the chart shows

This chart illustrates the seasonality of China’s newly increased loans, comparing 2024 loan levels to those in 2020-2023, as well as to pre-COVID norms from 2010-2019. It highlights how loan issuance stacks up with a baseline set at January's levels (Jan=100).

Behind the data

New yuan loans by Chinese commercial banks in July were {{nofollow}}lower than anticipated, reaching a multi-year low. In 2024, loan issuance has remained relatively subdued compared to recent years and pre-COVID standards, highlighting ongoing economic challenges in China, particularly in areas such as consumer spending and real estate. This may prompt the People’s Bank of China (PBoC) to provide additional monetary support to stimulate credit activity.

Looking ahead, as global monetary policies become more accommodative, the PBoC may find it more favorable to ease its policy further.

USDJPY falls below key average amid yen carry trade unwinding

What the chart shows

This chart compares USDJPY deviations from its one-year moving average with net JPY futures positions – held by non-commercial traders (top panel) or leveraged funds (bottom panel) – from January 2021 to the present. 

Behind the data 

Since 2021, as markets began pricing in the Fed’s tightening cycle amid the Bank of Japan’s (BoJ) ultra-accommodative stance, speculative positions of net JPY shorts – whether held by non-commercial traders or leveraged funds – have steadily accumulated. During this period, USDJPY has deviated to the upside from its one-year moving average for most of the time.

However, following a {{nofollow}}pessimistic US labor report for July, expectations for more significant Fed rate cuts have weighed on the US-Japan interest rate differentials, leading to pressure on the carry trade unwinding and weaking of the yen.

While there remains {{nofollow}}some room for further unwinding of cumulative JPY short positions (indicated by the negative green and purple areas in the chart), USDJPY has recently flipped below its one-year moving average. This may suggest a potential shift in market dynamics.

Biden outshines Trump in energy sector gains despite market perceptions 

What the chart shows

This chart displays S&P 500 sector performance during the tenures of Presidents Trump and Biden, measuring from their respective election dates to the end of July in their fourth year in office.

Behind the data

Trump’s presidential campaigns have been perceived as more stock-friendly, with policies such as ‘{{nofollow}}Drill, baby, drill’ and {{nofollow}}less restrictive banking regulations. However, as the chart shows, the energy and financial sectors actually performed significantly better under Biden than under Trump. 

Performance differences in other sectors are less pronounced, suggesting that factors beyond political and administrative policies – such as monetary policy, economic cycles, inflation shifts and global geopolitics – play a crucial role.

The stark contrast in energy sector performance could be attributed to {{nofollow}}factors like increased oil and natural gas production, driven by post-pandemic recovery and Russia’s invasion of Ukraine, as well as Trump’s mixed stance on clean energy. 

Looking ahead, stock and sector performance may continue to be influenced by these broader forces, and selective attention to policies will be essential. 

Sahm rule triggered but S&P 500 remains resilient

What the chart shows

This chart illustrates the historical performance of the S&P 500 around the triggers of the {{nofollow}}Sahm Rule. The US recession indicator is triggered when the unemployment rate's three-month moving average rises above its low over the previous 12 months.

Behind the data

Data released last Friday showed the US unemployment rate rising to 4.3%, with nonfarm payrolls increasing by only 114,000 in July – both significantly {{nofollow}}worse than expected. This breached the Sahm Rule and amplified recessionary fears, negatively impacting risky assets like the S&P 500.

Historically, the S&P 500 on average tends to bottom after such a trigger.

The median performance indicates some downside risk over the following six months, but the interquartile and percentile ranges suggest a relatively positive performance over the subsequent year. So, while the market may face turbulence at first, recovery and growth are likely in the longer term.

Although empirical data tends to show an upward bias post-trigger, caution is advised due to less downward pre-trigger adjustment than usual.

Consumer cyclicals and technology poised to benefit from Fed rate cuts

What the chart shows

This chart shows the average performance of US sectors relative to the broad equity market over 12 months after the Federal Reserve (Fed) initiated rate cuts. The areas in red indicate sectors performing worse than the benchmark while green areas indicate sectors that are performing better.

