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Chart of the Week Podcast

Each week, Senior Analysts Michael Clough, CFA and Lorenzo La Posta, CFA give their commentary on the Chart of the Week. Listen below for their insights. 

 

Chart of the Week 25/11

The chart shows producer price inflation (PPI) for the US, China and Eurozone since 1995. PPI measures inflationary pressures at an earlier stage in the production process. Changes in commodity prices will directly affect this number. The key question today is whether these rises in costs will end up being passed on through the production process and result in higher retail prices paid by the consumer. As shown, PPIs have been soaring globally to their highest levels in decades. In the US, PPI rose to 8.6% year-on-year in September, with larger increases in China (+13.5%) at a 26-year high, and the Euro Area (+16.0%), the highest on record.

Source: Bloomberg Finance L.P., Momentum Global Investment Management.

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Chart of the Week 18/11

The chart shows the expected earnings per share (EPS) (red line) and share price (blue line) for the MSCI World Growth index relative to the MSCI World Value index. An upward sloping line means growth is outperforming value and downward sloping means value outperforming growth. The chart shows that at the beginning of the pandemic last year, the EPS and price of growth companies soared relative to value companies but more recently, we have seen a decline in the relative EPS while the relative price has been following an upward trend.

Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 16th November 2021.

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Chart of the Week 11/11

The charts show the earnings ‘surprise’ of companies within the S&P 500 (US market) by quarter since Q3 2019 (for the index as a whole, red bars) and a breakdown by sector for Q3 2021 (blue bars). The term ‘surprise’ describes the percentage difference in actual reported earnings and analysts’ estimates. A positive figure means that the average firm in the S&P 500 exceeded the expected earnings growth rate whereas a negative figure indicates that realised growth underperformed expectations. It is important to note that there may be instances where despite a positive surprise the actual growth rate may have fallen and vice versa.

Source: Bloomberg Finance L.P., Momentum Global Investment Management

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Chart of the Week 04/11

The chart shows data from the manufacturing and services purchasing managers’ indices (PMIs) which are often used as indicators of future economic growth and an indication of broad economic health. A reading above 50 (shaded in green) suggests the sector, manufacturing or services here, is in expansionary territory, a reading below 50 (shaded in red) points to contraction whilst a reading of 50 (yellow) indicates no change from the previous month. With the services sector heavily dependent on human interaction, the services PMIs have recovered significantly since the height of the pandemic last year and the third wave of lockdowns experienced earlier this year. Despite concerns of slowing economic momentum in recent months, PMIs have remained resolute, with only one country in our sample here below the 50 mark at present in either services or manufacturing.

Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 31 October 2021.

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Chart of the Week 28/10

The chart shows the price-to-earnings (P/E) ratio for the MSCI United Kingdom index (UK equities) relative to the MSCI World index (global equities). The P/E ratio measures the relationship between a company’s stock price and its earnings per share (EPS), giving investors a sense of the valuation of the company, or broader market, and how much investors are paying for the earnings of a business. Companies with high P/E ratios are often growth stocks and can, at times, be overvalued compared to their current fundamentals. Similarly, companies with low P/E ratios are referred to as value stocks and are sometimes considered as undervalued. Over the last five years the relative valuation of UK equities has sharply declined to sit at historic lows, indicating that they are significantly undervalued relative to developed markets peers.

Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 30 September 2021.

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Chart of the Week 21/10

The chart shows the UK government bond yield curve as at 1st September 2021 (red line) and 20th October (blue line). Yield curves compare the yields available on similar bonds with different maturities. The ‘normal’ shape of the yield curve is upward sloping – indicating higher yields on bonds with longer maturities. When the economy is expanding, investors risk a rise in yields as central banks increase interest rates in response to rising inflationary pressures. Effectively the higher yields compensate investors for tying up their capital for longer, subjecting them to more inflation and interest rate risk. In contrast, an inverted yield curve – where short-term yields exceed longer-term yields – could indicate investor expectations of interest rate cuts as the economy struggles and so they will pay a premium for a bond with a healthy long-term fixed income. This results in long-term government bond prices rising and yields falling, sometimes to below the corresponding yields offered on shorter-dated bonds. Since early September we have seen a significant shift higher in the yield curve.

Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 30 September 2021.

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Chart of the Week 07/10

We’re sticking with China this week. This chart shows the price returns for the MSCI China index and the maximum drawdown the index experienced over each calendar year. Maximum drawdown reflects the greatest peak-to-trough fall over the period – the worst possible loss an investor could have made if they had bought at the peak and sold at the trough in the same calendar year. The equity market falls in China from its peak in February we exacerbated by recent tightening of regulations and the imposition of sanctions on a wide range of the private sector, souring investor sentiment and confidence, as well as the continuing spread of the delta variant. As we touched on last week, more recently fears of default at China’s largest property developer have spooked markets. Whilst it might have felt like an extraordinarily volatile last few months, this year’s maximum drawdown (so far) of -33% is only marginally worse than the average calendar year maximum drawdown of 30% since 1993.

Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 30 September 2021.

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Chart of the Week 30/09

The chart shows the liquidity injections by the PBOC (People’s Bank of China, China’s central bank) into the financial system since January 2020. China’s central bank continued to inject liquidity into the financial system last week, pumping 660 billion renminbi (equivalent to over $100 billion) of short-term liquidity, in its longest run of support since December last year. The bank reiterated it was to fulfil a surge in seasonal demand for cash and to ensure that there is sufficient liquidity ahead of regulatory checks, but this will also act to calm fears and help avoid financial contagion resulting from the Evergrande crisis. The injections conflict with the government’s standoff approach to the future of the developer but helped to stabilise market confidence. Whilst the latest injections look very significant in the context of recent months, they are dwarfed by the scale of injections that occurred in early 2020, interestingly some weeks before markets in the developed world cottoned on to the reality that the perceived localised coronavirus problem was in fact a crisis of global scale.

Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 30 September 2021.

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Chart of the Week 23/09

The chart shows the natural gas price since January 2000. The price has risen sharply in 2021, soaring to 189.65p per therm at the beginning of this week, threatening to push up winter fuel bills and exacerbate a near-term spike in inflation. A long, cold winter in various parts of the world meant gas storage levels had been dramatically depleted and are at historic lows. High demand from Asia, lower-than-expected gas pipeline flows from Russia to Europe, and a lack of wind for wind turbines (meaning other sources of electricity have been required) have all added to the problem. Since the start of 2021, the price has increased by over 230%. An additional headwind has been the fact that the UK and Europe import a large amount of its gas and imported energy is exposed to global price swings, making prices more susceptible to volatility.

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Chart of the Week 16/09

The chart shows the performance of a number of headline equity indices rebased to 100 at the pandemic trough on March 23rd 2020. The S&P 500 doubled from its pandemic bottom last month, marking the fastest doubling of the US market off a bottom since World War II. In the face of the rapid spread of the delta variant and its impact falling disproportionately on the developing world, where the vaccine rollout is much slower and room for policy support is more limited, concerns about the sustainability of growth have re-emerged. With the Chinese economy recovering earlier than others last year from the pandemic, authorities removed stimulus measures and the resulting loss of momentum was then exacerbated by tightened regulations and sanctions on a wide range of the private sector, souring sentiment and confidence. Chinese markets stabilised after the sharp falls in July but remain some way off their peak.

 

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