Last week we published the 2018 End of Year Special Edition of the Weekly Macro Themes report - a summary of some of the best, worst, and most notable charts of 2018 (and the ones to watch in 2019).
This article is a (logical) follow on from "Our Best Charts and Calls of 2018". Of course, it wouldn’t be complete without a look at some of the charts that didn’t work (or shall we say the ones that worked “less well!”). So here's a collection of some of the worst charts/calls of 2018!
Format note: each chart has a comment on the chart, the date when it first appeared, and a quote from the original report which it appeared in.
1. China property market slowdown: thanks to unexpected strength in the smaller cities, China’s property market defied the leading indicator. The poor performance of the domestic stock market likely also contributed (asset rotation).
(9 Feb 2018) “the composite lead indicator for China’s property market points to cooling in price gains. This is where the rubber hits the road on greater interest rate sensitivity of the global economy.”
2. In hindsight it was wrong to emphasize relative value when EM was expensive in absolute terms.
(2 Feb 2018) “Looking again at EM equity valuations, following the massive rally since the bottom in January 2016 (85% in USD terms), and about a $120B uplift in EM ETF AUM, there has been significant re-rating. Looking at the forward PE ratio the MSCI EM index is trading around the top end of the range since 2001. Yet valuations still lag behind their developed market counterparts, highlighting the importance of relative value at this stage of the cycle."
3. The spike in this indicator when I first introduced it seemed to point to a more significant pickup in inflation than actually occurred through the year. Notably though this indicator has spiked again in Dec.
(9 Feb 2018) “I wanted to see if there was some generalized increase in awareness of inflation, so I looked at multiple search terms in Google Trends and came up with a composite inflation search indicator. This indicator has distinctly turned up lately. This lines up with the expectation of higher inflation based on existing economic trends and also lines up with the global PMI averages for the employment and prices sub-indexes.”
4. Similar to the previous chart, this tightening up of capacity utilization (particularly apparent labour shortages) seemed to point to an acceleration in inflation (and/or capex), maybe it comes next year, but it didn’t really come this year.
(9 Feb 2018) “it’s worth keeping this chart front of mind as both industrial capacity and measures of labour market capacity continue to tighten up. Barring a crisis or shock, the next step is higher inflation.”
5. The lead indicator for global trade was pointing to further acceleration earlier in the year, but softer import growth in Europe and DM ex-US stymied this:
(12 Jan 2018) “Looking again at what was a key theme and a key call of 2017, the recovery in global trade growth, the near-term outlook appears to be for more of the same. This reflects the strength in the PMIs and also reflects + reinforces the synchronized growth dynamics which appear to have emerged.”
6. I initially used this chart to outline the case for energy stocks, but then later used it to highlight the downside risks for crude oil (in hindsight, a much better use of this chart!):
(9 Mar 2018) “The divergence between WTI crude oil and US energy stocks still resembles a gaping maw – one that will no doubt close at some point or another. The big question is which way. And knowing the answer will also create knowledge of a solid trade idea. Thinking of energy stocks, it also brings to mind the market cap weighting charts, which shows energy ranking at the lowest level since 2003, yet interestingly the share/weighting of energy sector earnings has turned up from the lows.”
Also check out the "2018 People's Choice Charts".
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