10 Charts to Watch in 2021 [Half-Time Update]

Welcome to the third quarter and the second half of the year! Things have certainly moved on and evolved since my original post (both in terms of market movements and the general consensus/sentiment). So I thought it would be helpful to take a quick progress check on the "10 Charts to Watch in 2021".

In the original article I shared what I thought would be the 10 most important charts to watch for multi-asset investors in the year ahead (and beyond).

In this article I have updated those 10 charts, and provided some updated comments.

[Note: I have included the original comments from back at the start of the year, so you can quickly compare what I'm thinking now vs what I said back then]

1. Mega Theme: This rather interesting combination of ideas has progressed very well since initiating it last year, and I would have to say that I am still by and large happy with each of the components - particularly on a more medium-term timeframe. But if we just look at the historical price action of this basket of ideas, we can see that such sharp movements are generally not sustainable, and so in some respects we should expect it to be doing exactly what it is now - i.e. into a more ranging/volatile regime.

"In the last regular edition of the Weekly Macro Themes report of 2020, I decided to combine all my big ideas into one “mega theme” given some of the echoes across the ideas in terms of price action and macro drivers. The result is this interesting chart which looks to be either at or near the bottom of a long-term secular trend, and the start of at least a short-term cyclical upturn."

chart of mega theme basket of top investment ideas

2. Monetary Policy (limits): Things have certainly progressed with this chart, the global monetary policy pivot (towards stimulus removal) is clearly getting underway. On my count at the time of writing, there have been 27 interest rate hikes across 17 central banks so far this year. Meanwhile, with better economic conditions, banks have begun to relax lending standards. So while the tides are turning on monetary policy, financial/credit conditions are still very easy, and some powerful tailwinds to growth are already baked in.

"The policy response to the pandemic was historic in terms of its speed, magnitude, and coordination across countries and between fiscal and monetary. But this chart perhaps highlights one limitation of monetary policy, the tag line is “interest rates are low, but good luck getting a loan” (given how much banks tightened up on lending standards). One thing on my mind is a possible passing of the torch from monetary policy to fiscal policy – as that’s going to be the thing that will achieve a more balanced and more transformative impact in the recovery."

chart of monetary policy and lending standards

3. Global Trade Rebound: One expression or beneficiary of the historic monetary + fiscal stimulus (+ reopening) has been global trade. Global container throughput volumes have not only rebounded, but far exceeded previous highs. What's more, the various leading indicators point to an ongoing expansion in global trade, and as we'll see in the next chart, there is still a big backlog of orders to get through.

"The global economic shutdown saw an abrupt collapse in trade growth. But since then we have seen clear green shoots and the leading indicators point to an acceleration and continuation of the global trade growth rebound into 2021."

chart of global trade growth and outlook

4. Global Backlogs: One of my pet topics, and something I caught onto early, the issue of backlogs and supply chain disruption (inventory & parts shortages, shipping delays, surging shipping costs, factory disruption, labor shortages) has only gotten worse. On reflection you basically have a demand shock (reopening + stimulus) and a supply shock (pandemic disruption), at a time where never before in history have we had this level of global integration and interdependence in the supply chain. Short-term it means pricing pressures are here to stay; further out it most likely has meaningful implications for capex and perhaps more onshoring as firms look to build capacity and resilience in their supply chains.

"A nice follow-on, the surge in backlogs (resulting from global supply chain disruption) has 2 key implications: upside risk to inflation, and a likely spike in activity as firms attempt to clear backlogs and restock inventories."

chart of backlogs and impact on pricing pressures

5. Consumer Normalization: Globally the consumer is going from careful to cheerful. I am looking for the consumer to be an important part of the next wave of the global economic recovery. The pandemic resulted in a surge in savings (expenses in lockdown, asset price inflation, stimulus checks), with household savings rates doubling across most developed economies. My view is it's important to be open minded to a possible consumer spending boom.

"Consumer moods remain depressed *outside of China*. This chart provides a sort of playbook for the rest of the world, as well as a key means of keeping track of normalization, and a nod to a potential consumer boom post-vaccine."

chart of consumer sentiment rebound

6. US vs the Rest of the World: After a brief pause, US equities have started to outperform vs global again. This is going to make the already yawning valuation gap all the more extreme, and in m