Five charts that matter for investors

02 February 2024

Julien Lafargue, CFA, London UK, Chief Market Strategist

Supply chains in the spotlight

The Houthis’ attacks in the Red Sea in January have forced many shipping companies to reroute their cargo and to transit around the Horn of Africa, leading to a sharp drop in traffic in the Suez Canal. This detour can add up to 10 days to a journey from Singapore to Rotterdam. Unfortunately, this is not the only choke point when it comes to maritime transit. 

The Panama Canal is also under strain (see chart) but this time, the weather is the culprit. Indeed, a severe drought has restricted the capacity of the century-old waterway linking the Pacific and Atlantic Oceans. This could worry central bankers, as higher shipping costs may slow the moderation in inflation.

Traffic drops at both the Suez and the Panama canals

Bulk carrier or container ship crossings of the Panama Canal or Red Sea, respectively, by 14-day moving average

Six-month change in global equity prices and oil prices over the past 20 years, and rolling three-year correlation of six-month changes

Source: Bloomberg, Barclays Private Bank, January 2024

The yield curve is un-inverting

The difference between 10-year and 5-year US government bond yields turned positive last year (see chart), pointing to a steepening of the curve and reversing the inversion of the curve that has been much debated of late. The driving force behind this “un-inversion” has been a sharp drop in shorter-term yields. 

Indeed, after peaking at close to 5% in October last year, the US 5-year government bond yield has dropped to around 4%. While 2-year yields continue to command a premium, here again the gap is closing rapidly, with just 20-basis points worth of inversion remaining. 

Just like not reading too much in the yield curve when it first inverted in 2022, investors need not get overly concerned as the reverse move gets underway. In other words, the same way that the inversion of the US yield curve hasn’t led to a recession, its steepening doesn’t necessarily signal stronger growth ahead. In fact, it may well be the opposite.

The US yield curve is un-inverting rapidly

The difference between the US 10-year and 5-year government bond yields shows that the yield on the 10-year is now more than that of the 5-year (un-inverted), from being less than the latter (inverted)

Six-month change in global equity prices and oil prices over the past 20 years, and rolling three-year correlation of six-month changes

Source: Bloomberg, Barclays Private Bank, January 2024

US consumers upbeat on inflation outlook

According to December’s consumer survey run by the New York Federal Reserve, one-year forward views on inflation have returned to January 2021 levels, consistent with the that seen for most of 2018 (see chart). In other words, US households believe that inflation isn’t a major problem anymore, a development that the US Federal Reserve will likely welcome.

While this provides some support for early interest rate cuts from the Fed, it is also raises two important questions. First, are consumers confident about lower inflation simply because they feel the economy is slowing? If this is the case, then one could expect consumption (and therefore GDP growth) to slow materially in the coming quarters. Second, can we be sure that inflation is not a major issue anymore, given the recent rise in shipping costs?

US inflation outlook on the mend

The one-year forward median US inflation expectations, as in the latest consumer expectations survey by the New York Federal Reserve

Six-month change in global equity prices and oil prices over the past 20 years, and rolling three-year correlation of six-month changes

Source: New York Federal Reserve, Shanghai Shipping Exchange, Barclays Private Bank, January 2024

A not-so-soft landing?

While most economists continue to embrace the soft-landing narrative, some cracks are starting to appear. The US job market is a case in point. While most headline official data signals that the labour market is resilient, some, less obvious, signals are flashing red. For example, the hire rate, as calculated by the Bureau of Labor Statistics (BLS), has reached its lowest level since 2014 (see chart).

This could be linked to a payback following a sharp increase in the rate post-pandemic, but the magnitude and the duration of the drop suggests something more fundamental is at play. The same can be said about the unemployment rate. While it remains close to historical lows, the percentage of people without a job has crept up in recent months. In this context, investors should remember that a hard(er) landing always looks like a soft one initially.

Private hiring in the US has slowed sharply

The US hire rate for private-sector workers has crashed to levels seen in early 2020, after soaring to extremes in the COVID-19 pandemic

Six-month change in global equity prices and oil prices over the past 20 years, and rolling three-year correlation of six-month changes

Source: Bureau of Labor Statistics, Barclays Private Bank, January 2024

Revised GDP growth expectations

The year is still young, but economists are already changing their 2024 growth forecasts for most major economies. In Europe, the trend has been for gross domestic product (GDP) expectations to be lowered. Indeed, both the euro area and the UK consensus forecasts were slashed to 0.6% and 0.4%, respectively. On the other hand, the mood has improved for the US, with the consensus up from 0.7% at the middle of 2023 to 1.3% this year (see chart). Barclays Investment Bank is even more optimistic, with 2.3% real GDP growth pencilled in for this year. 

Unfortunately, and given the macro and geopolitical uncertainty, growth forecasts will most likely be revised many times by the end of the year. One thing is clear though: economists expect the US exceptionalism to continue. 

Looking at the rest of the world, China seems to be the wildcard: at around 4.5%, consensus suggests that the authorities won’t be able to turnaround the domestic economic this year. However, this may be where the consensus is wrong.

Big changes in economic growth forecasts seen already this year

Change in consensus gross domestic product growth forecasts over the last twelve months for the US, euro area and UK economies

Six-month change in global equity prices and oil prices over the past 20 years, and rolling three-year correlation of six-month changes

Source: Barclays Private Bank, January 2024


Market Perspectives February 2024

Amid tense geopolitics and much uncertainty, find out our latest views on global themes, trends and events influencing investors.


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