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Market/Model Commentary
Currently the active model portfolio as defined by our 5-factor model is the:
- Please click on the above magenta link to review the suggested allocations if required.
- The 5-factor model reverted to YELLOW on 16 October, 2020 (from RED on 28 February 2020)
- The Full risk model was initiated 04 Dec 2020.
ECAM 5-Factor Composite Model
(Valid from 16 October 2020 to Present Date)
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ECONOMIC FACTOR SUB-MODEL
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TECHNICAL FACTOR SUB-MODEL
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VALUATION FACTOR SUB-MODEL
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SENTIMENT FACTOR SUB-MODEL
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LIQUIDITY (Stress) FACTOR SUB-MODEL
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"Slow and Steady wins the race"
The Hare and the Tortoise
Aesop (Greek slave & fable author 620 BC - 560 BC)
"Technical Analysis is a windsock, not a crystal ball"
Carl Swenlin (Technical Analyst)
"Investing is the intersection of economics and psychology"
Seth Klarman (Hedge fund Manager, Baupost Group)
"Everyone's got a plan ..... until they get punched in the face"
Mike Tyson (Former World Heavyweight Boxing Champion)
The Hare and the Tortoise
Aesop (Greek slave & fable author 620 BC - 560 BC)
"Technical Analysis is a windsock, not a crystal ball"
Carl Swenlin (Technical Analyst)
"Investing is the intersection of economics and psychology"
Seth Klarman (Hedge fund Manager, Baupost Group)
"Everyone's got a plan ..... until they get punched in the face"
Mike Tyson (Former World Heavyweight Boxing Champion)
Latest Updates
DOW JONES GLOBAL INDEX
(Weekly Close)
Global equities were lower this past week with a percentage return (as measured by the Dow Jones Global Index) of -0.78%. They continue to trade with an upward bias and remain above weekly support @ 536.54 and the upward sloping 40 week moving average (shown in red).
Dow Jones Global Index Historical Monthly Returns
We are now within July which has tended to be historically stable over the past 21 years:
- #4 best performing month.
- 57.1% win rate.
Global Macro Quadrant Map
- Globally we remain within the "Reflation" market regime which typically provides a tailwind for equities and a headwind for bonds.
- The forward outlook continues to point to a return to "Deflation" as we approach late summer. This suggests weakness in equities/strength in bonds may well be forthcoming in the 2nd half of 2021.
Global Quadrant Growth/Inflation Forecast
(monthly refresh as of 06 July 2021)
(monthly refresh as of 06 July 2021)
Latest Global Quadrant Data
(weekly refresh as of 16 July 2021)
(weekly refresh as of 16 July 2021)
Asset Class Over/Under Performance Per Quadrant
(20-year backtest using Bloomberg data)
(20-year backtest using Bloomberg data)
Weekly Global Macro Review
U.S. Equities
The major US indexes ended lower, but the S&P 500 Index and Nasdaq Composite reached new intraday highs at midweek before falling back. The small-cap Russell 2000 Index underperformed for the third consecutive week, further surrendering its leadership over the large-cap S&P 500 Index for the year-to-date period. Market activity was generally subdued despite the unofficial kickoff of second-quarter earnings reporting season.
The major US indexes ended lower, but the S&P 500 Index and Nasdaq Composite reached new intraday highs at midweek before falling back. The small-cap Russell 2000 Index underperformed for the third consecutive week, further surrendering its leadership over the large-cap S&P 500 Index for the year-to-date period. Market activity was generally subdued despite the unofficial kickoff of second-quarter earnings reporting season.
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S&P 500:
DJIA: NASDAQ 100: S&P 400 Mid-cap: Russell 2000 Small Cap: |
-1.0%
-0.5% -1.0% -3.3% -5.1% |
Growth and inflation data appeared to remain in the spotlight during the week. Stocks fell back on Tuesday, following the release of data showing that headline and core (excluding food and energy) consumer prices had jumped 0.9% in June, roughly twice consensus estimates. It was the fastest 12-month increase in the core rate (4.5%) since 1991. Surging used-car prices were again responsible for about one-third of the increase, but the inflationary pressures were broadly felt by consumers—food prices increased 0.8% in the month, and gasoline prices rose 2.5%. On Monday, the New York Federal Reserve reported that year-ahead inflation expectations had reached 4.8%, the highest on record in data going back to 2013.
Fed Chair Jerome Powell’s scheduled testimony before Congress on Wednesday and Thursday may have blunted the negative impact of the inflation data on markets. While acknowledging that the recent spike in inflation was larger than he expected, Powell repeated his view that inflation pressures are temporary and “substantial further progress is still a ways off” in terms of the Fed’s employment and inflation goals. Before raising short-term interest rates, the Fed is widely expected to begin tapering asset purchases designed to keep downward pressure on long-term rates. On Thursday, Chicago Fed President Charles Evans voiced concern about tapering too early, warning it could undercut the Fed's objectives.
The week’s economic data were mixed relative to expectations. Manufacturing output contracted slightly in June, due largely to carmakers’ trouble finding chips. An index of manufacturing activity in the New York region hit a record high, however, reflecting strength in both new orders and shipments. Weekly jobless claims hit a new pandemic low of 360,000, in line with expectations.
Retail sales rose 0.6% in June, well above consensus expectations for a 0.4% decline. Sales outside of the volatile auto sector—which have been restrained by the global chip shortage—increased 1.3%. The Commerce Department data showed the clear impact of the reopening of the economy, with consumers shifting purchases away from home goods and toward restaurants, leisure, and apparel. Stocks fell back later Friday morning, however, after the University of Michigan’s preliminary gauge of consumer sentiment fell back to its lowest level since February, driven largely by inflation worries. “Consumers' complaints about rising prices for homes, vehicles, and household durables...reached an all-time record,” according to the survey’s lead researcher.
US Bonds
The yield on the benchmark 10-year U.S. Treasury note jumped briefly following the release of the retail sales data but ended lower for the week as a whole. (Bond prices and yields move in opposite directions.)
Balanced flows and relatively muted secondary trading volumes were evident in the investment-grade corporate bond market. Overnight activity increased throughout most of the week before a retracing in rates sidelined investors. Credit spreads—the extra yield offered over Treasuries, and an inverse measure of the sector’s relative appeal—closed wider toward the end of the week as new issuance rose sharply.
Tuesday’s upside inflation surprises weighed on sentiment in the high yield market. Later in the week, broader risk markets were generally weaker as the dovish tone of Powell’s semiannual testimony to Congress raised concerns about the strength of the economic recovery.
Fed Chair Jerome Powell’s scheduled testimony before Congress on Wednesday and Thursday may have blunted the negative impact of the inflation data on markets. While acknowledging that the recent spike in inflation was larger than he expected, Powell repeated his view that inflation pressures are temporary and “substantial further progress is still a ways off” in terms of the Fed’s employment and inflation goals. Before raising short-term interest rates, the Fed is widely expected to begin tapering asset purchases designed to keep downward pressure on long-term rates. On Thursday, Chicago Fed President Charles Evans voiced concern about tapering too early, warning it could undercut the Fed's objectives.
The week’s economic data were mixed relative to expectations. Manufacturing output contracted slightly in June, due largely to carmakers’ trouble finding chips. An index of manufacturing activity in the New York region hit a record high, however, reflecting strength in both new orders and shipments. Weekly jobless claims hit a new pandemic low of 360,000, in line with expectations.
Retail sales rose 0.6% in June, well above consensus expectations for a 0.4% decline. Sales outside of the volatile auto sector—which have been restrained by the global chip shortage—increased 1.3%. The Commerce Department data showed the clear impact of the reopening of the economy, with consumers shifting purchases away from home goods and toward restaurants, leisure, and apparel. Stocks fell back later Friday morning, however, after the University of Michigan’s preliminary gauge of consumer sentiment fell back to its lowest level since February, driven largely by inflation worries. “Consumers' complaints about rising prices for homes, vehicles, and household durables...reached an all-time record,” according to the survey’s lead researcher.
US Bonds
The yield on the benchmark 10-year U.S. Treasury note jumped briefly following the release of the retail sales data but ended lower for the week as a whole. (Bond prices and yields move in opposite directions.)
Balanced flows and relatively muted secondary trading volumes were evident in the investment-grade corporate bond market. Overnight activity increased throughout most of the week before a retracing in rates sidelined investors. Credit spreads—the extra yield offered over Treasuries, and an inverse measure of the sector’s relative appeal—closed wider toward the end of the week as new issuance rose sharply.
Tuesday’s upside inflation surprises weighed on sentiment in the high yield market. Later in the week, broader risk markets were generally weaker as the dovish tone of Powell’s semiannual testimony to Congress raised concerns about the strength of the economic recovery.
Europe/UK Equities
Shares in Europe fell on concerns that the increase in coronavirus cases could derail an economic recovery. Some market participants also worried that central banks might tighten monetary policy sooner than expected to quell inflation. In local currency terms, the pan-European STOXX Europe 600 Index ended the week -0.6% lower.
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German DAX:
French CAC: Italian MIB: Spanish IBEX: U.K. FTSE 100: |
-0.9%
-1.1 % -1.0% -3.1% -1.6% |
The UK remains on course to lift its remaining COVID-19 lockdown controls on Monday, even as the number of coronavirus infections surges. Meanwhile, France implemented new social restrictions to prevent the spread of the new variant. People must show a health pass, proving they have been vaccinated to use long-distance trains, to go out to eat and drink, and to visit shops, cinemas, and theaters. The Netherlands—which reimposed restrictions on bars, restaurants, and nightclubs late last week—reintroduced work-from-home guidelines. German Chancellor Angela Merkel warned that more of the population needs to be vaccinated before restrictions can be lifted.
ECB President Christine Lagarde said in an interview with the Financial Times newspaper that next week’s Governing Council meeting would focus on changing guidance on interest rates after the adoption of a new inflation target last week. She also said she did not expect “unanimous consent” at policy meetings “because there will be some variations, some slightly different positioning.” However, she stressed the importance of incorporating the new framework’s requirement that policy should be “especially forceful or persistent” when interest rates are close to the lower bound.
UK consumer price inflation increased to 2.5% in June—the highest level since August 2018—and up from 2.1% in May. The Office for National Statistics cited increased prices for food, fuel, secondhand cars, clothing, and footwear as key factors. Subsequently, Bank of England Deputy Governor Sir Dave Ramsden and Monetary Policy Committee member Michael Saunders asserted that there could be a case for tightening policy soon because of growing inflationary pressures. Saunders said that options could include halting bond purchases in the next month or two—as opposed to in late 2021, as previously messaged by the bank—and further policy action next year.
Europe + U.K. Bonds
Core Eurozone government bond yields fell, mostly tracking the move in U.S. Treasury yields, as U.S. Federal Reserve and European Central Bank (ECB) officials reaffirmed the view that inflationary pressures would prove to be transitory. Concerns about the rapidly spreading delta variant of the coronavirus also weighed on yields. Peripheral Eurozone bond yields broadly tracked core markets.
UK gilt yields ended roughly flat, as higher-than-expected inflation and hawkish commentary from two Bank of England policymakers offset some of the downward pressure on yields from the move in U.S. Treasuries.
ECB President Christine Lagarde said in an interview with the Financial Times newspaper that next week’s Governing Council meeting would focus on changing guidance on interest rates after the adoption of a new inflation target last week. She also said she did not expect “unanimous consent” at policy meetings “because there will be some variations, some slightly different positioning.” However, she stressed the importance of incorporating the new framework’s requirement that policy should be “especially forceful or persistent” when interest rates are close to the lower bound.
UK consumer price inflation increased to 2.5% in June—the highest level since August 2018—and up from 2.1% in May. The Office for National Statistics cited increased prices for food, fuel, secondhand cars, clothing, and footwear as key factors. Subsequently, Bank of England Deputy Governor Sir Dave Ramsden and Monetary Policy Committee member Michael Saunders asserted that there could be a case for tightening policy soon because of growing inflationary pressures. Saunders said that options could include halting bond purchases in the next month or two—as opposed to in late 2021, as previously messaged by the bank—and further policy action next year.
Europe + U.K. Bonds
Core Eurozone government bond yields fell, mostly tracking the move in U.S. Treasury yields, as U.S. Federal Reserve and European Central Bank (ECB) officials reaffirmed the view that inflationary pressures would prove to be transitory. Concerns about the rapidly spreading delta variant of the coronavirus also weighed on yields. Peripheral Eurozone bond yields broadly tracked core markets.
UK gilt yields ended roughly flat, as higher-than-expected inflation and hawkish commentary from two Bank of England policymakers offset some of the downward pressure on yields from the move in U.S. Treasuries.
Japan
Japan’s stock markets registered modest gains for the week, with the Nikkei 225 Index up +0.2% and the broader TOPIX Index gaining +1.0%.
Tokyo was placed under its fourth coronavirus state of emergency, lasting until August 22 and covering the duration of the Olympic Games, as part of the government’s efforts to contain a resurgence in COVID-19 infections. The capital registered its highest daily count in new cases since January during the week.
At its July meeting, the Bank of Japan (BoJ) left short- and long-term interest rates unchanged and voted unanimously to maintain its asset purchase program, as was widely expected. The central bank guided for the continuation of qualitative and quantitative easing with yield curve control—as it aims to achieve its price stability target of 2% inflation—for as long as it is necessary to maintain that target in a stable manner.
The BoJ’s Outlook for Economic Activity and Prices report showed some revisions to the central bank’s economic forecasts. Estimates for gross domestic product were revised downward to 3.8% in fiscal year (FY) 2021, from 4.0% in April, and upward to 2.7% in FY 2022, from the previous 2.4%. The projected rate of increase in consumer prices for FY 2021 is faster, mainly due to higher energy prices. The BoJ said that if the vaccine rollout accelerates and pent-up demand for services consumption materializes relatively early, economic activity could improve by more than expected.
The BoJ issued a separate release on its climate strategy, in which it outlined a series of incentives for lenders to help businesses move toward a greener economy, as well as plans to buy foreign green bonds. A program of interest-free loans for climate change investments is likely to be launched in 2021, with eligible loans or investments including green loans and bonds, sustainability-linked loans/bonds with performance targets, and transition finance. The BoJ also said it would buy green bonds denominated in foreign currencies using its foreign reserves.
The Reuters Tankan sentiment index for manufacturers rose to 25 from 22 in June, its highest level since November 2018. Business confidence was boosted by Japan’s export-led economic recovery, which has been driven by solid global demand. Confidence was particularly strong among car, chemical, and metal products makers. Sentiment within the services sector turned more pessimistic, however, with the index falling to -3 from 0 in June, reflecting the continued negative impact of anti-coronavirus measures.
Separate data showed that wholesale prices continued to surge: The corporate goods price index, which measures the price companies charge each other for their goods and services, rose 5% year on year in June, following a 5.1% gain in May. This signaled that more and more companies were passing on higher costs to their corporate customers, as import price growth hit a record high over the month.
