Global Risk Monitor: Week In Review – January 17

Posted on January 18, 2025 by macromon

Weekly Economic and Market Summary

Global markets rallied amid softer U.S. inflation data, with the S&P 500 rising +2.94% for the week, driven by gains in financials and industrials. European markets outperformed, led by France’s CAC 40 (+3.75%), Germany’s DAX (+3.41%), and Italy’s FTSE MIB (+3.36%). The UK’s FTSE 100 climbed +3.11%, benefiting from cooling inflation and expectations of Bank of England rate cuts. In Asia, China’s Shanghai Composite gained +2.31%, supported by robust economic data, while Japan’s NIKKEI fell -1.90%, pressured by yen appreciation and declining export sector margins. Emerging markets delivered mixed results, with Vietnam’s VN Index dropping -1.39%.

Global Economics

The Eurozone saw easing inflation, with December data supporting ECB plans for gradual rate cuts in 2025. Germany’s GDP contracted -0.20% in 2024, marking its second consecutive annual decline, driven by weak investment and slowing exports. The UK’s inflation decelerated to +2.50% in December, down from +2.60% in November, fueling speculation of monetary easing.

In Asia, China’s Q4 GDP exceeded expectations at +5.40% year-over-year, with industrial production growing +6.20% and retail sales expanding +3.70%. Japan faced mixed signals; real wages fell -0.30% year-over-year, while the yen’s appreciation weighed on equities. Elsewhere, Hungary’s inflation rose to +4.60% in December, while Poland’s central bank held rates at 5.75%, citing elevated inflation expectations.

Easy Financial Conditions

The Chicago Fed’s National Financial Conditions Index (NFCI) indicates the loosest financial conditions since October 2021, when quantitative easing and zero interest rate policies were in full effect. Such easy financial conditions could reignite inflation, especially amid the incoming administration’s trinity of inflationary policies—tariffs, expansionary fiscal policy (mainly tax cuts), and mass deportations. These easing financial conditions act as the dry brush that could magnify and accelerate the inflationary pressures.    

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Where’s There Inflation and Deflation

Posted on January 15, 2025 by macromon

Source: Yahoo Finance

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Europe’s North/South Economic Reversal

Posted on January 14, 2025 by macromon

Great piece in today’s FT on the reversal of fortune in European economies. 

The Eurozone is experiencing a significant shift as the southern nations plus —Portugal, Italy, Ireland, Greece, and Spain—outperform their northern counterparts, particularly Germany, which faces economic stagnation. This reversal stems from targeted structural reforms, substantial EU investments, and favorable industry dynamics, including a reliance on tourism and green energy.

Southern countries have embraced the €800 billion EU-backed NextGenerationEU program, channeling funds into infrastructure, digital innovation, and green energy while undertaking necessary economic reforms. Tourism and renewable energy sectors have driven economic expansion, with Spain leading through substantial growth in foreign direct investments and renewable energy projects.

Despite the progress, challenges persist. Southern Europe grapples with high public debt, bureaucratic inertia, and workforce shortages. Germany’s industrial decline raises concerns about potential ripple effects, especially for nations reliant on German demand. Meanwhile, socioeconomic disparities linger, with Greece still recovering from its debt crisis and struggling with high poverty rates.

The sustainability of this growth hinges on continuing reforms, balancing structural weaknesses, and mitigating external shocks.

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Jamie D. Dishes On…BTC

Posted on January 12, 2025 by macromon

Click here to view interview

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The Trump Bump Fizzles

Posted on January 12, 2025 by macromon

The “Trump bump” following the recent election contrasts sharply with 2016. In 2016, Trump’s unexpected victory over Hillary Clinton surprised markets, leading to a significant rally as investors bet on policies like tax cuts and deregulation. This surge reflected the element of surprise and “animal spirits.” However, the 2024 race between Trump and Vice President Kamala Harris was closely contested, with betting markets favoring a Trump win before Election Day. As a result, markets had largely priced in his victory, muting post-election gains. This context underscores how pre-election expectations can temper market reactions, reducing the dramatic movements seen in 2016. Context, folks.

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20 Stunning Things At CES 2025

Posted on January 12, 2025 by macromon

Must view, folks.  See these stunning new products showcased at the recent Las Vegas Consumer Electronics Show (CES).

