Five charts that matter for investors

As local authorities have tried to remove some of the pandemic-related stimulus this year, China's credit impulse has slowed (see chart). The tightening in credit conditions has weighed on growth forecasts, with domestic gross domestic product expanding at an annualised rate of only 3.5% in the first half of 2021.

We expect Chinese authorities to reintroduce some stimulus late in the year. This may lift sentiment and allow local equity markets to catch up with international peers after significantly underperforming them. A rebound in China’s growth would also likely help support commodity prices.

US job openings hit a fresh high of 10.1 million in June (see chart). However, while demand for workers is exceptionally strong as the economy reopens, the number of workers looking for work remains constrained.

Labour supply is likely to pick up as state and federal support for workers during the coronavirus outbreak is curtailed this quarter. As a result, upcoming jobs data, as measured by the non-farm payrolls, should be strong and provide more ammunition for the US Federal Reserve to justify tapering bond purchases.

The wage implications of this imbalance between labour supply and demand  remains unclear. Although a surge in worker numbers would typically be deflationary, there might be some reluctance from employees to fill lower-paid positions, pushing salaries higher.

Freight costs have shot to more than four-times pre-pandemic levels this year as the transport sector struggles to move goods quickly enough to satisfy much stronger demand as economies reopen.

The Chinese authorities’ temporarily closure of Ningbo-Zhoushan, the world’s third busiest container port, in August after identifying a case of COVID-19 is unlikely to improve transport supply bottlenecks.

Elevated shipping costs will likely hinder global economic growth prospects in coming months. That said, inflationary pressures are likely to ease gradually as more consumption moves back to services and away from goods. In turn, we believe this may create the environment for slightly higher (2-2.5%) but manageable inflation.

The first half of 2021 saw larger economic losses linked to natural disasters ($93 billion) than the 30-year median loss ($63 billion). August was particularly eventful, with wildfires in southern Europe and North America, floods in Asia and Europe and a devastating drought in western North America. These tragic events contribute to potentially making this year’s natural disasters the costliest on record (see chart).

With the United Nation’s COP26 climate change conference due in November, we expect more focus from governments and businesses on environmental issues. Harsher regulation is likely to result, encouraging investors to embrace environmental, social and governance (ESG) considerations.

As the Biden administration tries to push its infrastructure spending agenda, the Congressional Budget Office (CBO) examined the potential economic impact of an additional $500 billion in US infrastructure investments over 10 years.

The CBO reckons in its first scenario that if the infrastructure spending plan was financed by the federal deficit, this would provide an immediate shot in the arm for the US economy. However, the impact would be more muted over the medium term as an increase in interest rates would negate productivity gains.

If the additional spending is offset by a reduction in the government’s non-investment purchases (a reallocation of resources rather than extra stimulus), as in the CBO’s second scenario, the impact would be much more substantial and longer lasting but would not fully materialise for at least 10 years.

The above helps to explain why we believe investors should temper their short-term enthusiasm around the infrastructure bill. Furthermore, investors might focus on private rather than public markets to access any opportunity that may arise from more infrastructure spending.