China
In a choppy week, the Shanghai Composite Index and large-cap CSI 300 Index rose by +0.4% and +0.5%, respectively. Markets showed relief after China’s second-quarter gross domestic product (GDP) report on Thursday was in line with expectations. Equity inflows into China via the Stock Connect channel turned positive after the GDP data, with the highest daily inflow since September. Foreign investors bought technology, financial, and consumer stocks with solid fundamentals, avoiding expensive theme plays like electric vehicles, according to traders. On the pandemic front, provinces in southern China have continued to see a small number of new coronavirus cases.
China’s annual GDP growth rose 7.9% in the second quarter, down from 18.3% in the previous quarter, the country’s statistics office reported on Thursday. To reduce coronavirus-related distortions, the office also reported two-year average growth, which expanded 5.5% in the second quarter from 5% in the first quarter. The steady growth countered market fears that the central bank had cut the reserve ratio due to weak GDP growth. By sector, agriculture and services picked up last quarter, while industrial output stabilized, following its faster rebound last year.
June economic data were also upbeat. Retail sales came in stronger than expected, while power consumption was robust, suggesting that few factories had been affected by local lockdowns to contain new coronavirus clusters. Analysts are looking to investment and consumption to take over from property and exports as China’s main growth drivers in the second half of 2021.
Increased regulatory scrutiny of U.S.-listed Chinese internet companies like ride-hailer Didi Chuxing continued to concern foreign investors. Commercial law firms in Hong Kong said that Beijing's stricter cybersecurity and antimonopoly regulations could accelerate the trend for Chinese companies to list in Hong Kong. While the valuations of China's leading internet companies could suffer in the short term, analysts said a more transparent legal and regulatory regime could benefit the sector in the long term.
Japan’s stock markets registered modest gains for the week, with the Nikkei 225 Index up +0.2% and the broader TOPIX Index gaining +1.0%.
Tokyo was placed under its fourth coronavirus state of emergency, lasting until August 22 and covering the duration of the Olympic Games, as part of the government’s efforts to contain a resurgence in COVID-19 infections. The capital registered its highest daily count in new cases since January during the week.
At its July meeting, the Bank of Japan (BoJ) left short- and long-term interest rates unchanged and voted unanimously to maintain its asset purchase program, as was widely expected. The central bank guided for the continuation of qualitative and quantitative easing with yield curve control—as it aims to achieve its price stability target of 2% inflation—for as long as it is necessary to maintain that target in a stable manner.
The BoJ’s Outlook for Economic Activity and Prices report showed some revisions to the central bank’s economic forecasts. Estimates for gross domestic product were revised downward to 3.8% in fiscal year (FY) 2021, from 4.0% in April, and upward to 2.7% in FY 2022, from the previous 2.4%. The projected rate of increase in consumer prices for FY 2021 is faster, mainly due to higher energy prices. The BoJ said that if the vaccine rollout accelerates and pent-up demand for services consumption materializes relatively early, economic activity could improve by more than expected.
The BoJ issued a separate release on its climate strategy, in which it outlined a series of incentives for lenders to help businesses move toward a greener economy, as well as plans to buy foreign green bonds. A program of interest-free loans for climate change investments is likely to be launched in 2021, with eligible loans or investments including green loans and bonds, sustainability-linked loans/bonds with performance targets, and transition finance. The BoJ also said it would buy green bonds denominated in foreign currencies using its foreign reserves.
The Reuters Tankan sentiment index for manufacturers rose to 25 from 22 in June, its highest level since November 2018. Business confidence was boosted by Japan’s export-led economic recovery, which has been driven by solid global demand. Confidence was particularly strong among car, chemical, and metal products makers. Sentiment within the services sector turned more pessimistic, however, with the index falling to -3 from 0 in June, reflecting the continued negative impact of anti-coronavirus measures.
Separate data showed that wholesale prices continued to surge: The corporate goods price index, which measures the price companies charge each other for their goods and services, rose 5% year on year in June, following a 5.1% gain in May. This signaled that more and more companies were passing on higher costs to their corporate customers, as import price growth hit a record high over the month.
China
In a choppy week, the Shanghai Composite Index and large-cap CSI 300 Index rose by +0.4% and +0.5%, respectively. Markets showed relief after China’s second-quarter gross domestic product (GDP) report on Thursday was in line with expectations. Equity inflows into China via the Stock Connect channel turned positive after the GDP data, with the highest daily inflow since September. Foreign investors bought technology, financial, and consumer stocks with solid fundamentals, avoiding expensive theme plays like electric vehicles, according to traders. On the pandemic front, provinces in southern China have continued to see a small number of new coronavirus cases.
China’s annual GDP growth rose 7.9% in the second quarter, down from 18.3% in the previous quarter, the country’s statistics office reported on Thursday. To reduce coronavirus-related distortions, the office also reported two-year average growth, which expanded 5.5% in the second quarter from 5% in the first quarter. The steady growth countered market fears that the central bank had cut the reserve ratio due to weak GDP growth. By sector, agriculture and services picked up last quarter, while industrial output stabilized, following its faster rebound last year.
June economic data were also upbeat. Retail sales came in stronger than expected, while power consumption was robust, suggesting that few factories had been affected by local lockdowns to contain new coronavirus clusters. Analysts are looking to investment and consumption to take over from property and exports as China’s main growth drivers in the second half of 2021.
Increased regulatory scrutiny of U.S.-listed Chinese internet companies like ride-hailer Didi Chuxing continued to concern foreign investors. Commercial law firms in Hong Kong said that Beijing's stricter cybersecurity and antimonopoly regulations could accelerate the trend for Chinese companies to list in Hong Kong. While the valuations of China's leading internet companies could suffer in the short term, analysts said a more transparent legal and regulatory regime could benefit the sector in the long term.
Weekly Performance
U.S. Indices
Dow -0.5% to 34,688. S&P 500 -1.% to 4,327. Nasdaq -1.9% to 14,427. Russell 2000 -5.2% to 2,161. CBOE Volatility Index +14.% to 18.45.
S&P 500 Sectors
Consumer Staples +1.3%. Utilities +2.6%. Financials -1.6%. Telecom -0.3%. Healthcare -0.2%. Industrials -1.5%. Information Technology -0.6%. Materials -2.4%. Energy -7.7%. Consumer Discretionary -2.6%.
World Indices
London -1.6% to 7,008. France -1.1% to 6,460. Germany -0.9% to 15,540. Japan +0.2% to 28,003. China +0.4% to 3,539. Hong Kong +2.7% to 28,082. India +1.4% to 53,140.
Commodities and Bonds
Crude Oil WTI -4.2% to $71.46/bbl. Gold +0.1% to $1,812.6/oz. Natural Gas +0.1% to 3.679. Ten-Year Treasury Yield +0.3% to 133.84.
Forex and Cryptos
EUR/USD -0.56%. USD/JPY -0.08%. GBP/USD -0.91%. Bitcoin -6.%. Litecoin -10.1%. Ethereum -11.2%. Ripple -7.1%.
Dow -0.5% to 34,688. S&P 500 -1.% to 4,327. Nasdaq -1.9% to 14,427. Russell 2000 -5.2% to 2,161. CBOE Volatility Index +14.% to 18.45.
S&P 500 Sectors
Consumer Staples +1.3%. Utilities +2.6%. Financials -1.6%. Telecom -0.3%. Healthcare -0.2%. Industrials -1.5%. Information Technology -0.6%. Materials -2.4%. Energy -7.7%. Consumer Discretionary -2.6%.
World Indices
London -1.6% to 7,008. France -1.1% to 6,460. Germany -0.9% to 15,540. Japan +0.2% to 28,003. China +0.4% to 3,539. Hong Kong +2.7% to 28,082. India +1.4% to 53,140.
Commodities and Bonds
Crude Oil WTI -4.2% to $71.46/bbl. Gold +0.1% to $1,812.6/oz. Natural Gas +0.1% to 3.679. Ten-Year Treasury Yield +0.3% to 133.84.
Forex and Cryptos
EUR/USD -0.56%. USD/JPY -0.08%. GBP/USD -0.91%. Bitcoin -6.%. Litecoin -10.1%. Ethereum -11.2%. Ripple -7.1%.
Weekly Significant Macro Events
Global Geopolitical Headlines
July 10 – Reuters (Josh Smith): “The leaders of North Korea and China traded messages vowing to strengthen cooperation on the anniversary of their treaty of friendship, cooperation and mutual assistance between the two countries… In a message to China's Xi Jinping, North Korean leader Kim Jong Un said their relationship is vital in the face of hostile foreign forces, while Xi promised to bring cooperation ‘to a new stage’, KCNA said.”
July 11 – Reuters (Arshad Mohammed): “The United States… repeated a warning to China that an attack on Philippine armed forces in the South China Sea would trigger a 1951 U.S.-Philippines mutual defense treaty. Secretary of State Antony Blinken made the comment in a written statement marking the fifth anniversary of a ruling by an arbitration tribunal repudiating China's vast territorial claims in the South China Sea.”
July 11 – Associated Press: “China… said it will take ‘necessary measures’ to respond to the U.S. blacklisting of Chinese companies over their alleged role in abuses of Uyghur people and other Muslim ethnic minorities. The Commerce Ministry said the U.S. move constituted an ‘unreasonable suppression of Chinese enterprises and a serious breach of international economic and trade rules.’ China will ‘take necessary measures to firmly safeguard Chinese companies’ legitimate rights and interests,’ the ministry’s statement said.”
July 12 – Reuters (Ryan Woo and Jay Ereno): “China's military said it ‘drove away’ a U.S. warship that illegally entered Chinese waters near the Paracel Islands on Monday, the anniversary of an international court ruling that held Beijing had no claim over the South China Sea… The U.S. Navy destroyer Benfold entered the waters without China's approval, seriously violating its sovereignty and undermining the stability of the South China Sea, the southern theatre command of the People's Liberation Army said. ‘We urge the United States to immediately stop such provocative actions,’ it said…”
July 13 – Reuters (Tim Kelly): “Growing military tension around Taiwan as well as economic and technological rivalry between China and the United States raises the prospect of crisis in the region as the power balance shifts in China's favour, Japan said in its annual defence white paper. China rejected Japan's conclusions about what it said was normal military activity, calling them irresponsible. The Japanese defence review, which was approved by Prime Minister Yoshihide Suga's government on Tuesday, points to China as Japan's main national security concern. ‘It is necessary that we pay close attention to the situation with a sense of crisis more than ever,’ the paper said…”
July 13 – Bloomberg: “Chinese state media outlets have criticized the U.S. over discussions for a digital trade agreement among Indo-Pacific economies, calling them a bid to protect American hegemony and the profits of tech companies. Agreements signed by the U.S. ‘invariably serve the U.S.’ bid to defend its hegemony -- a magic word incorporating security, values and interests -- while to the signatory countries, these U.S.-dominated agreements are more like shackles restricting trade and their freedom of cooperation,’ China Daily said…”
July 14 – Bloomberg (Iain Marlow and Kari Lindberg): “China accused the U.S. of waging a ‘sinister’ campaign to halt its rise… Chinese state media… dismissed a possible U.S.-led digital trade agreement as a bid to defend American power in the Asia-Pacific region… ‘The U.S. confuses black and white and right and wrong, wantonly discredits the national security law and Hong Kong’s business environment, and attempts to mislead American and international businesses in Hong Kong,’ the ministry’s Hong Kong branch said... ‘Its sinister intention of playing the ‘Hong Kong card’ to curb China’s development is clear.’”
July 15 – Financial Times (Demetri Sevastopulo): “Beijing has snubbed the US by refusing to grant Wendy Sherman, deputy secretary of state, a meeting with her counterpart during a proposed visit to China that would have been the first top-level engagement since acrimonious talks in Alaska. The US halted plans for Sherman to travel to Tianjin after China refused to agree to a meeting with Le Yucheng, her counterpart…”
July 15 – Bloomberg: “Any foreign military planes landing in Taiwan need China’s approval, Chinese defense ministry says… on the landing of a U.S. government plane at Taipei airport Thursday. Foreign planes’ entering into China’s space without its approval will lead to ‘serious consequences,’ the ministry says. China warns the U.S. to stop ‘playing with fire’ and not to worsen tensions in the Taiwan strait. The Chinese military are on high alert; will take all necessary actions against attempts seeking Taiwan independence.”
COVID-19 Virus Headlines:
July 13 – Associated Press (Heather Hollingsworth and Josh Funk): “The COVID-19 curve in the U.S. is rising again after months of decline, with the number of new cases per day doubling over the past three weeks, driven by the fast-spreading delta variant, lagging vaccination rates and Fourth of July gatherings. Confirmed infections climbed to an average of about 23,600 a day on Monday, up from 11,300 on June 23… And all but two states — Maine and South Dakota — reported that case numbers have gone up over the past two weeks.”
July 14 – Associated Press (Heather Hollingsworth and Maria Cheng): “COVID-19 deaths and cases are on the rise again globally in a dispiriting setback that is triggering another round of restrictions and dampening hopes for a return to normal life. The World Health Organization reported… deaths climbed last week after nine straight weeks of decline… Cases rose 10% last week to nearly 3 million, with the highest numbers recorded in Brazil, India, Indonesia and Britain...”
COVID-19 Economic Fallout Headlines:
July 11 – Wall Street Journal (Gwynn Guilford and Anthony DeBarros): “Americans should brace themselves for several years of higher inflation than they’ve seen in decades, according to economists who expect the robust post-pandemic economic recovery to fuel brisk price increases for a while. Economists surveyed… by The Wall Street Journal raised their forecasts of how high inflation would go and for how long… The respondents on average now expect a widely followed measure of inflation, which excludes volatile food and energy components, to be up 3.2% in the fourth quarter of 2021 from a year before. They forecast the annual rise to recede to slightly less than 2.3% a year in 2022 and 2023.”
July 11 – Reuters (Leika Kihara): “Japanese wholesale prices continued to surge in June as import costs spiked at the fastest pace on record…, a sign rising raw material costs were weighing on corporate profits. Households may also start to feel the pinch... The corporate goods price index (CGPI)… rose 5.0% in June from a year earlier…, beating a median market forecast for a 4.7% gain.”
July 12 – Wall Street Journal (Marcus Walker and Peter Landers): “The pandemic has pushed global government debt to the highest level since World War II, surpassing the world’s annual economic output. Governments, especially in rich countries, are borrowing still more, partly to erase the damage of Covid-19. Advocates say the spending, also encouraged by new economic thinking about debt, could usher in a period of robust global growth, reversing the malaise many wealthy countries have felt this century. But if those theories are off-base, the world could be saddled with debts that can be absorbed only via inflation, high taxes or even default… ‘The world has changed. The intellectual frameworks have evolved,’ said Paul Sheard, a research fellow at the Harvard Kennedy School and former chief economist at… S&P Global. ‘We don’t need to worry’ about debt.”