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Global Risk Monitor: Week In Review – January 10

Posted on January 11, 2025 by macromon

Weekly Economic and Market Summary

Macroeconomics

  • Strong Jobs Report: December added 256,000 jobs, surpassing forecasts by 100,000, and unemployment dropped to 4.1%. This robust labor market supports the Fed’s decision to slow rate cuts.
  • Fed Policy: Federal Reserve minutes reflect a hawkish stance, with no significant rate cuts expected in 2025. Upside inflation risks persist, and Treasury yields hit multi-year highs.

Global Markets

  • UK Bond Market Concerns: UK 10-year gilt yields reached 4.92%, the highest since 2008, driven by fiscal concerns and investor skepticism about government borrowing.
  • European Inflation: The eurozone saw inflation rise to 2.4% in December, spurred by energy and services costs, while the ECB signaled disinflation progress and potential rate cuts.
  • China’s Economic Struggles: Persistent deflationary pressures saw China’s consumer prices inch up 0.1% annually, while its producer prices fell for the 27th consecutive month. Stimulus measures aim to boost activity.

Market Performance

  • U.S. Equities Decline: The S&P 500 dropped 2% for the week, with small-cap stocks entering correction territory. Rising bond yields weighed on valuations, particularly in rate-sensitive sectors.
  • Treasury Yield Spike: The 10-year U.S. Treasury yield surged to 4.77%, its highest level in over a year, reflecting expectations of fewer Fed rate cuts.
  • Commodity Gains: Oil prices climbed 10% over three weeks, reaching $77, while gold rose for a second week to $2,717, nearing record highs.

These developments illustrate the dynamic interplay of inflation, central bank policies, and global economic pressures, which continue to shape market trajectories.

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Econ 101: Thinking On The Margin In The Gym

Posted on January 5, 2025 by macromon

Here’s a repost to help kickstart your New Year of better health.

Originally Posted on September 6, 2022 by macromon

One of the most complex concepts for my students to internalize when I taught Econ 101 was that of thinking on the margin. You probably remember the theory of diminishing marginal productivity, diminishing marginal returns, and diminishing marginal utility (satisfaction).   For the math inclined, they are functions with a positive first derivative coupled with a negative second derivative.

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Economists like to dress up pretty straightforward ideas with very big words, most likely to obfuscate the fact that economics is just reasonably simple logic.

Traders And Investors Must Also Think On The Margin

It is also essential for traders and investors to think on the margin. They must understand and identify the marginal (last) buyers and sellers in the markets they traffic because those buyers and sellers set and determine the market price. It applies to all asset markets, from stocks to residential real estate.

You have undoubtedly heard the adage “retail always buys the top,” which was a reasonably good contrarian indicator before central banks flooded the markets with liquidity and repressed market interest rates. When I was a trader on Wall Street, the Japanese piling into a market was usually a sign of a top. Not because they were inferior but because they had so much asset purchasing power, i.e, money,  and their conservative culture of decision-making by committee almost guaranteed they were always late to the party.

Diminishing Marginal Returns In The Weight Room

I have discovered the law of diminishing marginal returns in the gym, which has changed my life and significantly improved my health.

In their MOOC (massive online open course) – Hacking Exercise For Health. The surprising new science of fitness –  Martin Gibala and Stuart Phillips of McMaster University teach the concept of diminishing marginal productivity or returns in the gym without using the economic mumbo jumbo.   It cut down my workout time from, say, two hours to just 30 minutes, and here’s how.

I used to be very rigid in my workout, never straying from three sets of 10 repetitions. That third set I hated most would slow me down,  procrastinating to pump it out until the cows came home.

Two or three hours in the gym was too much and led to an inconsistent workout schedule and less than optimal health.

I learned from the McMaster MOOC that 85 percent of the benefit of a three-set exercise comes from the first set!  Doing just one set over a 10-week period improves your strength by 30 percent, while doing three sets increases your muscle by 35 percent, just an extra 5 percent increase for the last two sets.

That is the best and most practical example of diminishing marginal productivity or returns I have seen and experienced. The second and third set, though, still improves overall strength, but most of the bang for your buck is in the first set.

I cut my workouts down to just two sets for each muscle group and get in and out of the gym in thirty minutes. I will trade off the extra 7 percent benefit of the third set for a shorter and more consistent and disciplined workout schedule, any day.

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Thirty minutes work for me.

Diminishing Marginal Utility (Satisfaction)  

I used a simple golf analogy to teach the concept of diminishing marginal utility, which my students could relate to.

