- Reserves at small banks have dwindled, sapping a key source of lending in the US economy.
- This is linked to loan officers reporting a substantial tightening of lending standards (not a bad indicator of recession).
Macroeconomics
Snippets on the big picture.
Credit Card Interest Rates
- US credit card debt is nearing $1trn, up $60bn last quarter.
- This is coinciding with a dramatic jump in interest rates since November 2022.
- Average rates are now above those seen in the 1980s.
- Source: Lykeion’s excellent Charts of The Month (worth subscribing).
Chinese Construction Boom
- 43% of Chinese residential homes were built after 2010.
- Let that sink in.
- “If you put this in relation to total population it implies that in a single generation, China has built enough homes to house a billion people.”
- Source: Rogoff & Yang (h/t Adam Tooze)
Demographics
- Four regions, the US, Europe, Japan, and China, make up 70% of the world’s consumption.
- In 2020 this group was home to 1.47 billion people aged 25-64, the prime demographic. By 2050 there will be 1.2 billion. “That’s an 18% decline in the working age population for the four largest economic regions.“
- The US, as seen in this chart, fares best as it sees this cohort grow. However, at slower rates than before and facing a decline as a proportion of the overall population.
- As goes population, so does long-term growth.
- Source.
Macro Vol is Persistent
- Calm begets more calm, volatility begets more volatility.
- Source.
Housing Market Vulnerability
- Chart from BCA Research plotting housing markets by (1) debt to income and (2) proportion of variable rate mortgages of total issuance.
- This should be paired with price dynamics.
House Price Blowouts?
- Chart showing change in housing valuations (based on two metrics).
- Italy, as usual, stands out as having seen very little in the way of a housing boom.
- Source: Gavekal via Daily Shot.
Hawks
- The big hawks on the FOMC lose their vote in 2023.
- Source: BAML via Hamilton Lane.
Global Value Chains
- WTO chart showing how the world has changed from 2000 to 2017 in terms of trade networks.
- Chimes with this.
Trade Tensions
- Worrying rise in fragmentation documented by IMF.
- Source.
Housing and Yields
- These charts are sometimes spurious and definitely make econometricians cringe.
- However, heuristically, they can be helpful.
- This one suggests bond yields are going lower as housing sentiment is in free fall (18 month lead).
- h/t.
Renting vs. Owning
- For the first time in many years, it is better to rent than to own in the UK.
- Source.
China and US Rivalry
- “By Allison’s account, in 12 of 16 historical examples, competing empires ended up in military conflict, and Allison sees the US-China relationship as a rerun of these precedent“
- The counter point is this great chart from JPM showing how intertwined economically the two powers are vs. historic struggles.
- However, the direction of travel isn’t supportive.
- A prime example is 2022 CHIPS Act, the most bipartisan piece of legislation in a long time.
- NB this was a good transcript covering the impact on semi equipment companies (use this link to sign up for free).
US Government Debt
- Federal government interest expense is going to rise rapidly.
- 50% of debt matures in the next three years.
- From excellent deck by Blackstone.
Price Level Shock vs. Inflation
- Europe and the US, though both clocking high inflation, are facing different challenges.
- This is best demonstrated by the evolution of the difference between headline and core inflation in each region.
- h/t Daily Shot.
Party Congress Reports
- Worryingly, “security” has overtaken “economy” as the key concern at the Chinese Party Congress.
- h/t Daily Shot.
Developing Countries and Trade
- The participation of these countries in global value chains (GVC) has peaked.
- Nice read by Martin Wolf in FT.
Mortgage Product by Interest Variability
- The world’s mortgage markets are very different.
- Data is from 2010 and is for flows not stock.
- Source.
Semiconductor Cyclicality
- “Semiconductor share price performance relative to the market leads the ISM manufacturing by six months. Recent relative weakness in semiconductor markets is consistent with our view that lead indicators have further to fall. Historically, we would look for sector share prices to trough concurrently with lead indicators.“
Fed Crib Sheet
- As the US Economy slows and there are signs inflation might be rolling over, what the Fed will continue to do becomes very important for the rest of the cycle.
- This is a really useful crib sheet of what the various Fed speakers have been saying organised in an easy to use way.
- It is produced by fx:macro – a really comprehensive newsletter for those who want to get a good pulse on what central banks are up to.