July 12 – Reuters (Gavin Jones and Leigh Thomas): “An upsurge in new coronavirus variants and poor access to vaccines in developing countries threaten the global economic recovery, finance ministers of the world's 20 largest economies warned… The G20 gathering… was the ministers' first face-to-face meeting since the start of the pandemic. Decisions include the endorsement of new rules aimed at stopping multinationals shifting profits to low-tax havens. That paves the way for G20 leaders to finalise a new global minimum corporate tax rate of 15% at a Rome summit in October, a move that could recoup hundreds of billions of dollars for public treasuries straining under the COVID-19 crisis.”
July 13 – Bloomberg: “The cost of feeding the world is the most expensive it’s been in years. The Food and Agriculture Organization’s food price index, which tracks a basket of grains, vegetable oils, meat, dairy and sugar, rose to its highest level in a decade in May. On the Chicago Mercantile Exchange, the prices of soybean oil is more than double what it was a year ago, while lean hogs and ethanol are up by about three-quarters. The same dynamic is affecting corn, palm oil, coffee, sugar and a host of other commodities. Even the price of moving food around the world is surging: The Baltic Handysize Index, which tracks freight rates on the ships used for hauling grains between continents, is at levels last seen in 2008.”
July 13 – Bloomberg (John Authers): “Inflation in the U.S. is now an undeniable reality. June’s ‘headline’ consumer price index, including everything the government puts in its representative basket of products and services we buy, stands at 5.4%, the highest in 30 years barring one month in the summer of 2008 when oil reached nearly $150 per barrel. Exclude food and fuel, always variable, and inflation is 4.5% — its highest in three decades, by far. Exclude the most extreme movers both up and down, and inflation remains its worst since 1992 (barring a few months of very expensive oil). Exclude shelter and used cars, which have been massively inflated by the pandemic, and inflation is lower, at 3.6%. But it’s still far higher than it’s been at any time since 1993.”
July 13 – Bloomberg (Tracy Withers): “New Zealand’s central bank said it will reduce monetary stimulus by ceasing quantitative easing, a surprise move that sent the currency higher as traders priced in an interest-rate increase as early as August. The Reserve Bank’s Monetary Policy Committee… held the official cash rate at 0.25%, but said it will halt bond buying… The statement omitted a previous reference to the need for considerable time and patience to achieve its inflation and employment goals. ‘Members agreed that the major downside risks of deflation and high unemployment have receded,’ the RBNZ said.”
July 14 – Reuters (Howard Schneider and Lindsay Dunsmuir): “Federal Reserve Chair Jerome Powell… pledged ‘powerful support’ to complete the U.S. economic recovery from the coronavirus pandemic, but faced sharp questions from Republican lawmakers concerned about recent spikes in inflation. In testimony to the U.S. House of Representatives Financial Services Committee, Powell said he is confident recent price hikes are associated with the country's post-pandemic reopening and will fade, and that the Fed should stay focused on getting as many people back to work as possible. Any move to reduce support for the economy… is ‘still a ways off,’ Powell said, with 7.5 million jobs still missing from before the pandemic.”
July 14 – Reuters (William Schomberg and Kate Holton): “Bank of England Deputy Governor Dave Ramsden said the BoE might start to think about reversing its huge monetary stimulus sooner than he previously expected due to growing inflation pressures as Britain's economy bounces back from its COVID slump. In a speech that suggested growing concerns at the top of the central bank about price pressures, Ramsden said British inflation might rise as high as 4% ‘for a period later this year’ - double the BoE's target - and the factors driving it up might take some time to ease off.”
July 14 – Bloomberg (Shelly Hagan): “The Bank of Canada took another big step to rein in emergency levels of stimulus, once again tapering its bond purchases in a sign of optimism about the speed of the recovery. Policy makers… said… they would reduce their weekly purchases of government debt by one-third to C$2 billion ($1.6bn). Officials held the benchmark overnight interest rate at 0.25%, while indicating they don’t expect any hikes before at least the second half of next year…”
July 15 – Bloomberg (Andrew Atkinson, Libby Cherry and William Shaw): “An unexpected surge in U.K. inflation and a record hiring spree are starting to convince some Bank of England policy makers that the time to step off the stimulus pedal is fast approaching -- potentially as soon as next month… Two members of the central bank’s rate-setting committee said stimulus measures may have to be trimmed back. That prompted traders to bet on the BOE raising interest rates almost a year ahead of an expected lift-off by the U.S. Federal Reserve.”
July 15 – Bloomberg (Mohamed El-Erian): “Developments this week have illustrated why we should be more worried about the increasing probability that a monetary policy mistake risks derailing a potentially strong and transformational U.S. economic recovery — assuming, that is, that market accidents don’t happen first, the probability of which is also increasing. The two big U.S. inflation measures… again came in hotter than consensus expectations. Such inflation data overshoots have become common worldwide, reflecting the extent to which both economists and policy makers are still playing catch-up with events on the ground. The fact that both CPI and PPI are running hot is consequential. It suggests that realized inflation is being accompanied by additional inflation in the pipeline. This goes against the Federal Reserve’s often repeated conviction that inflation is transitory, especially now that base effects have mostly played themselves out.”
July 15 – Reuters (Howard Schneider, Ann Saphir, and Jonnelle Marte): “U.S. Federal Reserve Chair Jerome Powell faced sharp questions about inflation and banking regulation in a hearing before the Senate Banking Committee…, issues likely at the forefront of his possible renomination to the top Fed post… Republicans on the panel… picked up where their House colleagues left off, challenging Powell on whether a sharp acceleration in inflation will, as the Fed expects, prove temporary or not. ‘The Fed’s current paradigm almost guarantees the Fed will be behind the curve,’ in keeping inflation anchored at the central bank’s 2% average target, said Pennsylvania Republican Pat Toomey. The central bank’s ongoing $120 billion in monthly bond purchases, particularly of mortgage-backed securities, ‘is puzzling,’ he added, at a time when house prices are rocketing higher.”
July 10 – Reuters (Josh Smith): “The leaders of North Korea and China traded messages vowing to strengthen cooperation on the anniversary of their treaty of friendship, cooperation and mutual assistance between the two countries… In a message to China's Xi Jinping, North Korean leader Kim Jong Un said their relationship is vital in the face of hostile foreign forces, while Xi promised to bring cooperation ‘to a new stage’, KCNA said.”
July 11 – Reuters (Arshad Mohammed): “The United States… repeated a warning to China that an attack on Philippine armed forces in the South China Sea would trigger a 1951 U.S.-Philippines mutual defense treaty. Secretary of State Antony Blinken made the comment in a written statement marking the fifth anniversary of a ruling by an arbitration tribunal repudiating China's vast territorial claims in the South China Sea.”
July 11 – Associated Press: “China… said it will take ‘necessary measures’ to respond to the U.S. blacklisting of Chinese companies over their alleged role in abuses of Uyghur people and other Muslim ethnic minorities. The Commerce Ministry said the U.S. move constituted an ‘unreasonable suppression of Chinese enterprises and a serious breach of international economic and trade rules.’ China will ‘take necessary measures to firmly safeguard Chinese companies’ legitimate rights and interests,’ the ministry’s statement said.”
July 12 – Reuters (Ryan Woo and Jay Ereno): “China's military said it ‘drove away’ a U.S. warship that illegally entered Chinese waters near the Paracel Islands on Monday, the anniversary of an international court ruling that held Beijing had no claim over the South China Sea… The U.S. Navy destroyer Benfold entered the waters without China's approval, seriously violating its sovereignty and undermining the stability of the South China Sea, the southern theatre command of the People's Liberation Army said. ‘We urge the United States to immediately stop such provocative actions,’ it said…”
July 13 – Reuters (Tim Kelly): “Growing military tension around Taiwan as well as economic and technological rivalry between China and the United States raises the prospect of crisis in the region as the power balance shifts in China's favour, Japan said in its annual defence white paper. China rejected Japan's conclusions about what it said was normal military activity, calling them irresponsible. The Japanese defence review, which was approved by Prime Minister Yoshihide Suga's government on Tuesday, points to China as Japan's main national security concern. ‘It is necessary that we pay close attention to the situation with a sense of crisis more than ever,’ the paper said…”
July 13 – Bloomberg: “Chinese state media outlets have criticized the U.S. over discussions for a digital trade agreement among Indo-Pacific economies, calling them a bid to protect American hegemony and the profits of tech companies. Agreements signed by the U.S. ‘invariably serve the U.S.’ bid to defend its hegemony -- a magic word incorporating security, values and interests -- while to the signatory countries, these U.S.-dominated agreements are more like shackles restricting trade and their freedom of cooperation,’ China Daily said…”
July 14 – Bloomberg (Iain Marlow and Kari Lindberg): “China accused the U.S. of waging a ‘sinister’ campaign to halt its rise… Chinese state media… dismissed a possible U.S.-led digital trade agreement as a bid to defend American power in the Asia-Pacific region… ‘The U.S. confuses black and white and right and wrong, wantonly discredits the national security law and Hong Kong’s business environment, and attempts to mislead American and international businesses in Hong Kong,’ the ministry’s Hong Kong branch said... ‘Its sinister intention of playing the ‘Hong Kong card’ to curb China’s development is clear.’”
July 15 – Financial Times (Demetri Sevastopulo): “Beijing has snubbed the US by refusing to grant Wendy Sherman, deputy secretary of state, a meeting with her counterpart during a proposed visit to China that would have been the first top-level engagement since acrimonious talks in Alaska. The US halted plans for Sherman to travel to Tianjin after China refused to agree to a meeting with Le Yucheng, her counterpart…”
July 15 – Bloomberg: “Any foreign military planes landing in Taiwan need China’s approval, Chinese defense ministry says… on the landing of a U.S. government plane at Taipei airport Thursday. Foreign planes’ entering into China’s space without its approval will lead to ‘serious consequences,’ the ministry says. China warns the U.S. to stop ‘playing with fire’ and not to worsen tensions in the Taiwan strait. The Chinese military are on high alert; will take all necessary actions against attempts seeking Taiwan independence.”
COVID-19 Virus Headlines:
July 13 – Associated Press (Heather Hollingsworth and Josh Funk): “The COVID-19 curve in the U.S. is rising again after months of decline, with the number of new cases per day doubling over the past three weeks, driven by the fast-spreading delta variant, lagging vaccination rates and Fourth of July gatherings. Confirmed infections climbed to an average of about 23,600 a day on Monday, up from 11,300 on June 23… And all but two states — Maine and South Dakota — reported that case numbers have gone up over the past two weeks.”
July 14 – Associated Press (Heather Hollingsworth and Maria Cheng): “COVID-19 deaths and cases are on the rise again globally in a dispiriting setback that is triggering another round of restrictions and dampening hopes for a return to normal life. The World Health Organization reported… deaths climbed last week after nine straight weeks of decline… Cases rose 10% last week to nearly 3 million, with the highest numbers recorded in Brazil, India, Indonesia and Britain...”
COVID-19 Economic Fallout Headlines:
July 11 – Wall Street Journal (Gwynn Guilford and Anthony DeBarros): “Americans should brace themselves for several years of higher inflation than they’ve seen in decades, according to economists who expect the robust post-pandemic economic recovery to fuel brisk price increases for a while. Economists surveyed… by The Wall Street Journal raised their forecasts of how high inflation would go and for how long… The respondents on average now expect a widely followed measure of inflation, which excludes volatile food and energy components, to be up 3.2% in the fourth quarter of 2021 from a year before. They forecast the annual rise to recede to slightly less than 2.3% a year in 2022 and 2023.”
July 11 – Reuters (Leika Kihara): “Japanese wholesale prices continued to surge in June as import costs spiked at the fastest pace on record…, a sign rising raw material costs were weighing on corporate profits. Households may also start to feel the pinch... The corporate goods price index (CGPI)… rose 5.0% in June from a year earlier…, beating a median market forecast for a 4.7% gain.”
July 12 – Wall Street Journal (Marcus Walker and Peter Landers): “The pandemic has pushed global government debt to the highest level since World War II, surpassing the world’s annual economic output. Governments, especially in rich countries, are borrowing still more, partly to erase the damage of Covid-19. Advocates say the spending, also encouraged by new economic thinking about debt, could usher in a period of robust global growth, reversing the malaise many wealthy countries have felt this century. But if those theories are off-base, the world could be saddled with debts that can be absorbed only via inflation, high taxes or even default… ‘The world has changed. The intellectual frameworks have evolved,’ said Paul Sheard, a research fellow at the Harvard Kennedy School and former chief economist at… S&P Global. ‘We don’t need to worry’ about debt.”
July 12 – Reuters (Gavin Jones and Leigh Thomas): “An upsurge in new coronavirus variants and poor access to vaccines in developing countries threaten the global economic recovery, finance ministers of the world's 20 largest economies warned… The G20 gathering… was the ministers' first face-to-face meeting since the start of the pandemic. Decisions include the endorsement of new rules aimed at stopping multinationals shifting profits to low-tax havens. That paves the way for G20 leaders to finalise a new global minimum corporate tax rate of 15% at a Rome summit in October, a move that could recoup hundreds of billions of dollars for public treasuries straining under the COVID-19 crisis.”
July 13 – Bloomberg: “The cost of feeding the world is the most expensive it’s been in years. The Food and Agriculture Organization’s food price index, which tracks a basket of grains, vegetable oils, meat, dairy and sugar, rose to its highest level in a decade in May. On the Chicago Mercantile Exchange, the prices of soybean oil is more than double what it was a year ago, while lean hogs and ethanol are up by about three-quarters. The same dynamic is affecting corn, palm oil, coffee, sugar and a host of other commodities. Even the price of moving food around the world is surging: The Baltic Handysize Index, which tracks freight rates on the ships used for hauling grains between continents, is at levels last seen in 2008.”
July 13 – Bloomberg (John Authers): “Inflation in the U.S. is now an undeniable reality. June’s ‘headline’ consumer price index, including everything the government puts in its representative basket of products and services we buy, stands at 5.4%, the highest in 30 years barring one month in the summer of 2008 when oil reached nearly $150 per barrel. Exclude food and fuel, always variable, and inflation is 4.5% — its highest in three decades, by far. Exclude the most extreme movers both up and down, and inflation remains its worst since 1992 (barring a few months of very expensive oil). Exclude shelter and used cars, which have been massively inflated by the pandemic, and inflation is lower, at 3.6%. But it’s still far higher than it’s been at any time since 1993.”
July 13 – Bloomberg (Tracy Withers): “New Zealand’s central bank said it will reduce monetary stimulus by ceasing quantitative easing, a surprise move that sent the currency higher as traders priced in an interest-rate increase as early as August. The Reserve Bank’s Monetary Policy Committee… held the official cash rate at 0.25%, but said it will halt bond buying… The statement omitted a previous reference to the need for considerable time and patience to achieve its inflation and employment goals. ‘Members agreed that the major downside risks of deflation and high unemployment have receded,’ the RBNZ said.”