After a four-hour round of golf in the hot sun, the first beer on the 19th hole tastes fabulous. The second is fantastic but not as awesome as the first. —a classic case of diminishing marginal utility (satisfaction). The third? Call an Uber. We’re talking craft beer, folks, not Coors Light.

Pretty simple, no?

Watch This Video! 

We highly recommend this video, which taught us how to make our exercise more efficient.  The five-minute investment of your time will change and may save your life.

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Lies, Damn Lies and BLS’ Budget

Posted on January 4, 2025 by macromon

BLS = Bureau of Labor Statistics 

There are three kinds of lies: lies, damned lies, and statistics. – Benjamin Disraeli via Mark Twain

The BLS gets that data [employment data] by contacting a representative sample of the population and then weights those results to reflect the broader population. The trouble is…that sample is at risk of getting smaller. And one key reason for that… is how much money the BLS has to conduct those surveys. – Bloomberg

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Global Manufacturing Enters 2025 Amid Policy Uncertainty

Posted on January 3, 2025 by macromon

As 2025 begins and the incoming U.S. administration outlines its economic priorities, global manufacturing faces significant headwinds. The J.P.Morgan Global Manufacturing PMI for December 2024 posted a modest contraction, reflecting a complex interplay of regional disparities, policy uncertainties, and sector-specific trends. 

Key Highlights:

  • Global Manufacturing Contraction: The Global Manufacturing PMI fell to 49.6 in December, down from 50.0 in November, marking the fifth contraction in six months.

  • Regional Disparities: Strength in India and select Southeast Asian nations contrasted sharply with pronounced declines in France, Germany, Austria, the US, and the UK (see chart below).

  • Sectoral Divergence: Consumer goods production rose for the seventeenth consecutive month, while intermediate and investment goods sectors contracted.

  • Trade Weakness: International trade volumes declined for the seventh consecutive month, with only eight nations reporting growth in new export orders.

  • Input and Selling Prices: Input cost inflation hit a four-month high, while selling price inflation eased to a nine-month low.

In-depth Analysis:

Manufacturing Output and Orders

The global manufacturing sector ended 2024 on a weaker footing, with both output and new orders contracting in December. These declines erased the gains of the previous two months, resulting in near-stagnation for the final quarter. Only 13 of the 30 nations surveyed reported production growth, led by India, the Philippines, and select eurozone nations like Spain and Greece. In contrast, industrial heavyweights such as France and Germany faced sharp contractions, indicative of broader eurozone challenges.

Policy Risks and Regional Impacts

Uncertainty around potential U.S. tariffs under the new administration is clouding business sentiment. This risk is particularly acute for export-dependent economies in Europe and Asia. Meanwhile, the U.S. manufacturing sector saw its sharpest contraction in 18 months, further signaling domestic vulnerabilities amid a global slowdown.

Sectoral Insights

Consumer goods production remained resilient, extending a 17-month growth streak. However, this strength failed to offset declines in intermediate and investment goods industries, underscoring uneven demand dynamics. The divergence highlights opportunities for sector-specific investment strategies.

Trade and Employment Trends

International trade volumes declined for the seventh straight month, with only eight nations, including India, Taiwan, and South Korea, reporting export order growth. Weak trade dynamics fed into global employment trends, with job losses recorded in major regions like the euro area and China, even as the U.S. and Japan added jobs.

Inflationary Pressures

Input cost inflation accelerated to a four-month high in December, driven by supply chain disruptions and higher raw material costs. Yet, selling price inflation eased to a nine-month low, reflecting softening demand and competitive pricing pressures. Investors should watch for potential margin compressions in cost-sensitive industries.

Investment Implications:

  1. Regional Rotation: Strength in India and Southeast Asia could offer opportunities for regional rotation as Western economies struggle.

  2. Sector-Specific Strategies: The divergence between consumer goods and other manufacturing categories provides scope for targeted investment.

  3. Policy Monitoring: Close attention to U.S. tariff announcements will be critical for forecasting trade and manufacturing dynamics.

  4. Supply Chain Risks: Persistent input cost inflation warrants a focus on supply chain resilience in portfolio companies.

  5. Employment Metrics: Declining employment in key regions could signal broader macroeconomic weakness, warranting cautious optimism.

The December Global Manucaturing PMI underscores the fragility of the global manufacturing landscape as we enter 2025. For portfolio and hedge fund managers, aligning strategies with these evolving dynamics—from regional strengths to sectoral disparities and policy risks—will be essential in navigating the year ahead.

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