Behind the data

Six months after the Fed initiates rate cuts, pro-cyclical sectors like consumer cyclicals and consumer services stand out. Over a 12-month horizon, consumer cyclicals, technology, consumer non-cyclicals, and healthcare sectors become prominent, driven by increased consumer spending, business investment, and attractive dividend yields due to lower interest rates.

On the contrary, utilities and finance typically underperformed the benchmark over the subsequent year.

Political policies could also significantly influence the upcoming monetary easing cycle beyond mere cyclicality.

Bitcoin and gold boost portfolio performance 

What the chart shows 

This dashboard simulates the returns of a classic US 60/40 portfolio, but with additional assets incorporated in increments of 10% or 20% -- reducing the original proportions of US stocks and bonds accordingly. For example, adding 10% gold to the portfolio changes the composition to 54% stocks, 36% bonds and 10% gold.

Behind the data

Recent recession fears have led the traditional 60/40 portfolio, composed of 60% S&P 500 stocks and 40% US 10-year government bonds, to outperform. Among the 11 additional assets we analyzed, only Bitcoin, gold and ESG-focused equities have shown potential to enhance returns. Conversely, incorporating other assets such as European or emerging market equities, US cash or high-yield bonds may dilute the portfolio’s overall returns.  

Improved manufacturing employment and rising prices complicate Fed decision-making

What the chart shows

This chart compares the Federal Reserve Bank of Philadelphia’s regional manufacturing survey results for employment with prices received over the past 20 years. It uses scatter plots and regression analysis to illustrate the relationships between current and future outlooks.

Behind the data 

Manufacturing hires improved over the past six months, shifting from a period of recovery to optimism for both current and future outlooks in July. 

Meanwhile, prices received for manufacturing goods – indicative of goods inflation – have shown growth in both current and future indices. These improvements in employment and prices complicate the Fed’s decision-making process, as they must balance economic growth with inflationary pressures. Consistency with long-term trends further underscores the complexities the Fed faces in formulating monetary policy.

European optimism poll reveals stark divide

What the chart shows 

This chart visualizes the results of the European Commission’s semi-annual poll, which surveys EU citizens on whether they feel optimistic or pessimistic about the future of the European Union (EU). The data is sorted by the combined shares of respondents who feel either very optimistic or fairly optimistic, ranking the most EU-optimistic countries at the top and the most EU-pessimistic ones at the bottom.

Behind the data

Only 65% of EU citizens feel optimistic about the Union's future, with the highest optimism – 80% – in Denmark and Ireland. Nordic and Eastern European countries such as Lithuania, Poland and Romania also show higher optimism. In contrast, "old Europe," particularly France and Germany, display significant skepticism. Greece's low optimism is not surprising due to its history with the EU, marked by high inflation, economic hardships and significant public debt. But the concerns in France and Germany are more troubling, indicating deeper issues within these major economies.

Weak retail sales highlight China’s tough economic recovery

What the chart shows

This heatmap shows year-over-year growth in China’s retail sales across various categories, as indicated by the figures in each row. The blue-shaded tiles indicate high retail sales growth as compared to previous observations over the last three years for that category, and vice versa for the red-shaded tiles. 

Behind the data 

The data highlights the volatility in consumer behavior and its impact on China’s economic recovery, which faces significant hurdles amid the government’s 5% GDP growth target. Despite good progress in late 2023, Chinese consumers seem to have spent less in the first half of 2024. Recent retail sales reports were {{nofollow}}weaker than expected, resulting in a more pessimistic outlook in the heatmap and an overall growth of only 2% in June. 

Inflation eases in Venezuela but economic challenges persist

What the chart shows 

This chart tracks Venezuela’s inflation rate over the past 35 years, segmented by the presidential terms of Hugo Chávez and Nicolás Maduro and using a logarithmic scale for clarity. It highlights the dramatic shift in the country’s economic stability between the two presidencies. 