July 14 – Reuters (Howard Schneider and Lindsay Dunsmuir): “Federal Reserve Chair Jerome Powell… pledged ‘powerful support’ to complete the U.S. economic recovery from the coronavirus pandemic, but faced sharp questions from Republican lawmakers concerned about recent spikes in inflation. In testimony to the U.S. House of Representatives Financial Services Committee, Powell said he is confident recent price hikes are associated with the country's post-pandemic reopening and will fade, and that the Fed should stay focused on getting as many people back to work as possible. Any move to reduce support for the economy… is ‘still a ways off,’ Powell said, with 7.5 million jobs still missing from before the pandemic.”
July 14 – Reuters (William Schomberg and Kate Holton): “Bank of England Deputy Governor Dave Ramsden said the BoE might start to think about reversing its huge monetary stimulus sooner than he previously expected due to growing inflation pressures as Britain's economy bounces back from its COVID slump. In a speech that suggested growing concerns at the top of the central bank about price pressures, Ramsden said British inflation might rise as high as 4% ‘for a period later this year’ - double the BoE's target - and the factors driving it up might take some time to ease off.”
July 14 – Bloomberg (Shelly Hagan): “The Bank of Canada took another big step to rein in emergency levels of stimulus, once again tapering its bond purchases in a sign of optimism about the speed of the recovery. Policy makers… said… they would reduce their weekly purchases of government debt by one-third to C$2 billion ($1.6bn). Officials held the benchmark overnight interest rate at 0.25%, while indicating they don’t expect any hikes before at least the second half of next year…”
July 15 – Bloomberg (Andrew Atkinson, Libby Cherry and William Shaw): “An unexpected surge in U.K. inflation and a record hiring spree are starting to convince some Bank of England policy makers that the time to step off the stimulus pedal is fast approaching -- potentially as soon as next month… Two members of the central bank’s rate-setting committee said stimulus measures may have to be trimmed back. That prompted traders to bet on the BOE raising interest rates almost a year ahead of an expected lift-off by the U.S. Federal Reserve.”
July 15 – Bloomberg (Mohamed El-Erian): “Developments this week have illustrated why we should be more worried about the increasing probability that a monetary policy mistake risks derailing a potentially strong and transformational U.S. economic recovery — assuming, that is, that market accidents don’t happen first, the probability of which is also increasing. The two big U.S. inflation measures… again came in hotter than consensus expectations. Such inflation data overshoots have become common worldwide, reflecting the extent to which both economists and policy makers are still playing catch-up with events on the ground. The fact that both CPI and PPI are running hot is consequential. It suggests that realized inflation is being accompanied by additional inflation in the pipeline. This goes against the Federal Reserve’s often repeated conviction that inflation is transitory, especially now that base effects have mostly played themselves out.”
July 15 – Reuters (Howard Schneider, Ann Saphir, and Jonnelle Marte): “U.S. Federal Reserve Chair Jerome Powell faced sharp questions about inflation and banking regulation in a hearing before the Senate Banking Committee…, issues likely at the forefront of his possible renomination to the top Fed post… Republicans on the panel… picked up where their House colleagues left off, challenging Powell on whether a sharp acceleration in inflation will, as the Fed expects, prove temporary or not. ‘The Fed’s current paradigm almost guarantees the Fed will be behind the curve,’ in keeping inflation anchored at the central bank’s 2% average target, said Pennsylvania Republican Pat Toomey. The central bank’s ongoing $120 billion in monthly bond purchases, particularly of mortgage-backed securities, ‘is puzzling,’ he added, at a time when house prices are rocketing higher.”
Covid-19 Weekly Statistics (18 July 2021 @ 1300 GMT)
|
Global Recorded Cases
190,956,853 Previous Week
187,410,774 1-Week Change
+3,546,079 1 Week Rate-of-Change +1.89% (Prev Week +1.67%) |
Global Active Cases
12,895,244 Previous week
12,003,893 1-Week Change
+891,351 1 Week Rate-of-Change +7.43% (Prev Week +2.98%) |
Global Recovered
173,959,620 Previous week
171,361,359 1-Weekly Change
+2,598,261 Current Recovery Rate 97.70% (Previous 97.69%) |
Global Deceased
4,101,989 Previous week
4,045,522 1-Weekly Change
+56,467 Current Mortality Rate 2.30% (Previous 2.31%) |
Weekly Trend Summary
|
Global Recorded Cases
Trend Rising (Rate-of-Change increasing) |
Global Active Cases
Trend Rising (Rate-of-Change increasing) |
Global Covid Recovery Rate
Trend Increasing (Rate-of-Change +0.1%) |
Commentary
The total number of Global Recorded Cases since the pandemic began crossed 190 million this week with an additional 3,546,079 new Covid cases recorded globally over the past week. In 2021 the weekly rate of change (ROC) had been steadily decreasing since early in the year and bottomed 20 February @ +2.32% weekly ROC. It then rose in the last global virus wave to its most recent peak recorded 30 April @ +4.08% before declining steadily to 23 June @ 1.42% (its lowest ROC since the pandemic began). However, it is now trending upwards once again in a new wave (currently 1.89% weekly increase) which is concerning.
Global Daily New Cases (7-Day moving average)
The total number of Global Active Cases currently stands at 12,895,244 active cases (increase of +891,351 global active cases over the past week). At present this is -50.67% below the peak of 24,032,321 global active cases set on 14 April, 2021.
Regional Daily New Confirmed Cases (7-day moving average)
Regionally South America significantly leads other regions in the total number of new Covid cases per capita (but continues to decline). An alarming upturn has been noted in Europe and North America over the past 4 weeks as lockdown restrictions have been lifted.
Global Daily Deaths (7-Day Moving Average)
Globally the Covid mortality rate peaked 08 April 2020 @ 21.25%. It has since fallen in a steady manner to its most recent 2.30% mortality rate. Note this remains much higher than initial estimates indicated the mortality rate from Covid-19 would be (< 1% was the expected Covid mortality rate).
Regional Daily New Confirmed Deaths (Total and Per Capita)
Regionally South America significantly leads in the total number of daily new Covid confirmed deaths per capita. However, the region is well past its peak and the rate is declining rapidly. Mortality rates in Europe and North America remain steady at present despite the current increasing number of active cases.
Global Regional Per-Capita Vaccination Against COVID-19
For the 1st time since vaccines became available, Europe has now exceeded North America for the greatest percentage of it population to have received at least 1 dose of vaccine. Overall North America remains the region with the greatest percentage of the population fully vaccinated.
|
|
Top 3 Countries with the Largest number of New Cases over the past 7 days
Top 3 Countries with Largest per-capita number of New Cases over the past 7 days
WEEKLY ASSET CLASS MONITOR
(week ending 016 July 2021)
(week ending 016 July 2021)
|
Asset Class
|
Region
|
ETF Ticker
|
Weekly
Return |
Year-to-Date
Return |
|
Equities
|
World
U.S. Europe Asia Pacific Emerging Market |
VT
VTI VGK VPL VWO |
-1.35%
-1.55% -1.72% -1.14% +0.02% |
+12.19%
+14.99% +12.70% +3.37% +6.44% |
|
Bonds
|
U.S. Bonds
International Bonds |
BND
BNDX |
+0.14%
+0.52% |
-1.13%
-1.15% |
|
Real Estate Equities
|
U.S. Real Estate
International Real Estate |
VNQ
VNQI |
+0.24%
-1.78% |
+25.61%
+7.92% |
|
Precious Metals Equities
|
Global Gold Miners
Global Junior Gold Miners |
RING
GDXJ |
-1.58%
-3.75% |
-5.21%
-17.28% |
GLOBAL EQUITY MARKET MONITOR
Global equities had a wicked roller-coaster ride in 2020 on the back of the Covid pandemic. They peaked on 12 Feb 2020 and fell dramatically (-34%) into their 23 Mar lows. They have since recovered completely and all regions remain above their respective pre-COVID price peaks with a pattern of higher highs/higher lows.
During the 1st 3 months of 2021 prices remained within narrow trading ranges as shown by the blue boxes before their recent breakouts. A break back below these trading ranges would be concerning.
During the 1st 3 months of 2021 prices remained within narrow trading ranges as shown by the blue boxes before their recent breakouts. A break back below these trading ranges would be concerning.
Hedgeye Risk Management LLC
"I skate to where the puck is going to be; not where it has been."
Wayne Gretzky
Wayne Gretzky
As we appear to have reached a turning point in global growth, we continue to utilize global macroeconomic data provided by our data partners at Hedgeye Risk Management. Their data remains one of the most accurate available when attempting to forecast future macroeconomic shifts globally so we use their data to anticipate where the "puck may go" in global macroeconomics.
The Hedgeye Growth/Inflation/Policy (GIP) model uses 90 high frequency inputs per quarter within a Bayesian Inference algorithm to adjust in real-time for the current quarter along with 24 month rate-of-change base effects for future quarters. The forecast is subject to actual economic data as it is released in real time within the quarter so we continue to monitor each economic data point as it is released.
Hedgeye classify each countries model outputs according to the following "quadrants":
Quad 1 (Dark green):
The Hedgeye Growth/Inflation/Policy (GIP) model uses 90 high frequency inputs per quarter within a Bayesian Inference algorithm to adjust in real-time for the current quarter along with 24 month rate-of-change base effects for future quarters. The forecast is subject to actual economic data as it is released in real time within the quarter so we continue to monitor each economic data point as it is released.
Hedgeye classify each countries model outputs according to the following "quadrants":
Quad 1 (Dark green):
- Growth rising/Inflation falling.
- Asset class overweight equities/credit
- Asset class underweight fixed income
- Growth rising/Inflation rising.
- Asset class overweight equities/credit
- Asset class underweight fixed income
- Growth falling/Inflation rising.
- Asset class overweight fixed income
- Asset class underweight equities/credit
- Growth falling/Inflation falling.
- Asset class overweight fixed income
- Asset class underweight equities/credit
Below is a view of the Global GIP model with their latest Quad outputs for the current quarter (2Q21E) and the 3 forward quarters. The current model projects the vast majority of global regions to experience strong growth in the 2nd quarter of 2021 with significant headwinds into the 2nd half of the year. As such, we continue to expect global equities to outperform global bonds until growth/inflation peak into the end of the 2nd quarter of 2021.
G-20 GIP Model Data
Emerging Market GIP Model Data
Recession Warning Indicators
Below we continue to show the latest Ned Davis Research Global Recession Probability model which triggered a "high risk" global recession warning in the 3rd quarter of 2018. This model reversed below 30 as of 01 October 2020 indicating the probability of a global recession risk at present remains low.
Asset Class Return Monitor
(for week ending 16 July 2021)
(for week ending 16 July 2021)
Equities Legend:
Bonds Legend:
Currencies Legend:
Commodities Legend:
- Vanguard Total World Stock ETF (VT): (Cyan)
- Vanguard Total U.S. Stock Market ETF (VTI): (Red)
- Vanguard FTSE Europe ETF (VGK): (Lime Green)
- Vanguard FTSE Asia Pacific ETF (VPL): (Dark Blue)
- Vanguard FTSE Emerging Markets ETF (VWO): (Pink)
Bonds Legend:
- Vanguard Total U.S. Bond Market ETF (BND): (Black)
- Vanguard Total International ex-U.S. Bond ETF (BNDX): (Green)
Currencies Legend:
- U.S. Dollar Index (Cash Settlement EOD) ($USD): (Orange)
- Euro (Philadelphia Index) ($XEU): (Maroon)
Commodities Legend:
- PowerShares DB Commodity Index Tracking Fund (DBC): (Purple)
- SPDR Gold ETF (GLD): (Sky Blue)
Past Week Asset Class returns
- Over the past week global equities (as measured by the Vanguard Total World Stock ETF (shown in CYAN) lost -1.35%.
- Emerging market equities were the top performing equity region this past week with European equities lagging.
- U.S. bonds (Black) and International bonds (Green) were higher on the week.
- Commodities were lower on the week with the U.S. Dollar index up +0.62%.
Year-to-Date (2021) Asset Class returns
- Thus far in 2021 global equities (as measured by the Vanguard Total World Stock ETF (shown in CYAN) have gained +12.19%.
- US equities are the top performing equity region in 2021 thus far with Asia Pacific markets lagging.
- Bonds have shown negative returns thus far in 2021 with U.S. bonds (Black) out-performing International Bonds (Green).
- Commodities have had very strong returns for 2021 with the U.S. Dollar index up +3.11%.
Typically bull/bear markets follow a sine-wave cycle of investor psychology which begins with optimism, peaks with euphoria, bottoms with despair and returns to optimism.
It must be reemphasized a complete market cycles is composed of 2 distinct cycles/phases: a "bull 1/2 cycle" and a "bear 1/2 cycle". The 11 year bull 1/2 cycle ended in Feb 2020 with the global spread of COVID-19 resulting in a rapid bear 1/2 cycle. We have now returned to the bull 1/2 cycle as of March 2020.
The Math of Losses
- a 20% loss requires a 25% gain to return to breakeven
- a 30% loss requires a 43% gain to return to breakeven
- a 40% loss requires a 67% gain to return to breakeven
- a 50% loss requires a 100% gain to return to breakeven
- a 60% loss requires a 150% gain to return to breakeven
This is why it is so important to not let losses continue in the face of a bear market decline and why we advocate phased movements into cash as our 5-factor model reverts towards Red. The below graphic represents how we move within equity markets through a complete sine-wave market cycle:
World Regional Equity Monitor
We use the following U.S. exchange traded funds to monitor equity performance for the various world regions:
- World Equities: Vanguard Total World ETF (Cyan)
- U.S. Equity: Vanguard Total Market ETF (Red)
- Asia Pacific Equity: Vanguard FTSE Pacific ETF (Blue)
- European Equity: Vanguard FTSE Europe ETF: (Lime Green)
- Emerging Market Equity: Vanguard FTSE Emerging Market ETF (Pink)
1 Year Rolling Regional Equity Performance
- Over the past 12 month rolling period regional equity performance has been positive for all monitored regions.
- The strongest equity region over the past 12 month has been US Markets with Emerging market equities lagging.
- Overall world equity performance (as measured by the Vanguard Total World ETF) have returned +34.59% (including dividends) over the past 12 month rolling period.
3 Month Rolling Regional Equity Performance
- Over the past 3 month rolling period the strongest performing world equity region has been US markets with Asia Pacific markets the weakest.
- Positive regional equity returns have been evident over the past quarter (3 months) in the majority of monitored regions (global equity 3 month bullish flip occurred as of 05 June 2020 market close on post COVID-19 panic rebound).
1 Month Rolling Regional Equity Performance
- Over the past 1 month rolling period the strongest performing world equity region has been US markets with European markets the weakest.
- Weak global equity returns are evident over the past month for most monitored regions.
Past Week Regional Equity Performance
- Over the past week major global equities were lower with Emerging markets outperforming other regions.
Latest Global Equity "Big Picture"
World equity market returns are monitored via the following index and ETF equity charts:
- Dow Jones Global Market Index (cap-weighted)
- Value Line Geometric U.S. Index (equal-weighted)
- Global Dow Index (equal-weighted)
- MSCI ACWI ETF (cap-weighted)
Dow Jones Global Market Index
(market cap weighted index)
For the week the Dow Jones Global Index had a loss of -0.22%. As can be seen on the chart above, price remains above the 65 week moving average (blue line) and above important support @ 444.09-446.78.
