Haver Analytics
Haver Analytics
Global| Apr 21 2023

Charts of the Week (Apr 21, 2023)


Concerns in financial markets about the underlying health of the US and European banking sectors have continued to ebb in recent days leaving more familiar macro factors to re-take centre stage. The focus this week in particular has been on the Q1 US earnings season but some stronger-than-expected GDP data from China and another positive inflation surprise from the UK were also in the limelight. In our charts this week we underscore how important the incoming macroeconomic data have been for financial market outcomes in recent months (in chart 1) and the heavy role that energy prices have played in driving that data (in chart 2). With China in the news this week, we look next at the absence so far in this reopening phase of any big impulse from domestic credit growth (in chart 3). We then throw the spotlight on global food prices, and, in particular, the big divergence that’s opened up between consumer food price inflation in North America and Europe (in chart 4). The UK labour market is our next port of call and specifically the evidence this week that suggests that market is beginning to wilt, presumably under the weight of tighter monetary policy (in chart 5). Finally, and away from the ebb and flow of the macroeconomic data, we illustrate the latest update of global surface temperature anomalies from the National Oceanic and Atmospheric Administration (in chart 6).

Financial markets and economic data Financial markets continue to be heavily swayed by how the economic data evolve relative to expectations. This is illustrated in chart 1 below showing the spread between the Citigroup G10 growth surprise index and the G10 inflation surprise index versus a global equity market index. Negative growth surprises and positive inflation surprises (and thus a shift down in that spread) chime with a trend toward risk aversion. Positive growth surprises and negative inflation surprises (and thus an increase in that spread) are met with a more upbeat market mood. So while ebbing fears of banking sector stress partly explain why equity markets have performed relatively well in recent weeks, positive surprises on the growth front and negative surprises on the inflation front have been equally, if not more, important.

Chart 1: Citigroup growth surprises less inflation surprises and global equity markets

Energy prices A key source of those data surprises in recent months has been energy prices. We have inverted that surprise index spread shown in chart 1 above in chart 2 below to illustrate how higher real energy prices chimed with a phase of positive inflation surprises and negative growth surprises over the latter half of 2021 and the first half of 2022. The chart equally illustrates how the more recent phase of positive growth surprises and negative inflation surprises has chimed with weaker real energy prices in the last few months.

Chart 2: Real energy price swings, growth surprises and inflation surprises

China’s credit impulse Aside from weaker energy prices, another source of optimism about the global growth outlook concerns the reopening of China’s economy. This week’s firmer-than-expected GDP data certainly suggest, at face value, that there could be some substance to that view. But digging a little deeper into the numbers suggests more caution. Consumer spending on domestic services (e.g. restaurant dining) was, for instance, a key source of the positive GDP surprise, spending activity that won’t necessarily be sustained and in any case won’t generate a big impulse to global trade. And as we additionally illustrate in chart 3 below, via our calculations of the credit impulse, the wheels of domestic credit in China’s economy were still turning quite slowly, at least in Q1. That too suggests a cautious take on China’s likely contribution to global growth in the period ahead.

Chart 3: China’s credit impulse versus industrial commodity prices

Food price inflation Another key talking point this week on the macro front was the much firmer-than-expected UK CPI inflation data. Headline CPI inflation specifically dropped to just 10.1% y/y in March, down from 10.4% in February, but a good 0.3 percentage points or so higher than expected. That positive surprise can be traced, in part, to much higher food price inflation, which was 19.2%y/y in March after 18.0% in February. The UK is not alone, however, in experiencing rampant food price inflation in recent months. Germany saw food price inflation of 21.2% y/y in March, for example, while France saw inflation of 16.9%. Rampant food price inflation in Europe, however, does stand in vivid contrast to recent trends in North America, as evidenced in chart 4 below. This shows that in both the US and Canada food price inflation has been edging lower in recent months and stood at 8.5% and 9.0% in March respectively.

Chart 4: Consumer food price inflation in advanced economies

The UK labour market Notwithstanding its stubbornly high current inflation rate, there was some relief in the UK this week from the latest batch of labour market data. Although the headline increase in employment, of 169K in the three months to February, was stronger-than expected, the underlying details were much less impressive. Much of the increase in employment can be traced, for example, to part-time work and to the self-employed – the number of full time workers actually decreased during the latest three month period (see chart 5). That evidence chimed too with further details showing falling job vacancies, rising redundancies and slowing nominal wage growth.

Chart 5: UK employment growth: full-time versus part-time workers

Climate change In our final chart this week we home in on the further evidence for climate change that originated from the National Oceanic and Atmospheric Administration this week. Their latest update specifically suggests that the average global land and ocean-surface temperature in March was 1.24 degrees Celsius above the 20th-century average (of 12.7 degrees), ranking as the second-warmest March in the 174-year global climate record (behind March 2016).

Chart 6: Global surface temperature anomalies

  • Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units.   He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.

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