Behind the data 

Venezuela’s {{nofollow}}recent presidential elections have faced allegations of fraud, intensifying social unrest. Despite Maduro’s self-declared victory, international observers, including the European Commission and the US, criticized the election’s integrity. The previous 2018 election was also deemed flawed and led to significant unrest. Recent results have again triggered widespread protests, with many citizens alleging electoral fraud.

The economic instability under the current regime is linked to severe inflation, currency devaluation and widespread poverty. Inflation, which was below 40% during Chávez’s tenure from the late 1990s to 2013, skyrocketed under Maduro, peaking at over 344,000% in early 2019. While inflation has since eased to around 50%, the ongoing economic challenges suggest a long road to recovery for Venezuela. 

JPY undervaluation presents contrarian opportunities

What the chart shows:

The chart displays USDJPY and its fair valuations derived from 10-year yield differentials and purchasing power parity (PPP). Using 3-year and 20-year rolling regressions reflects shorter- and longer-term aspects of capital flows and inflation dynamics, respectively. Additionally, it provides USDJPY scenarios based on 2.5-3.5% 10-year US-Japan bond yield differentials and visualizes USDJPY’s long-run subsequent returns compared to PPP fair valuation deviations.

Behind the data:

The {{nofollow}}BoJ tightened its monetary policy, raising the policy rate to 0.25% and reducing bond purchases. The {{nofollow}}Fed held rates steady but {{nofollow}}signaled a possible cut in September. These narrowed the 10-year US-Japan bond yield gap to around 3%. Given scenarios of 2.5-3.5% 10-year yield differentials, USDJPY is estimated to be around 129-146. 

The PPP model shows JPY undervaluation against the USD above +2 standard deviations, indicating potential for long-term reversion.

However, overestimated core inflation and {{nofollow}}slowing real wages in Japan may challenge BoJ’s hawkish stance, suggesting USDJPY overvaluation—even reverting—might persist.

Is the US economy peaking amid tech-driven optimism?

What the chart shows:

The chart displays the US Sentix Economic Index, the US Investors Intelligence Investment Index, and the S&P 500. The upper pane illustrates the economic and investment sentiment indices in terms of z-scores using monthly data from July 2002 to the present, compared to the year-over-year growth of the S&P 500. In the lower pane, the US economic-investment z-score differentials are displayed with ±1 and ±2 standard deviation (s.d.) bands.

Behind the data:

When US economic sentiment lags investment sentiment significantly (below –1 s.d.), it suggests pessimistic macro and investment cycles, as seen during the Global Financial Crisis, the euro area sovereign debt crisis, and the COVID pandemic. 

Currently, the macro-investment sentiment gap is negative but not beyond –1 s.d. while the cycle remains an uptrend, primarily led by technological advancements and AI prospects. However, the upcycle shows signs of peaking, and the increasing economic-investment discrepancy might be cautionary.

Tech sector dominates global fund inflows

What the chart shows:

The chart uses data from EPFR to illustrate the sectoral breakdown of global net fund flows aggregated since the beginning of the year.

Behind the data:

The AI-driven rally, particularly around the "Magnificent 7," has significantly impacted global fund flows, with the technology sector receiving around 10 billion USD by the end of July. Conversely, other sectors saw significant outflows, collectively losing almost 25 billion USD. This trend highlights the concentrated investor interest in tech amid broader market adjustments, reflecting a substantial shift in investor focus towards technology and telecommunications.

Record divergence between S&P 500 market-cap and equal weight indices

What the chart shows:

The chart illustrates the one-month rolling return correlation between the S&P 500 market-cap weighted index and the {{nofollow}}S&P 500 equal weight index from the 1990s.

Behind the data:

Previously, we have shown the S&P 500 index diverging significantly from its equal-weight index. Specifically, their ratio—market-cap relative to equal weighting—has been surpassing +2 standard deviations but has not yet exceeded +3 standard deviations, as it did during the dot-com period.

Their dynamic return correlation provides comparable results. It is noticeably low during both the dot-com and COVID-19 eras but high during periods of tranquility. However, in early July 2024, the recent correlation revealed an even more remarkable observation as it tumbled to a record low of about zero.