Value Line Geometric Index and Global Dow Index
(equal weighted indexes)
The Value Line Geometric Index ($XVG) is the median price performance of 1700 U.S. companies equal weighted (as opposed to most indexes which are market cap weighted) into an index. The Global Dow index ($GDOW) is a measure of the top 150 international companies equal weighted within the index.
These indexes are important as they equal-weight the price performance of all the companies held within the respective index. This removes the distortions associated with a small group of highly valued companies (which may be performing well) masking the performance of struggling companies and represents a good overview of overall internal equity breadth/strength.
These indexes are important as they equal-weight the price performance of all the companies held within the respective index. This removes the distortions associated with a small group of highly valued companies (which may be performing well) masking the performance of struggling companies and represents a good overview of overall internal equity breadth/strength.
Value Line Geometric Index ($XVG) Weekly
Global Dow Index ($GDOW) Weekly
iShares MSCI ACWI ETF
(market cap weighted ETF)
The iShares MSCI ACWI (All Country World Index) ETF is used as a benchmark to compare the performance of the various broad-based equity funds available in the Emirates Group Provident Scheme (EGPS) A/B/C accounts. It serves as a benchmark to determine how equity markets are performing on a worldwide basis. This assists in determining 2 parameters; whether to be invested in equities and also which funds within the EGPS offer the best performance relative to the benchmark.
The ETF is composed of the following regional components/weightings:
The ETF is composed of the following regional components/weightings:
ACWI Monthly Chart (since 2009)
Global equity markets fell substantially from their Feb 2020 peak due to the Covid crisis to near their previous consolidation box lows (yellow box) @ 62.68. They have risen dramatically and have now closed above their previous top. This is a continued encouraging sign a new bull market is in progress.
For the month of July ACWI has lost -0.22%. It closed the month of June above the 12 month simple moving average keeping the long term trend bullish until month end.
For the month of July ACWI has lost -0.22%. It closed the month of June above the 12 month simple moving average keeping the long term trend bullish until month end.
ACWI Weekly Chart
This past week ACWI lost -1.09%. Price remains above the 65 week simple moving average (shown in BLUE) and the weekly support @ 90.44-92.51.
World Equity Market Regional Relative Rotation Graphs
Below is a graph of 25 major regional equity market ETF's + ACWI (our world equity benchmark) shown on a Relative Rotation chart measured weekly with a 10 week look-back period (which forms the "tail" of the ETF). This graph allows us to observe over time how various regional ETF's are moving relative to both each other and also relative to cash.
- Leading (Green): (Momentum Positive + Price Relative Strength Positive)
- Weakening (Yellow): (Momentum Negative + Price Relative Strength Positive)
- Lagging (Red): (Momentum Negative + Price Relative Strength Negative)
- Improving (Blue): (Momentum Positive + Price Relative Strength Negative)
Given the cyclical nature of momentum and price within equity markets, in general the RRG charts will cycle in a clockwise manner (though not necessarily will each pass through all 4 quadrants as it is possible to rotate through an adjacent quadrant only).
Weekly Regional (Country) Relative Rotation Graphs (long term)
As can be seen on the above table, the majority of monitored countries have transitioned into the "Weakening" quadrant with the quantitative scoring negative. ACWI (our world equity fund benchmark) has also transitioned into the YELLOW "Weakening" quadrant.
The RRG trend analysis status is currently NEUTRAL for world equities:
- ACWI price Relative Strength (horizontal axis): POSITIVE
- ACWI price Momentum (vertical axis): NEGATIVE
Coincident Equity Market Indicators
Crude Oil
Crude oil was lower over the past week and continues to recover off its recent lows. Firm crude oil prices typically point to increasing demand on the back of world economic growth improvement. Its regaining of pre-Covid levels (above $50) remains equity bullish.
Gold
Gold was higher over the past week and closed below resistance @ 1886. Gold acts as a "safe haven" and the recent decline below support is now equity bullish.
Commodities
Commodities were higher over the past week and continue to recover over their recent 4 year Covid lows. They have now regained pre-Covid levels and remain equity bullish above $187.
U.S. 30 Year Treasury Bond
U.S. 30 year bonds were higher on the week. Rising bond prices indicate a "flight to safety" trade associated with weakening economic data and the break back near pre-covid yields remains equity neutral.
Current 5-Factor Model Indications
The combined 5-Factor quantitative model is currently YELLOW (neutral). This indicates a neutral level of risk at present. The 5-Factor model currently has the following sub-model readings:
Economic Model
The Economic model reverted to GREEN as the economic data associated with the COVID-19 pandemic has begun to moderate from its recent bounce post-lockdown into a steady-state low growth condition. The model is composed of numerous inputs including data from the following sources:
Forward Forecast Data:
Current Data:
Forward Forecast Data:
- OECD Composite Leading Indicators (CLI)
- BlackRock Macro GPS Growth/Inflation forecast monitor
Current Data:
- J.P. Morgan Global Purchasing Managers (PMI) Index
- World Bank Monthly Global Economic Report
- DHL Global Trade Barometer
OECD Composite Leading Indicators
(12 July 2021)
The OECD composite leading indicator (CLI) is designed to provide early signals of turning points in business cycles showing fluctuation of the economic activity around its long term potential level. CLIs show short-term economic movements in qualitative rather than quantitative terms.
12 July 2021 - "The OECD Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, continue to expand steadily in the OECD area as a whole and in some large emerging-market economies.
Among major OECD economies, the CLIs remain above trend and continue to expand at a steady pace in the United States, Japan and Canada as well as in the euro area as a whole, including Germany and Italy. The CLI for the United Kingdom is still expanding and has now reached above trend levels. In France, the CLI continues to grow steadily but remains below trend.
Among major emerging-market economies, the CLIs for Russia and China (industrial sector) point to steady increase. In India, the CLI now indicates stable growth whereas it continues to signal slowing growth in Brazil.
Despite the gradual lifting of COVID-19 containment measures in some countries and the progress of vaccination campaigns, persisting uncertainties might result in higher than usual fluctuations in the CLI and its components. As such, the CLIs should be interpreted with care and their magnitude should be regarded as an indication of the strength of the signal rather than as a measure of the degree of growth in economic activity."
Among major OECD economies, the CLIs remain above trend and continue to expand at a steady pace in the United States, Japan and Canada as well as in the euro area as a whole, including Germany and Italy. The CLI for the United Kingdom is still expanding and has now reached above trend levels. In France, the CLI continues to grow steadily but remains below trend.
Among major emerging-market economies, the CLIs for Russia and China (industrial sector) point to steady increase. In India, the CLI now indicates stable growth whereas it continues to signal slowing growth in Brazil.
Despite the gradual lifting of COVID-19 containment measures in some countries and the progress of vaccination campaigns, persisting uncertainties might result in higher than usual fluctuations in the CLI and its components. As such, the CLIs should be interpreted with care and their magnitude should be regarded as an indication of the strength of the signal rather than as a measure of the degree of growth in economic activity."
Long-Term View (OECD Total)
Zoomed-In View (OECD Total)
Below is our latest heat-map of the Composite Leading Indicators for various monitored regions. The CLI is designed to predict business cycle changes 6-9 months in advance so the Peak/Trough dates can be used to predict turning point months for the various regions.
- Red/Green numbers indicates above/below average future projected economic growth.
- Red/Green boxes indicates CLI rate of change month/month and year/year.
BlackRock Macro GPS Growth/Inflation Forecast
(08 July 2021 Data)
The BlackRock macro-GPS aims to give a forward forecast on the growth & inflation outlook for G7 economies. It combines new sources of information using new "big-data" sources – including internet searches and text mining of corporate calls - as well as traditional economic data. Other big data inputs include online job postings, inflation chatter, satellite images, e-invoicing and traffic patterns.
The BlackRock GPS forecasts the following:
The BlackRock GPS forecasts the following:
- the potential year-over-year GDP economic growth reading versus current consensus 3 months forward.
- the potential year-over-year Inflation reading versus current consensus 6 months forward.
BlackRock GDP Growth Forecast vs. Current Consensus
The BlackRock GDP growth forecast currently projects the greatest upside surprise in growth (versus current consensus) 3 months from now will be Australia with the greatest downside surprise in growth (versus current consensus) in Italy. The growth GPS continues to project continued downward future growth projections globally relative to consensus 3-months forward with a G-7 economic growth forecast -0.88% below current consensus.
(3-month forward global growth forecast bearish)
BlackRock Inflation Forecast vs. Current Consensus
The BlackRock inflation forecast currently projects Japan will have the greatest upside surprise in future inflation (relative to consensus) 6 months from now with the US having the furthest downside projected inflation relative to consensus. The inflation GPS projects mixed inflationary pressures globally relative to current consensus.
(6-month forward global inflation forecast mixed)
(6-month forward global inflation forecast mixed)
J.P. Morgan Global Composite Purchasing Managers Index (PMI)
(06 July 2021)
(06 July 2021)
The Global Composite PMI Report is based on the results of manufacturing and service sector surveys covering over 18,000 purchasing executives in over 40 countries. Together these countries account for an estimated 89% of global gross domestic product (GDP).
Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. As such, using the PMI data gives us a real-time look at global growth.
Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. As such, using the PMI data gives us a real-time look at global growth.
- readings > 50 indicating economic expansion
- readings < 50 indicate economic contraction.
Global Composite PMI Summary 06 July:
- J. P. Morgan Global PMI Composite Output Index at 56.6 in June (3-month low)
- Europe and US remain bright growth spots
- Input cost and output price inflation remain elevated
"The solid upswing in global economic activity continued at the end of the second quarter. Output expanded at a rate close to May's 15-year high, as intakes of new work remained strong. The US and Europe remained the brighter growth spots, while Asian economies struggled in comparison.
The J.P.Morgan Global Composite Output Index – which is produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – posted 56.6 in June, down from May's 181-month high of 58.5. The reading was still among the best registered over the past 15 years. The headline index has remained above the neutral 50.0 mark for 12 consecutive months. Companies benefited from rising intakes of new work, including increased new export business."
Global Composite Output Index vs. Global GDP
There tends to be a reasonably tight correlation between the Global Composite Output Index and subsequent global GDP.
The current Composite Output Index has now exceeded its historical highs last set in 2010 and implies a future global GDP reading approaching 5%; erasing all GDP losses associated with the Covid outbreak.
The current Composite Output Index has now exceeded its historical highs last set in 2010 and implies a future global GDP reading approaching 5%; erasing all GDP losses associated with the Covid outbreak.
Below is our PMI monitor for selected regions/countries.
- numerical values > 50 (BLACK) indicate economic expansion in progress.
- numerical values < 50 (RED) indicating economic contraction in progress.
- trend box GREEN indicates improvement over the past month with RED indicating a decline over the previous month.
The latest data points to a continuation of the economic recovery from the global Covid shutdowns with a modest decline from the peak in May 2021 based effects associated with the global shutdown in 2020.
World Bank Global Monthly Outlook
(June 2021)
(June 2021)
U.S. Economic Growth & Inflation
Year-over-Year GDP growth
The Gross Domestic Product (GDP) in the United States expanded 0.40 percent in the first quarter of 2021 over the same quarter of the previous year.
Quarter-over-Quarter GDP growth
The US economy grew by an annualized 6.4 percent in the first quarter, following a 4.3 percent expansion in the previous three-month period and slightly beating market expectations of 6.1 percent, the advance estimate showed. Activity and demand consolidated their recovery from last year's steep contraction, helped by reopening efforts amid an acceleration in the pace of COVID-19 vaccinations and continued government response related to the pandemic. Increases in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending were partly offset by decreases in private inventory investment and exports.
Annualized Inflation
Annual inflation rate in the US accelerated to 5.4% in June of 2021 from 5% in May, hitting a fresh high since August of 2008, and well above forecasts of 4.9%. Biggest price increases were recorded for used cars and trucks (45.2%), gasoline (45.1%), fuel oil (44.5), utility gas service (15.6%) and transportation services (10.4%). Shelter costs were up 2.6% and food 2.4%. Inflation has been on the rise this year amid low base effects from 2020 and as the economic recovery picks up, business restrictions ease and demand surges amid widespread vaccination and federal support. Meanwhile, high commodity prices, supply constraints and higher wages as companies grapple with a labour shortage continue to weigh on the CPI.
Eurozone Economic Growth & Inflation
Year-over-Year GDP growth
The Euro Area economy shrank 1.3 percent year-on-year in the first quarter of 2021, much less than a preliminary estimate of 1.8 percent contraction.
Quarter-over-Quarter GDP growth
The Euro Area economy shrank 0.3 percent on quarter in the first three months of 2021, compared with a preliminary estimate of 0.6 percent contraction. Still, the bloc entered a double-dip recession as activity and demand were hit by fresh distancing and lockdown measures imposed during that period, to curb the spread of the coronavirus pandemic. A sharp decline in household consumption was partially offset by an increase in fixed investment and positive contributions from net trade and inventories. Among the bloc's largest economies, Germany, France, Spain and the Netherlands fell back into contraction territory, while Italy's economy posted modest growth despite the restrictions. Year-on-year, the GDP dropped 1.3 percent in the first quarter, much less than a second estimate of 1.8 percent fall.
Annualized Inflation
Annual inflation rate in the Euro Area eased to 1.9% in June of 2021 from a 2-1/2-year high of 2% in May, in line with market forecasts, preliminary data showed. Prices likely slowed for energy (12.5% vs 13.1% in May) and services (0.7% vs 1.1%) but inflation accelerated for non-energy industrial goods (1.2% vs 0.7%) and food, alcohol & tobacco (0.6% vs 0.5%). The monthly rate was steady at 0.3%. Inflation in June fell towards the ECB's target of below but close to 2% although it is likely to peak above 2.5% towards the end of the year.
Japan Economic Growth & Inflation
Year-over-Year GDP growth
The Gross Domestic Product (GDP) in Japan contracted 1.60 percent in the first quarter of 2021 over the same quarter of the previous year.
Quarter-over-Quarter GDP growth
The Japanese economy shrank 1.0% on quarter in Q1 2021, compared with the initial estimate of a 1.3% fall and market estimates of a 1.2 percent drop and after a 2.8% growth in Q4. This was the first contraction since Q2 2020, amid a resurgence of COVID-19 cases and slow vaccine rollouts, with capital expenditure falling less than initially anticipated (-1.2% vs -1.4% in the preliminary estimate and after gaining 4.3% in Q4). Meantime, private consumption dropped for the first time in three quarters (-1.5% vs -1.% in the initial reading and after rising 2.2% in Q4), government spending declined for the first time in a year (-1.1% vs 1.8% in the preliminary data and after increasing 1.8% in Q4), and public investment shrank for the first time in seven quarters (-0.5% vs -1.1% in the flash reading and after increasing 1.3% in Q4). At the same time, net external demand subtracted 0.2 percentage points from growth as exports rose 2.2% while imports grew at a faster 3.9%.
