The Market’s Macro Floor Inward Iii Charts

Every together with then often, it is worthwhile to pace dorsum together with sail the macroeconomic film from a global perspective.  Above are 3 charts that say a distinctive macro story:

1)  Deflationary pressures – In a basis of expanding global economical growth, nosotros would await to run across greater usage of raw materials, driving the prices of commodities higher.  What we’ve been seeing instead (top chart) is a collapse of commodity prices, peculiarly inward the wake of concerns regarding increment inward China.  Over the past times year, emerging marketplace seat stocks bring notably underperformed those of developed markets, only every bit periphery equity markets inward Europe bring underperformed inwardness markets inward reply to concerns regarding Greece.  One would similar to run across the emerging markets of the basis every bit engines of growth, but instead the commodities markets advise that those regions bring larn burdened past times deflationary pressures, fifty-fifty every bit debt burdens bring mounted.

2)  Flight to security together with USD strength – Given the QE dynamics abroad together with greater economical increment inward the U.S., the U.S. dollar has soared every bit commodities bring fallen (middle chart).  Among equities, SPY is non far from its highs, despite the weakness amidst commodity-related shares, piece emerging marketplace seat equities (EEM) are flirting alongside multi-year lows.  USD line has ready an interesting dynamic amidst stocks, whereby companies that import raw materials bring benefited together with companies that depend upon export sales for increment bring been hurt.  The interplay betwixt the boost to the U.S. economic scheme from falling raw cloth prices together with the drag on export sales from the potent dollar, likewise every bit the global economical weakness, bring contributed to an abundance of caution from the Fed regarding involvement charge per unit of measurement hikes.

3)  The challenge to rising involvement rates – Most of 2014 saw falling long-term involvement rates inward the U.S. (rising prices; bottom chart), whereas close of 2015 has seen a ascension inward rates inward anticipation of Fed charge per unit of measurement hikes. Most recently, we’ve seen a bounce inward bond prices (lower yields), inward reply to weaker domestic information (Friday’s ECI a illustration inward point) together with continued commodity weakness together with concerns over global growth.  To the extent that a debt/deflation dynamic abroad keeps a lid on global economical increment together with incentivizes greater key banking concern activism abroad than domestically, it is hard to imagine a Fed wanting to heighten rates inward whatever meaningful way, every bit higher rates would encourage farther flows into the dollar together with add together to export-related headwinds.  

So what does it all mean?  One dynamic seems clear:  if it’s burdened alongside debt, it underperforms.  Whether it’s domestic equities inward China, high yield muni bond funds inward the U.S.with exposure to Puerto Rico, peripheral bonds/credit inward Europe, or the Brazilian Real, high debt has led to hapless returns together with considerable volatility.  The winning investments bring been those furthest from debt-deflationary dynamics.

Further Reading:  How Investors together with Traders Win By Failing
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