Such a historically non-existent correlation may not be overlooked amid AI-motivated markets that underpin large-cap concentrations, as opposed to the diversifications reflected in the equal-weight index.

Early summer volatility spike raises market caution

What the chart shows:

This chart compares the VIX throughout the calendar year, with the blue line representing 2024, the green line showing the historical mean, and the purple line depicting the historical mean excluding extreme years (2008 and 2020).

Behind the data:

Historically, volatility tends to increase at the end of summer. This year, VIX spiked significantly in July due to upcoming Federal Reserve meetings, Democratic delegate votes, and earnings reports. Although rate cuts and political confirmations might ease investor concerns, the early and sharp rise in VIX above 20 indicates heightened market caution. Market confidence may be bolstered by anticipated rate cuts and political clarity, but current volatility signals cautious investor sentiment.

Tech fuels recovery in China’s exports

What the chart shows:

The chart shows China’s export growth contributions by category, smoothed using a three-month moving average, highlighting machinery and equipment, basic metals, transport equipment, etc.

Behind the data:

‍{{nofollow}}China's exports have been recovering, driven by global manufacturing improvements, front-loaded orders, and low-base effects. Key contributors include tech-related products like phone sets, automatic data processing machines, and electronic circuits. 

As {{nofollow}}China leads in high-tech and AI sectors, its export trends remain critical global economic indicators. The recovery indicates China's growing influence in global trade, particularly in high-tech industries, which may shape future economic dynamics.

Surge in Chinese copper exports amid high inventories

What the chart shows:

This chart looks at Chinese copper inventories (blue line) and copper exports (green line).

Behind the data: 

Throughout 2024, Chinese copper inventories rose while exports increased significantly due to limited domestic demand. This trend reflects broader commodity market dynamics where sluggish domestic consumption drives producers to seek higher international prices, despite potential trade tensions. The surge in exports amidst high inventories suggests strategic shifts in response to domestic economic conditions and global demand pressures.

Six rate cuts predicted over the next year

What the chart shows

This chart illustrates implied Fed funds futures probabilities based on CME Group futures pricing. The far-left column marks the day of the FOMC rate decision. The second column shows the implied Fed funds rate on that date. For example, on November 7, 2024, the market expects the Fed Funds rate to be 5.05%. The subsequent columns depict the probabilities of what the Fed funds rate will be at the following FOMC meetings. For instance, the next meeting (July 31, 2024) sees a 93.8% chance that the policy rate will remain the same and a 6.2% chance of a single 25bp cut.

Behind the data

Fed Funds futures have been moving swiftly. The market now predicts a 90% chance of a 25bp cut during the September FOMC meeting​​. Additionally, the market is leaning towards there being three 25bp rate cuts by the end of 2024 and three more by July next year, a sharp contrast to the one rate cut expected a few weeks ago​​. This shift is driven by {{nofollow}}cooling inflation and a {{nofollow}}slowing labor market despite a {{nofollow}}solid GDP report. Upcoming PCE, CPI, and payroll releases will be crucial in determining the extent of rate cuts over the next few months.

Central banks repriced towards dovishness

What the chart shows

This chart depicts the magnitudes of futures-implied policy rate cuts for 2024 and 2025 for selected major central banks amid an early accommodative cycle and their recent and upcoming monetary policy meetings (Fed: August 1, ECB: July 18, BoE: August 1, BoC: July 24).

Behind the data

Developed markets, particularly the US, have made progress in disinflation. Consequently, futures markets have been repricing central banks towards dovishness, implying relatively larger rate-cut repricing. Concurrently, Fed policymakers have signaled that the Fed is moving {{nofollow}}closer to rate cuts. However, due to persistent underlying inflation risks, it is anticipated that {{nofollow}}reductions in the major central banks’ policy interest rates will be gradual. Recent futures pricing (as of July 25, 2024) implies total rate cuts this year for the Fed, ECB, BoE, and BoC to be approximately 70, 85, 57, and 109 bps, respectively. For 2025, futures indicate approximately 97, 75, 81, and 83 bps, respectively. Meanwhile, the ECB and BoC have already lowered their reference rates by 25 and 50 bps this year, respectively.

PMI on the rebound?

What the chart shows:

This chart presents the Purchasing Managers' Indices (PMIs) for the past three years, with green boxes indicating expansion and red boxes indicating contraction. It reveals that emerging markets initially contracted early in the cycle but have since rebounded, whereas developed markets have only recently begun to recover from their contraction phase.

‍Behind the data:

During the central banks' hiking cycle, it is crucial for policymakers and the market to consider the spillover effects of efforts to combat inflation. The impact of these interest rate hikes extends beyond immediate financial adjustments, influencing various sectors of the economy. PMI numbers indicate that these hikes have created significant challenges for both the economy and companies. Increased borrowing costs and tightened financial conditions have slowed down business activities, reduced consumer spending, and strained corporate profitability. This underscores the importance of balancing inflation control with potential negative consequences on economic growth and stability.

Divergent DXY on different presidential election winners

What the chart shows

This chart shows the movements of the USD Index around three months before and after the latest two US elections in 2016 and 2020, in which Trump and Biden won the presidential elections, respectively.

Behind the Data:

The data points to a stronger USD when Trump won in 2016, but a weaker USD after Biden won in 2020, likely due to their differing policies. 

{{nofollow}}Under Trump, tax cuts that enhanced growth expectations and imposed tariffs that kept trade and global geopolitical tensions elevated positively influenced the USD Index. 

Under Biden, massive fiscal expenses that weighed on fiscal deficits and less intensity in global supply chain and trade reshoring and deglobalization helped put downward pressure on the USD. 

For the upcoming election later this year, similar policy implications under Trump, currently the favorite, and Biden's successor Harris might yield comparable outcomes for the USD Index.

Strong year for US equities

What the chart shows

This chart displays the number of trading days per year that the market has reached an all-time high. The blue bars represent the total for the entire year, while the green dots indicate historical values up to the current day of the year. Remarkably, this year has already seen the S&P 500 close at an all-time high for 38 days, a feat achieved only four times previously: in 1964, 1995, 1998, and 2021.

‍Behind the data

‍Despite the market's reduced expectations early this year for interest rate cuts in 2024 and the eventful buildup to the upcoming US presidential election, the stock market has shown remarkable strength. It continues to demonstrate resilience and robust performance, suggesting sustained investor confidence and optimism even in the face of potential economic and political uncertainties. This strong market performance highlights the market's capacity to navigate and thrive amidst various challenges, reinforcing its role as a critical driver of economic activity and growth.

Nvidia’s volatility

What the chart shows

The chart illustrates the daily growth of the Magnificent 7 companies using a "beads on a string" format. Each bubble represents the daily growth for a single trading day, calculated as the percentage difference between the opening and closing values. Blue circles indicate days with growth, while red circles indicate days with negative growth.

Behind the data

As Nvidia emerged as a leader of the entire US stock market in 2024 amidst an AI-driven rally, its line depicting daily growth stands out as a notable outlier, showing significant growth on many trading days. Similarly, Alphabet, the parent company of Google, has experienced substantial fluctuations reflecting its volatile market performance throughout the year. Elon Musk’s Tesla started the year relatively stable, with its daily growth line indicating consistent performance initially. However, it has recently tumbled, showing a series of red circles highlighting a period of negative growth. In contrast, Microsoft, Apple, and Amazon are almost invisible on the chart, indicating their daily growth has been relatively minimal and less volatile compared to their peers, suggesting they have been lagging other tech giants in terms of market performance in 2024. Meta's performance, though not as volatile as Nvidia and Alphabet, shows a mixed trend with both positive and negative growth days reflecting the company's varying market response.

2024 and 2023 were the hottest years on record

What the chart shows‍

NOAA calculated the average temperature of the 20^th century from 1901 to 2000, then subtracted the average temperature in each year from this century-long average. This gives us temperature anomalies, indicating how far each year has deviated from the 20th-century mean. Each year is then categorized by how much cooler or hotter it was compared to the average. For example, in 2001, temperatures were 0.6 to 0.7 degrees Celsius hotter than the 1901-2000 average.