Annualized Inflation
Japan's consumer prices declined by 0.1 percent year-on-year in May 2021, after a 0.4 percent drop in the prior month. This was the eighth straight month of fall in consumer prices but the least in the sequence, amid ongoing COVID-19 disruptions. Cost eased for transportation & communication (-1.5% vs -2.3% in April), fuel, light and water charges (-0.3% vs -2.8%), and medical care (-0.1% vs -0.3%). Also, food prices fell 0.9%, slowing from a 1.2% decline in April. In contrast, prices went up further for housing (0.6% vs 0.6%), furniture and household utensils (2.1% vs 2.5%), recreation (0.6% vs 1.1%), education (1.3% vs 0.8%), and miscellaneous (1.4% vs 1.6%). Core consumer prices, which exclude fresh food, rose 0.1 percent yoy, the first rise in 14 months, after a 0.1 percent fall in April and matching market consensus. On a monthly basis, consumer prices went up 0.3 percent, following a 0.4 percent drop in April.
China Economic Growth & Inflation
Year-over-Year GDP growth
The Chinese economy advanced 7.9 percent year-on-year in Q2 of 2021, slowing sharply from a record 18.3 percent growth in Q1 and missing market consensus of 8.1 percent. A slowdown in factory activity, higher raw material costs, and new COVID-19 outbreaks in some regions all weighed on the recovery momentum. During the first half of the year, the economy grew by 12.7 percent, amid a low base effect from last year's coronavirus-triggered slump. China has set an economic growth target of “above 6 percent” for 2021 after expanding the least in over four decades of 2.3% in 2020. Analysts generally believe the country is on track to meet the growth target for the year although the economy is expected to slow slightly in the second half of 2021 as consumers globally start to spend more on services, hitting China’s export sector. Still, upbeat retail sales for June suggest consumer spending in China remains resilient.
Quarter-over-Quarter GDP growth
The Chinese economy grew by a seasonally adjusted 1.3 percent on quarter in the three months to June 2021,compared with market estimates of a 1.2 percent expansion and following a downwardly revised 0.4 percent advance in the previous quarter. China’s economy sustained a steady recovery, with production and demand picking up, employment and prices remaining stable, market expectations improving, and major macro indicators staying within a reasonable range, the National Bureau of Statistics said in a statement. It added, however, there were still concerns about the global spread of the pandemic and unbalanced recovery domestically.
Annualized Inflation
China's annual inflation rate unexpectedly fell to 1.1% in June 2021 from May's eight-month high and market expectations of 1.3%, amid a sharp decline in cost of food (-1.7% vs 0.3% in May), as pork prices dropped faster. Meantime, cost of non-food goods were little changed (1.7% vs 1.6%), with prices continuing to rise for transportation & communication (5.8% vs 5.5%); clothing (0.4% vs 0.4%); rent, fuel & utilities (0.9% vs 0.7%); health (0.3% vs 0.2%); household goods and services (0.3% vs 0.4%); and education, culture (1.5% vs 1.5%). On a monthly basis, consumer prices unexpectedly dropped by 0.4% in June, the fourth straight month of decrease, after a 0.2% drop in May and compared with forecasts of a flat reading.
Valuation Model
The Valuation model remained RED this week. Global equity valuations remain near historical highs relative to underlying current global economic fundamentals (GDP output). Distortions associated with the global Covid shutdown and subsequent reopening continue to cloud the valuation model.
Technical Model
The Technical model remained GREEN this past week. Global equity markets have recovered significantly off their March 2020 lows and remain above critical technical levels.
Sentiment Model
The Sentiment model remained YELLOW this week as overall sentiment has turned neutral (sentiment acts as an inverse shorter-term trading indicator).
Liquidity/Economic Stress Model
The Liquidity/Economic Stress model remained GREEN this week with recent global financial stress associated with COVID-19 offset by unprecedented global central bank liquidity injections.
World Bond Asset Class Return Monitor
We use the following U.S. exchange traded funds to monitor bond performance for the various bond asset classes:
Total Market Bond Basket:
- U.S. Total Bond Market (BND): (Red)
- International (ex-U.S.) Total Bond Market (BNDX): (Blue)
- U.S. Gov't Treasury Bonds (GOVT): (Orange)
- Foreign Developed Market Gov't Treasury Bonds (BWX): (Pink)
- U.S. Corporate Bonds (LQD): (Maroon)
- International Corporate Bonds (PICB): (Black)
- U.S. High Yield Bonds (JNK): (Purple)
- International High Yield Bonds (IHY): (Green)
- U.S. Gov't Inflation Protected Bonds (TIP): (Lime Green)
- International Gov't Inflation-Protected Bonds (WIP): (Cyan)
1 Year Rolling Bond Performance
- Over the past 12 months rolling period the top performing bond asset class has been US High Yield Bonds with U.S. Gov't Treasury Bonds the worst performing.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered mixed returns over the past year.
3 Month Rolling Bond Performance
- Over the past 3 month rolling period the top performing bond asset class has been U.S. Gov't Inflation Protected Bonds with Foreign Developed Market Gov't Treasury Bonds lagging.
- U.S. Total Bond Market (RED) and International (ex-U.S.) Total Bond Market (BLUE) having delivered positive returns over the past quarter (3 months).
1 Month Rolling Bond Performance
- Over the past 1 month rolling period the top performing bond asset class has been U.S. Gov't Inflation Protected Bonds with International High Yield Bonds lagging.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered positive returns over the past month.
Past Week Bond Asset Class Performance
- Over the past week U.S. Gov't Inflation Protected Bonds were the top performing bond class with International Corporate Bonds lagging.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) posted higher returns over the past week.
Commentary:
It has been shown in repeated studies over many years a balanced portfolio consisting of both equities and bonds (with percentage holdings in each adjusted according to personal risk tolerances) remains the best methodology in managing a long term retirement portfolio (due to the independent/low correlated function each takes when navigating though various market cycles and economic conditions).
It is best to think of bonds and equities as 2 independent brains each looking at the market from a different perspective:
As such, both serve a useful purpose in a well balanced portfolio.
We are very cognizant of the fact bond yields remain near generational lows (bond prices overbought and at generational highs) and any significant economic recovery (with associated increases in inflation) has the potential to be very detrimental to bond fund returns. There is currently over $10 Trillion in negative yielding bonds globally (never before seen in 5000 years of history) so any sudden surge in global growth and/or inflation will have a devastating impact upon bond fund returns (hence the reason we place so much research into global macroeconomic conditions).
Rolling 12 month returns for bonds remain positive and we continue to monitoring closely US, German & Japanese rates to determine if (when) it may be appropriate to reduce bond positions. Our premise is these 3 bonds tend to be somewhat "tethered" due to capital flows so it would take a trend-change/breakout in all 3 key Treasuries in order to definitively state the global bull market in bonds is over.
It is best to think of bonds and equities as 2 independent brains each looking at the market from a different perspective:
- Equities: Corporate profits focused.
- Bonds: Economic growth and Inflation focused.
As such, both serve a useful purpose in a well balanced portfolio.
We are very cognizant of the fact bond yields remain near generational lows (bond prices overbought and at generational highs) and any significant economic recovery (with associated increases in inflation) has the potential to be very detrimental to bond fund returns. There is currently over $10 Trillion in negative yielding bonds globally (never before seen in 5000 years of history) so any sudden surge in global growth and/or inflation will have a devastating impact upon bond fund returns (hence the reason we place so much research into global macroeconomic conditions).
Rolling 12 month returns for bonds remain positive and we continue to monitoring closely US, German & Japanese rates to determine if (when) it may be appropriate to reduce bond positions. Our premise is these 3 bonds tend to be somewhat "tethered" due to capital flows so it would take a trend-change/breakout in all 3 key Treasuries in order to definitively state the global bull market in bonds is over.
ETF Bond Proxies
The current bond bull market began 01 Oct 2018. Below is the performance of the 3 ETF's we use as "bond proxies" to monitor global bond performance:
- BNDW: Vanguard Total World Bond market ETF (BLUE)
- BND: Vanguard Total U.S. Bond market ETF (GREEN)
- BNDX: Vanguard Total International (ex-U.S.) Bond market ETF (RED)
Global aggregate bonds gained +0.242% over the past week. They remain below their December 2020 peak as the risk of global inflation rising rapidly during the post-Covid pandemic reopening continues to be priced into the bond market.
U.S. 10 year Treasury Yield
Rates in the U.S. peaked in Oct 2018 above 3% and commenced a gradual decline through 2019 to 1.5% on weak economic performance. The remained stable in the 1.5-2.0% area until Covid where they collapsed to record lows. The remained range-bound through 2020 but have now risen back to their pre-covid levels in 2021 on the improving U.S. economic recovery.
Yield support remains 1.336%-1.429% with resistance near 2%.
Yield support remains 1.336%-1.429% with resistance near 2%.
German 10 year Bund Yield
German 10 year treasury yields peaked in early 2018 and plunged over the past 2 years to record all-time-lows of -0.84% on the back of recessionary economic conditions within the German economy. They had remained range bound since May 2019 but are now attempting a breakout above resistance @ -0.1890%.
Japanese 10 year Treasury Yield
Japan has been fighting deflation for decades and only recent unprecedented monetary policy by the BOJ appears to be having some effect upon deflation (and yields).
After bottoming at near -0.28% in mid-2016, yields rose to a peak of 0.16% before they once again plunged in 2019 to once again retest -0.28%. They have since bounced dramatically on the back of renewed hope the worst of Japan's economic woes may be behind it.
After bottoming at near -0.28% in mid-2016, yields rose to a peak of 0.16% before they once again plunged in 2019 to once again retest -0.28%. They have since bounced dramatically on the back of renewed hope the worst of Japan's economic woes may be behind it.
Currencies
Below is the 12/3/1 month and weekly rolling returns for the 6 currencies that make up the U.S. Dollar index. The U.S. Dollar index is composed of a weighted geometric mean of the dollar's value relative to the 6 currencies in the following list:
In addition, we also include the following for comparison purposes:
- Euro (EUR), 57.6% weight.
- Japanese yen (JPY) 13.6% weight.
- U.K. Pound sterling (GBP), 11.9% weight.
- Canadian dollar (CAD), 9.1% weight.
- Swedish krona (SEK), 4.2% weight.
- Swiss franc (CHF) 3.6% weight.
In addition, we also include the following for comparison purposes:
- The Australian Dollar (not a part of the USD Index) as it is a popular commodity currency.
- Gold (priced in USD) as it typically acts more like a currency void of fiat printing.
1 Year Rolling Currency Performance
- Over the past 12 months rolling period the top performing major currency has been the British Pound with the U.S. Dollar Index the worst performing.
3 Month Rolling Currency Performance
- Over the past 3 month rolling period the top performing currency has been Gold with the Australian Dollar lagging.
1 Month Rolling Currency Performance
- Over the past 1 month rolling period the top performing currency has been the US Dollar Index with the Australian Dollar lagging.
Past Week Currency Performance
- Over the past week the top performing major currency was the US Dollar Index with the Canadian Dollar lagging.
U.S. Dollar: (Bullish Bias)
Commentary:
The USD index was up +0.62% over the past week. It had been in a steady decline since March 2020 as global liquidity through Central Bank printing has reduced the shortage of US dollar demand which occurred during the worst of the COVID crisis in Asia and Europe. However, stronger US economic performance relative the rest of the world post-Covid reopening has turned the dollar bullish.
Support / Resistance Levels (based upon close):
Weekly: 91.33 / 93.80
Monthly: 88.95 / 93.03
Support / Resistance Levels (based upon close):
Weekly: 91.33 / 93.80
Monthly: 88.95 / 93.03
US Dollar Index Daily charts
The 1 year daily chart (above) shows the range-bound chop between 92-95 from Jul-Nov 2020 (red shaded box) before the drop to its recent lows at the beginning of 2021 @ 89.41. It modestly recovered and this week was able to maintain the daily support @ 92.14.
The 4 year daily chart (above) clearly shows the 94.79-94.87 level as a critical weekly support/resistance line over the past 4 years.
Over the past week the USD closed above its short term trend 50 and 200 day moving averages.
(Short Term Bullish)
(Short Term Bullish)
US Dollar Index Weekly charts
The weekly chart shows the steady -14% decline the USD index experienced from the start of the Covid crisis in March 2020 to its recent lows in early Jan 2021. It has now reversed in line with improving economic performance post-Covid panic as the demand for dollars globally subsides.
Price ended the week above support @ 91.33 and closed the week between the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Neutral)
Price ended the week above support @ 91.33 and closed the week between the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Neutral)
A longer term 20 year look-back at the USD shows the 91.66-92.33 weekly close area (thick RED line) has been a very significant bull/bear battle zone over the past 23 years (since 1997). This is now significant resistance.
US Dollar Index Monthly chart
For the month of July the U.S. Dollar index has gained +0.28%. Since bottoming in late 2011 the USD has been on a roller-coaster ride. It experienced:
Price closed June above the long term trend 10 month moving average changing the long term bias to Bullish until months end. Monthly support remains @ 88.95 with resistance @ 93.03 on a monthly closing basis.
(Long Term Bullish)
- a large acceleration in 2014-2015 (+27%),
- a consolidation in 2015-2017,
- a large drop in 2017-2018 (-15%) back to support and its uptrend line from 2011, and
- its recent rise back to the top of its previous consolidation zone.
- its most recent decline which broke the bottom of the consolidation zone + uptrend line.
Price closed June above the long term trend 10 month moving average changing the long term bias to Bullish until months end. Monthly support remains @ 88.95 with resistance @ 93.03 on a monthly closing basis.
(Long Term Bullish)
Euro (Bearish Bias)
The Euro was down -0.64% over the past week. It had shown remarkable longer-term resilience given ongoing European political uncertainty (Brexit, Spain, Germany, Italy) and has strengthened considerably off the March 2020 lows as the Covid situation has dramatically improved in the Eurozone relative to the U.S. response.
Support / Resistance Levels (based upon close):
Weekly: 116.33 / 119.41
Monthly: 113.81 /123.02
Support / Resistance Levels (based upon close):
Weekly: 116.33 / 119.41
Monthly: 113.81 /123.02
Euro Daily Charts
The Euro topped out in early 2018 @ 125.10 and had been on a steady decline until March 2020. It rose dramatically into the end of 2020 has has remained rangebound thus far in 2021.
On the 2nd daily chart price it can be seen how important the yellow band daily resistance zone @ 114.61-116.04 is going back to 2015. It broke above this key resistance level in July 2020 and closed the week below the short term trend 50 and 200 day moving averages.
(Short Term Bearish)
On the 2nd daily chart price it can be seen how important the yellow band daily resistance zone @ 114.61-116.04 is going back to 2015. It broke above this key resistance level in July 2020 and closed the week below the short term trend 50 and 200 day moving averages.
(Short Term Bearish)
Euro Weekly Chart
The weekly chart shows the Euro's steady rise from its Covid lows in March 2020 to the end of the year. As of yet it still has been unable to break multi-year weekly resistance @ 124.58.
This past week the Euro closed the week between the intermediate trend 20 week + 65 week moving averages.
(Intermediate Term Neutral)
This past week the Euro closed the week between the intermediate trend 20 week + 65 week moving averages.
(Intermediate Term Neutral)
Euro Monthly
For the month of July the Euro has glost -0.44%. On a monthly closing basis it closed the month of June below the long term trend 10 month moving average changing the long term outlook to bearish until months end.
(Long Term Bearish)
(Long Term Bearish)
UK Pound (Bearish Bias)
U.K. Pound Daily Charts
U.K. Pound Weekly Chart
U.K. Pound Monthly Chart
The British Pound lost -1.04% over the past week. Clearly the fallout from Brexit will continue to influence cable's performance over the next several years but it has provided strong returns over the past 12 months.
Critical levels to watch on the Pound remain the respective weekly and monthly reactionary closing prices following the Brexit vote in June 2016:
This past week the Pound closed the week between its short term trend daily 50 +200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. For the month of July it has lost -0.41% and closed the month of June above its long term 10 month moving average (which technically keeps the long term bullish until months end).
(Short Term Neutral)
(Intermediate Term Neutral)
(Long Term Bullish)
Support / Resistance Levels (based upon close):
Weekly: 136.76 /143.39
Monthly: 132.64 /139.17
Critical levels to watch on the Pound remain the respective weekly and monthly reactionary closing prices following the Brexit vote in June 2016:
- 136.76 weekly close (weekly close 20 June 2016 following vote results)
- 133.09 monthly close (monthly close 30 June 2016 following vote results)
This past week the Pound closed the week between its short term trend daily 50 +200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. For the month of July it has lost -0.41% and closed the month of June above its long term 10 month moving average (which technically keeps the long term bullish until months end).
(Short Term Neutral)
(Intermediate Term Neutral)
(Long Term Bullish)
Support / Resistance Levels (based upon close):
Weekly: 136.76 /143.39
Monthly: 132.64 /139.17
Australian Dollar (Bearish Bias)
Australian Dollar Daily Chart
Australian Dollar Weekly Chart(s)
Australian Dollar Monthly Chart
The Australian Dollar lost -1.23% over the past week and continues to strongly recover off its recent lows (it lost -44% from its 2011 peak to its recent lows in March 2020).
For the month of July the Aussie dollar has lost -1.33%. It closed the week below the short term trend 50 + 200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. It closed the month of June below the long term trend 10 month moving average changing the long term outlook to bearish until months end.
(Short Term Bearish)
(Intermediate Term Neutral)
(Long Term Bearish)
Support / Resistance Levels (based upon close):
Weekly: 73.35 / 77.26
Monthly: 72.04 / 76.59
For the month of July the Aussie dollar has lost -1.33%. It closed the week below the short term trend 50 + 200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. It closed the month of June below the long term trend 10 month moving average changing the long term outlook to bearish until months end.
(Short Term Bearish)
(Intermediate Term Neutral)
(Long Term Bearish)
Support / Resistance Levels (based upon close):
Weekly: 73.35 / 77.26
Monthly: 72.04 / 76.59
Canadian Dollar (Bearish Bias)
Canadian Dollar Daily Chart
Canadian Dollar Weekly Chart
Canadian Dollar Monthly Chart
The Canadian dollar was down -1.21% over the past week and continues to recover off its Covid-lows of late March 2020 (it is largely tied to the price of commodities so the anticipated global recovery has benefited CAD).
The Loonie closed the week between the short term trend 50 + 200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. For the month of July the Loonie has lost -1.61%. It continues to advance and closed the month of June above the long term trend 10 month moving average keeping the long term bullish until months end.
(Short Term Neutral)
(Intermediate Term Neutral)
(Long Term Bullish)
Support / Resistance Levels (based upon close)
Weekly: 76.82 / 79.67
Monthly: 78.49 / 79.67
The Loonie closed the week between the short term trend 50 + 200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. For the month of July the Loonie has lost -1.61%. It continues to advance and closed the month of June above the long term trend 10 month moving average keeping the long term bullish until months end.
(Short Term Neutral)
(Intermediate Term Neutral)
(Long Term Bullish)
Support / Resistance Levels (based upon close)
Weekly: 76.82 / 79.67
Monthly: 78.49 / 79.67
Key Weekly Returns (week ending 16 July 2021):
|
Countries/Regions
World Equities ACWI (iShares MSCI ACWI Index Fund) North American Equities SPY (S&P 500 SPDRs) QQQ (PowerShares QQQ Trust) IWM (Russell 2000 iShares) EWC (Canada iShares) |
Characteristics
World Equity Fund U.S. Large Cap S&P 500 Index U.S. NASDAQ 100 Fund U.S. Russell 2000 Small Cap Fund Canada |
Week % Change
-1.09% -0.96% -0.94% -5.05% -2.50% |
Non-North America Equities
|
VGK (Vanguard European VIPERs) EPP (iShares MSCI Pacific ex-Japan ) EWJ (Japan iShares) EEM (iShares MSCI Emerging Markets) ILF (Latin America 40 Index iShares) Bonds
BND (Vanguard Total U.S. Bond Market) BNDX (Vanguard International Bond ETF) TIP (iShares Barclays TIPS Bond Fund) PCY (PowerShares Emerging Markets Debt Portfolio) |
Europe/U.K Pacific ex-Japan (inc. Australia + NZ) Japan Emerging Markets Latin America US Total Bond (44% Gov't Tsy, 56%Corp) World Investment Grade Bonds ex-US Inflation Protected Gov't Bonds Emerging Market Sovereign Debt |
-1.72% -0.83% -1.77% +0.07% +0.07% +0.14% +0.52% +0.84% +0.33% |
|
Commodities
DBC (DB Commodities Tracking Index Fund) DBA (PowerShares DB Agriculture Fund) GLD (SPDR Gold Trust Shares) SLV (iShares Silver Trust) DBB (PowerShares Metals Fund) USO (United States Oil Fund) |
Commodity Basket Soft Commodity Basket Gold Bullion Silver Bullion Industrial Metals Light Crude Oil |
-0.52% +3.73% +0.12% -1.74% -0.98% -2.52% |
Currencies
|
UUP (PowerShares DB US Dollar Bullish Fund)
FXA (Currency Shares Australian Dollar Trust) FXB (Currency Shares British Pound Sterling Trust) FXC (Currency Shares Canadian Dollar Trust) FXE (Currency Shares Euro Trust) FXY (Currency Shares Japanese Yen Trust) |
U.S. Dollar
Australian Dollar U.K. Sterling Canadian Dollar Euro Japanese Yen |
+0.65%
-1.40% -0.95% -1.31% -0.66% +0.06% |
Important Charts to Watch
Commodity Basket Index
Commodities (as measured by the Reuters/Jefferies CRB index, a basket of 19 commodities) peaked in late 2007 and have have been in a steady deflationary decline since. They attempted to base in 2015-2020 but the Covid virus drastically pushed them lower to 40 year lows.
They have since recovered to the pre-covid consolidation zone (amber box on chart) and have returned back above their pre-Covid collapse. This is very encouraging for equities.
They have since recovered to the pre-covid consolidation zone (amber box on chart) and have returned back above their pre-Covid collapse. This is very encouraging for equities.
Equity Market Volatility
The Volatility Index (VIX) is a measure of expected price fluctuations of options on the S&P 500 index options over the next 30 days (technically the VIX is quoted in percentage points and represents the expected range of movement in the S&P 500 index over the next year, at a 68% confidence level i.e. one standard deviation of the normal probability curve). For example, if the VIX is 15, this represents an expected annualized change, with a 68% probability, of less than 15% up or down.
The VXV uses the same calculation as the VIX but looks forward 3 months. When the VIX is greater than the VXV ($VIX:$VXV ratio > 1.0) the volatility structure is termed to be in "contango". It indicates traders are much more concerned about short term volatility than they are about longer term volatility and when that ratio returns to "normal" (< 0.93) it is typically a good sign market stress is easing (and a good time to add to equity positions).
As of this weeks market close volatility closed below the "VIX Event End Line" area with the VIX below 25. The volatility structure currently is BULLISH for equities.
The VXV uses the same calculation as the VIX but looks forward 3 months. When the VIX is greater than the VXV ($VIX:$VXV ratio > 1.0) the volatility structure is termed to be in "contango". It indicates traders are much more concerned about short term volatility than they are about longer term volatility and when that ratio returns to "normal" (< 0.93) it is typically a good sign market stress is easing (and a good time to add to equity positions).
As of this weeks market close volatility closed below the "VIX Event End Line" area with the VIX below 25. The volatility structure currently is BULLISH for equities.
European Banks
Since the 2009 market bottom Europe has been the weakest major equity growth region. As such, we continue to remain concerned about European financial stocks (represented below using the iShares MSCI European Financials ETF). However, they have now broken above their pre-covid range (encouraging).
Of particular concern is Deutsche Bank which in 2020 hit 13 year lows (down over 95% from its 2007 peak!) DB has a massive derivatives exposure (currently estimated at $40T notional with net exposure near $100B) and should they be put forced into a position whereby they need to restructure it could potentially lead to a catastrophic ripple effects worldwide.
They announced a significant restructuring effort in the 2nd week of July, 2019 so we continue to keenly monitoring their price performance.
Chinese Equities
The Shanghai Composite index was higher this past week and was able to hold above support @ 3317-3412. Resistance remains @ 3558-3630.
Chinese growth remains key to both Emerging market performance as well as an indication of Developed markets demand. From its peak in mid-2015, the Shanghai index lost more than -50% to its recent lows. We would like to see significant strength return to China further indicating world economic growth has positively turned the corner.
Chinese growth remains key to both Emerging market performance as well as an indication of Developed markets demand. From its peak in mid-2015, the Shanghai index lost more than -50% to its recent lows. We would like to see significant strength return to China further indicating world economic growth has positively turned the corner.
PRECIOUS METALS
Precious metals (and their respective producers) remain an area we recommend all investors have at least a small position within at present. Precious metals perform well during times when real (inflation adjusted) interest rates are falling and/or when the USD is weak. Real global rates have begun to rise (acting as a headwind to PM's) while the USD has been weak (acting as a tailwind to PM's).
Below is a ratio price chart of gold stocks (HUI; the "Gold Bugs" Index) to gold bullion going back to 1996 when the HUI first came into existence. As can be seen, whenever the HUI:GOLD ratio dips to below approximately 0.14 (the GREEN zone on the chart) has been a low-risk opportunity to purchase gold stocks.
Gold stocks exceeded their 1st target. They remain in the lower end of the "low-risk vs. high-reward" range and until recently remain near their cheapest valuations in 22 years. Historically purchases of gold equities when within the green-zone have been a very good long term buying opportunities and it now appears gold stocks are attempting to play "catch-up" to the price of bullion (with a lot of room to rise further).
Gold stocks exceeded their 1st target. They remain in the lower end of the "low-risk vs. high-reward" range and until recently remain near their cheapest valuations in 22 years. Historically purchases of gold equities when within the green-zone have been a very good long term buying opportunities and it now appears gold stocks are attempting to play "catch-up" to the price of bullion (with a lot of room to rise further).
Even more bullish is Silver (chart below) which remains at a price ratio relative to the price of gold (GREEN zone on the chart) which has historically been a low risk entry point over the past 40 years.
Silver has recently moved up dramatically as we expected but remains still fairly cheap relative to gold. There still appears to be room to run.
To put the valuation into a longer term perspective, below is a chart of the Gold/Silver ratio (the opposite ratio to Silver/Gold) going back to 1687. Clearly it can be seen a gold:silver ratio > 80 has historically been an outlier over the past 100+ years (and greater than 100 is historic):
The current Gold:Silver ratio recently exceeded 120 for the 1st time in history and near the top end of 40 year highs. It can be seen each instance in the past 40 years where the ratio has crossed above 80 has resulted in very good long term gains in silver.
The move in Silver we have been anticipating appears to have begun but there remains plenty of room to allow the ratio to fall to the "sell" level near 45.
EVEN MORE BULLISH is the price of Platinum (chart below) which has exceeded the "buy zone" last seen in 1982! Platinum is 15-20 times rarer than gold and has rarely in history traded at a price below the price of gold (only 9.7% of the time going back to 1971). It is now the cheapest it has been GOING BACK TO AUGUST 1971 WHEN THE U.S. LEFT THE GOLD STANDARD on a relative basis:
- The current Platinum:Gold ratio remains below 0.85 (red line on the chart below).
- A Platinum/Gold ratio < 0.85 has only occurred 4.7% of the time back to 1971.
- Prior to recent lows, the lowest Platinum:Gold ratio since August 1971 (when the USD was removed from the gold standard) was hit on 20 Sept 1982 when it hit a ratio low of 0.689 (Platinum $300.40/Gold $436.00).
- If Platinum were to return to its most common ratio relative to Gold (1.0x-1.25x which has been common 35% of the time) it would imply a price rise of approximately 50-90% from recent levels.
Platinum now sits on a price support extending back to 2004 and, combined with its ratio relative to the price of gold, represents a compelling long term buy point.
The following charts and commentary (in italics; bold print is our emphasis) are sourced from Kitco from commentary sourced in Feb 2017 when the ratio was near 0.85 (Platinum has become even cheaper on a relative basis since the data was published):
Platinum to gold ratios show wide variance over the 46 year period ranging from highs above 2.5 before and soon after Nixon began taking the United States off the gold standard to periodic lows below 1.0:
Platinum to gold ratios show wide variance over the 46 year period ranging from highs above 2.5 before and soon after Nixon began taking the United States off the gold standard to periodic lows below 1.0:
Our data set covers 553 months beginning in January 1971. The distribution of ratios in both tabular and chart format follows:
Platinum/Gold Ratio: % of Months
Platinum/Gold Ratio: % of Months
- < 0.85: 4.7%
- .85-1.01: 5.0%
- 1.0-1.25: 34.7%
- 1.25-1.5: 19.3%
- 1.5-2.0: 15.4%
- 2.0-2.5: 8.9%
- > 2.5: 2.0%
From our data set and the distributions of monthly average platinum-gold ratios from January 1971 thru January 2017, I glean the following:
From a compendium of sources, the average crustal abundance of both metals is around 4 ppb. Based solely on this fact, platinum and gold should trade at about the same price.
And indeed, our compilation shows that for nearly 50% of the time since gold was decoupled from the world’s reserve currency and allowed to trade freely on exchanges, the price ratio has ranged from 0.85 to 1.25. That said, since January 1971, the average price of platinum has been $637/oz and gold has been $518/oz for an overall ratio of 1.23:1. Clearly there are other factors other than the nearly equal crustal abundances that account for this historic price relationship.
A variety of supply and demand factors cause platinum to trade at a premium to gold:
Fluctuations in the relative prices of platinum and gold are largely driven by:
Platinum functions both as a precious and industrial metal. It is usually tied to the price of gold in both short- and long-term trading patterns. In times of financial distress and economic turmoil, platinum tends to behave more like gold with widespread hoarding.