Behind the data

The world is hotter than it has ever been before. Both 2023 and 2024 are breaking record temperature anomalies. In 2023, temperatures were 1.38 degrees Celsius hotter than the 20th-century average. Thus far, 2024 is 1.22 degrees Celsius hotter than the 20th-century average. Despite many countries' efforts to cut global greenhouse gas emissions, average global temperatures continue to rise. If the world hopes to limit global warming to the 1.5 degrees Celsius goal set in the 2015 Paris Agreement, immediate and more aggressive actions are needed.

Time to move away from tech?

What the chart shows

This chart visualizes the relative strength (x-axis) and momentum (y-axis) of four S&P sectors against the S&P 500 Index over a specific three-month period. 

Sectors on the right side of the vertical axis (value of 100) have higher relative strength compared to those on the left. Sectors above the horizontal axis (value of 100) have increasing momentum, while those below have decreasing momentum.

This means that sectors in the top right quadrant have high relative strength and positive momentum and are expected to outperform the benchmark. The inverse is true for sectors in the bottom left. 

Sectors in the bottom right quadrant have high relative strength but declining momentum – which means they may start to underperform soon. Those in the top left quadrant may therefore start outperforming soon. 

Behind the data:

Information Technology (purple line) has been the highest performing S&P sector so far this year, reflected in its position in the Leading quadrant. But momentum appears to be declining as it heads into the Weakening quadrant. Could IT soon underperform? 

Conversely, the Financials sector has emerged from the Lagging to Improving quadrant, displaying low relative strength and rising momentum, possibly indicating the cusp of recovery. 

US instantaneous inflation trends bolster probability of rate cuts

What the chart shows

This chart shows the trends in US core Consumer Price Index (CPI) inflation rates from 2021 to the present using three different measures: year-over-year (purple line), month-over-month annualized (green columns), and instantaneous (blue line), which is calculated with a parameter to indicate to what extent more recent observations are more heavily weighted, i.e., weighing between year-over-year and month-over-month inflation.

Behind the data

Inflation is crucial for monetary policy stances and decisions, particularly those of the Federal Reserve. Conventional inflation measures depict yearly and monthly trends. However, these can exhibit biases due to outdated data and short-term noise, respectively. As such, {{nofollow}}instantaneous inflation could be a sensible indicator that balances data noise with the accuracy of immediate price changes.

In 2023, instantaneous core CPI inflation in the US was relatively lower than the annual changes, suggesting continued moderation driven by lower monthly changes. Conversely, in early 2024, the surge in instantaneous core inflation above the annual rate likely indicates more persistent inflation risks. However, thanks to the recent softening of monthly underlying prices in the US, including the May-June 2024 CPI reports consistently {{nofollow}}falling short of expectations, the instantaneous core CPI inflation fell below the yearly rate again. This supports the increasing likelihood of the Fed’s rate cuts, especially in the upcoming September 2024 meeting.

Rising Shanghai freight rates signal potential upside risks for US inflation

What the chart shows

This chart shows the relationship between the Shanghai Containerized Freight Index (SCFI), China Producer Price Index (PPI) and the US CPI. 

In the top pane, we see how changes in Shanghai’s shipping rates precede China’s PPI by about six months. Since the global financial crisis (GFC), the correlation between the two indexes is 0.78, indicating a strong positive relationship.

In the bottom pane, we then see how changes in China’s PPI could be a leading indicator of the US CPI by about six months. The post-GFC correlation here is 0.60, indicating a moderate positive relationship, plausibly via global supply chain and global trade. 

All this suggests that changes in shipping rates in Shanghai can predict future inflation trends in China and the US. 

Behind the data

China’s CPI inflation rose by 0.2% in June 2024 from a year ago – lower than the {{nofollow}}anticipated 0.4%. Meanwhile, 0.8% YoY PPI inflation {{nofollow}}aligned with consensus forecasts. 

Amid {{nofollow}}ongoing geopolitical tensions in the Red Sea, global and Shanghai freight rates have shown an upward bias, although recent weekly prices suggest some signs of peaking. 

Consequently, China’s PPI inflation, which follows the shipping costs by several months, continues to be under upward pressure.

This, in turn, suggests that, from the supply side, US CPI may experience increased inflationary pressures in the coming months.

UK inflation hits Bank of England target as main components ease

What the chart shows

This chart provides a detailed view of year-over-year inflation rates for major subcomponents of the UK’s CPI as of June 2024. 

The large dots denote the figures for June 2024, while the small dots represent the figures for the previous month. 

The arrows show the direction of change between the two. 

The chart also shows the relative weights (Y-axis) of each subcomponent in the overall CPI to illustrate the relative importance of each category in the inflation measurement. 

Behind the data

UK inflation hit the Bank of England’s (BoE) 2% target in May 2024 for the first time in three years following the worst inflationary surge in a generation. 

The following month, headline and core CPI inflation measures {{nofollow}}remained at 2% and 3.5%, respectively.

With headline inflation finally at target, pressure appears to be mounting on the BoE to reduce the policy rate by 25 bps to 5% at the next meeting on 1 August albeit elevated core inflation. 

The moderation over recent months in main components such as recreation and food suggests a potential easing in inflationary pressures, supporting arguments for a rate cut. 

Divergent investment trends in developed markets: equities gain and bonds struggle

What the chart shows

This scatter chart compares year-to-date (YTD) total return performance of large-cap stocks with government bonds of all maturities across various developed markets since 10 July. 

Each data point represents the intersection of a country’s stock market and bond market performance; the position of each point shows how its stocks and bonds have performed relative to one another. ‍

Behind the data

The chart highlights the diverse performance of stocks and bonds in developed markets for 2024, underscoring how different economic conditions and policy decisions across countries can impact the returns of these asset classes. 

The widespread negative performance of bonds in most economies is a cause for concern. The situation is particularly worrisome in France, Japan and the UK.

In contrast, the equity market presents a more optimistic picture. Denmark's strong performance is driven by Novo Nordisk's weight-loss drug Wegovy, while the US stock market is buoyed by Nvidia, the leading technology company whose chips are powering the AI boom.

The declines in equity performance in Portugal and New Zealand indicate that not all markets are benefiting equally. 

Rising S&P 500 ratio sparks bubble concerns amid AI investment boom

What the chart shows

This chart displays the ratio (blue line) of the S&P 500 market-cap weighted index to the S&P 500 {{nofollow}}equal weight index from 1990 to July 2024, highlighting the performance of larger companies relative to smaller ones within the S&P 500. When the ratio is above 1, larger companies are outperforming smaller companies. When it’s below 1, the inverse is true. 

The shaded bands represent the different standard deviations around the trend line to provide context for the ratio’s historical volatility and the range within which the ratio has fluctuated.

The green line shows the long-term trend of the ratio. 

Behind the data

US stocks and the S&P 500 Index, largely propelled by AI narratives, have raised {{nofollow}}questions about possible bubbles as their valuations have been increasing in light of further AI prospects. One method to gauge such potential bubbles is by comparing the index to its diversified version, i.e., its equal weighting.

The ratio of the SPX market-cap-weighted index to the equal-weighted has been on the rise since the COVID-19 pandemic. It hovered around only +1 standard deviation (s.d.) from the long-term trend from 2020 to mid-2023, reflecting a relatively balanced performance. 

However, starting in mid-2023, the ratio began to climb more noticeably, exceeding +2 s.d. in June 2024. This surge suggests that larger companies are outpacing smaller ones, raising concerns about overvaluation, especially in sectors heavily influenced by AI. 

Still, it appears the ratio still has some room for growth compared to the dot-com bubble period in 2000-2001, when it surpassed +3 s.d. before plummeting.

Overall, the chart implies that while the current market shows signs of a potential bubble, it has not yet reached the extreme levels observed during the dot-com era.