The platinum-gold ratio can be used to ascertain whether one metal is over- or undervalued with respect to the other. The current monthly average ratio below 0.85 is unusual and indicates that platinum is severely undervalued with respect to gold *
* The ratio recently hit 0.55 and remains near a record low.
- A ratio of less than 0.75 is a single outlier that occurred once during the second half of 1982 when overall ratios averaged 0.81.
- Ratios <0.85 are quite unusual at 4.7%. They occurred for two months in the first quarter of 1975, the aforementioned six months in 1982, in June-July of 1985, and for an ongoing run of 16 months that commenced in October 2015.
- Ratios from 0.85 to 1.0 constitute 15.0% of the record.
- Pt:Au from 1.0 to 1.25 is the most common range and comprises 34.7% of ratios since 1971.
- The ratios between 1.25 and 1.5 occur 19.3% of the time.
- Ratios from 1.5 to 2.0 make up 15.4% of the record.
- The 2.0-2.5 interval covers 8.9% of the months in our compendium.
- The 11 monthly outliers at >2.5 comprise 2.0% of the total record and have not occurred since 1971.
From a compendium of sources, the average crustal abundance of both metals is around 4 ppb. Based solely on this fact, platinum and gold should trade at about the same price.
And indeed, our compilation shows that for nearly 50% of the time since gold was decoupled from the world’s reserve currency and allowed to trade freely on exchanges, the price ratio has ranged from 0.85 to 1.25. That said, since January 1971, the average price of platinum has been $637/oz and gold has been $518/oz for an overall ratio of 1.23:1. Clearly there are other factors other than the nearly equal crustal abundances that account for this historic price relationship.
A variety of supply and demand factors cause platinum to trade at a premium to gold:
- Platinum is a much smaller market. Cumulative world production of platinum is estimated to be about 5% of gold (9400 tonnes versus 182,000 tonnes). From 1994-2014, 3700 tonnes of platinum were mined versus 52,600 tonnes of gold or about 7% (source: USGS).
- Platinum is largely an industrial metal. Catalytic converters, electronics, petroleum and chemical catalysts, medical technologies, and many minor uses constitute over 60% of its annual demand. Around 30% is used in jewelry and 10% for investment demand. Also, 30% of the annual platinum supply now comes from recycling, mostly from catalytic converters. Some demand is consumed and lost to the marketplace.
- Gold is overwhelmingly a precious metal; 90% is used in jewelry and investments and only 10% in industrial applications. An estimated 98% of all the gold ever mined in the world remains available and held in jewelry, by central banks, in private hoards, and as fabricated products (source: USGS).
- About 70% of yearly platinum mine supply comes from South Africa, a geopolitically risky country. Much new platinum is a by-product of nickel-copper mining and smelting; therefore, annual platinum production is dependent on the supply-demand fundamentals and prices of these primary metals.
Fluctuations in the relative prices of platinum and gold are largely driven by:
- the overall growth and health of the world’s economy and in the case of platinum, the automotive industry;
- labor, power, currency, and political issues in South Africa that cause major perturbations in the platinum supply;
- safe haven hoarding of gold and to a much lesser extent, platinum, in times of economic uncertainty and major geopolitical events; speculators moving in and out of paper markets of both metals (bullion exchanges, ETFs, and derivatives) and to a lesser extent, central bank trading of physical gold.
Platinum functions both as a precious and industrial metal. It is usually tied to the price of gold in both short- and long-term trading patterns. In times of financial distress and economic turmoil, platinum tends to behave more like gold with widespread hoarding.
The platinum-gold ratio can be used to ascertain whether one metal is over- or undervalued with respect to the other. The current monthly average ratio below 0.85 is unusual and indicates that platinum is severely undervalued with respect to gold *
* The ratio recently hit 0.55 and remains near a record low.
U.S. Equity Market Valuation
Crestmont Price/Earnings Ratio
(Source: Crestmont Research)
(Source: Crestmont Research)
A large part of the expected declines in bear markets hinges upon how "expensive" markets were when the bear market begins. In this measure, we have a long way to fall given the overvaluation at the market peak.
We illustrate the recent market overvaluation via 3 charts produced by Crestmont Research (as of 01 June 2021 with data from 1871-to-present). While it is not necessary to understand exactly how the data is plotted, it is important for every investor to realize where current valuations stand relative to this 149 years of history.
In the following graphs note the following:
We illustrate the recent market overvaluation via 3 charts produced by Crestmont Research (as of 01 June 2021 with data from 1871-to-present). While it is not necessary to understand exactly how the data is plotted, it is important for every investor to realize where current valuations stand relative to this 149 years of history.
In the following graphs note the following:
- the Crestmont Price/Earnings (P/E) ratio at the end of May 2021 was the most expensive market valuation in U.S. stock market history (since 1871) .
- when compared to inflation the current Crestmont P/E has now exceeded the upper extreme portion of the bubble zone defining the 1998-2000 bubble peak as shown on the 2nd chart.
- pay particular attention to chart #2 where it can be seen high equity valuations are historically supported by inflation in the 0-3% range. Inflation is currently outside this corridor (which has occurred as of the end of April) so this is now very concerning. Overvalued equities combined with high inflation tend be be a very dangerous combination.
U.S. (NYSE) Margin Debt
(Source: Advisor Perspectives)
We have been studying with interest the current margin debt on US markets. For those who are unfamiliar, margin debt is the amount of "loans" taken out by market speculators to leverage up their equity positions. During normal bull markets margin debt will increase as the market continues to climb. This increased margin debt amplifies equity market prices. However, at some point speculators become nervous and begin to reduce their margin positions. This reduction in margin is like letting the air out of a balloon and deflates equity asset prices.
As can be seen on the below graphic, both the 2000 and 2007 market tops were signaled in advance by tops in margin debt (margin debt not inflation adjusted on this chart):
As can be seen on the below graphic, both the 2000 and 2007 market tops were signaled in advance by tops in margin debt (margin debt not inflation adjusted on this chart):
The following chart (source: Doug Short) shows US equity margin debt adjusted for inflation. As can be seen, in both 2000 and 2007 inflation-adjusted margin debt peaked and then began to decline leading to the tops in the S&P 500 index. As such, margin debt rollovers acts as a good lead indicator of possible future market weakness.
U.S. Equity market Valuation Models
(Source: D. Short)
Below is a graph representing 4 different long-term valuation measures plotted back to 1900 (120 years):
As of 01 July 2021 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 176% above its long term geometric mean. This remains the highest valuation in the history of the stock market going back to 1900 (now well over 3 standard deviations above the mean and well above the market peaks in 2007, 2000 and 1929).
- The Crestmont Research P/E Ratio
- The cyclical P/E ratio using the trailing 10-year earnings as the divisor
- The Q Ratio, which is the total price of the market divided by its replacement cost
- The relationship of the S&P Composite price to a regression trendline
As of 01 July 2021 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 176% above its long term geometric mean. This remains the highest valuation in the history of the stock market going back to 1900 (now well over 3 standard deviations above the mean and well above the market peaks in 2007, 2000 and 1929).
Another popular valuation metric is know as the "Buffett-Indicator". In an interview with Fortune magazine back in 2001 Warren Buffett remarked "it is probably the best single measure of where valuations stand at any given moment."
The indicator measures the price of Corporate Equities (Mkt Cap) to Gross Domestic Product (GDP) as a ratio going back to the 1950's. As can be seen below, the ratio of equity prices relative to last reported GDP currently stands at 209.2%. It recently exceeded the 2000 equity bubble peak of 159.2% in terms of equity overvaluation relative to economic output.
7-Year Asset Class Real Return Forecast
(Source: GMO LLC)
Each month GMO (Grantham, Mayo, Van Otterloo & Co.) publishes a forward forecast for expected annual real rates of return (i.e. inflation adjusted) for a number of different asset classes with a 7 year forward outlook. They have historically had a very good track record (0.97 correlation) of estimating forward 7 year asset class returns based primarily upon current valuations combined with mean reversion. Charts are published following analysis of the previous months data.
We have followed GMO's methodology with interest for many years. In our experience we have found them to be conservative over the shorter term with a tenancy to make calls too early. HOWEVER, similar to Dr. John Hussman of Hussman Funds, they also tend to be right over the longer term. As such, we use their outlook as part of the valuation model within the ECAM 5 Factor model.
Above is their current forecast of expected real returns (after inflation) for the next 7 years broken down by asset class. It is clear based upon current market valuations GMO forecasts well below average annual investment returns in all asset classes with a 7 year forward time horizon (the dotted line is the historical real return of U.S. equities of +6.5% per year). This is important for those who may be soon retiring and expecting "average" returns on their equity and bond investments over the next 7 years. Current high market valuations make it a certainty forward returns over the next 7-10 years will be well below historical averages.
We have followed GMO's methodology with interest for many years. In our experience we have found them to be conservative over the shorter term with a tenancy to make calls too early. HOWEVER, similar to Dr. John Hussman of Hussman Funds, they also tend to be right over the longer term. As such, we use their outlook as part of the valuation model within the ECAM 5 Factor model.
Above is their current forecast of expected real returns (after inflation) for the next 7 years broken down by asset class. It is clear based upon current market valuations GMO forecasts well below average annual investment returns in all asset classes with a 7 year forward time horizon (the dotted line is the historical real return of U.S. equities of +6.5% per year). This is important for those who may be soon retiring and expecting "average" returns on their equity and bond investments over the next 7 years. Current high market valuations make it a certainty forward returns over the next 7-10 years will be well below historical averages.
Global Asset Class 10-year Expected Nominal Return Forecast
(data as of 30 June 2021)
(Source: Research Affiliates)
(data as of 30 June 2021)
(Source: Research Affiliates)
Below is the projected 10 year nominal (not inflation adjusted) returns for the majority of global assets.
Data continues to point to Emerging Market and EAFE (Europe, Africa and Far East) equities as providing the greatest returns over the next 10 years with Global Government Treasury bonds (especially U.S. Long Term Treasuries) showing minimal returns due to low global interest rates.
Data continues to point to Emerging Market and EAFE (Europe, Africa and Far East) equities as providing the greatest returns over the next 10 years with Global Government Treasury bonds (especially U.S. Long Term Treasuries) showing minimal returns due to low global interest rates.
Cycle Commentary
Below is a 20 year chart of the seasonal monthly performance of the Dow Jones Global Index. The number at the top of the column is the percentage of time the month had a positive return and at the bottom is the average percentage gain/loss for the month.
As can be seen, over the past 20 years (2002-2021) the period September-April yearly offers the highest potential global equity market returns (cumulative +6.4% average return) while the period May-August offers little in total return relative to risk (+0.4% cumulative average return). The month of April remains the strongest month with an 80% success rate and an average +2.5% return.
In the interest of moving more towards more recent market action broken down by region, below is the seasonal returns for our each of our selected ETF benchmark going back to the start of the bull market in 2009:
|
Region
|
September-April
|
May-August
|
|
Global Equities (VT)
U.S. Equities (VTI) European Equities (VGK) Asia Pacific Equities (VPL) Emerging Market Equities (VWO) |
+9.9%
+12.0% +8.0% +7.9% +10.2% |
+2.5%
+2.6% +1.4% +1.3% +0.5% |
|
Vanguard Total World Market (VT)
Vanguard FTSE European Total Market (VGK)
|
Vanguard U.S. Total Market (VTI)
Vanguard FTSE Pacific Total Market (VPL)
|
Vanguard FTSE Emerging Total Market (VWO)
|
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S&P 500 Seasonality (historical 50 year look-back annual seasonality)
"Turning to the months ahead, the performance for January and February is rather lacklustre compared to the months that bookend this start of year period. The S&P 500 Index has gained an average of 0.8% and 0.2%, respectively in the first two months of the year, based on the past 50 periods. These months are easily the weakest of the best six month trend for stocks. The large-cap benchmark has closed positive just over half of the time (56%) in January and February, making this winter lull little better than a flip of a coin in terms of the frequency of success.. Returns for January have ranged from a loss of 8.6% in 2009 to a gain of 13.2% in 1987. Performance tends to gyrate in the middle of January with the majority of the strength achieved in the first few days and last few days of the period".
Ned Davis Research 2021 Composite Model
The following is the composite directional model forecast for the S&P 500 index for 2020 based upon the following parameters (each equal weighted within the composite model) for data from 1928-2020:
In general, the historical Composite roadmap points to strong market performance throughout the 1st 1/2 of the year, a period of consolidation throughout the summer, a very week Sept followed by choppy consolidation through Oct-Dec.
- 10 year Decennial Market Cycle
- 4 year Presidential Market Cycle
- 1 year Annual Seasonal Market Cycle
In general, the historical Composite roadmap points to strong market performance throughout the 1st 1/2 of the year, a period of consolidation throughout the summer, a very week Sept followed by choppy consolidation through Oct-Dec.
The 2021 composite model indicates the following historical "glidepath" based upon cycles from 1928-2020:
- a strong 1st half of the year into mid-July.
- consolidation in mid-July to mid-August.
- weak performance from mid-August to mid-September.
- choppy markets mid-September to year-end.
U.S. 4 Year Presidential Election Cycle
*2020 is Year 4 (Election Year)
As can be seen on the chart above, historically since 1928 the 2nd year of the 4 year Presidential Cycle tends to provide the worst returns of the 4 year cycle.
While we do not make investment decisions strictly based upon cycle analysis, we are cognizant of the historical nature of these cycles and tend to be a bit more wary as they approach.
While we do not make investment decisions strictly based upon cycle analysis, we are cognizant of the historical nature of these cycles and tend to be a bit more wary as they approach.
Presidential Cycle S&P 500 returns (inc. dividends):
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1988-Year 4: +12.40%
1989-Year1: +27.25% 1990-Year 2: -6.56% 1991-Year 3: +26.31% 1992-Year 4: +4.46% 1993-Year 1: +7.06% 1994-Year 2: -1.54% 1995-Year 3: +34.11% 1996-Year 4: +20.26% 1997-Year 1: +31.01% 1998-Year 2: +26.67% 1999-Year 3: +19.53% 2000-Year 4: -10.14% |
2001-Year 1: -13.04%
2002-Year 2: -23.37% 2003-Year 3: +26.38% 2004-Year 4: +8.99% 2005-Year 1: +3.00% 2006-Year 2: +13.62% 2007-Year 3: +3.53% 2008-Year 4: -38.49% 2009-Year 1: +23.45% 2010-Year 2: +12.78% 2011-Year 3: +0.00% 2012-Year 4: +13.41% 2013-Year 1: +29.60% |
2014-Year 2: +11.39%
2015-Year 3: -0.73% 2016-Year 4: +11.96% 2017-Year 1: +21.83% 2018-Year 2: -4.38% 2019-Year 3: +31.49% 2020-Year 4: |
U.S. Recessions and Equity Performance
Since 1929 there have been 14 recessions in the U.S. as follows:
Below is the equity performance during each of these periods:
