Charts of the Week: Beyond the Headlines

US inflation surprises Incoming US inflation data for the first four months of 2024 have mostly exceeded forecasters' expectations. Chart 1 below illustrates this trend, showing a monthly gauge of US inflation surprises. Specifically, it represents the sum of the differences between actual outcomes and the consensus forecasts (from Action Economics) for monthly changes in consumer prices, producer prices, and import and export prices. As the chart further reveals, May's inflation data marked a significant shift in momentum, with every data point falling short of the consensus forecast. This marked the first time since last October that this measure of the US monthly inflation surprise was negative.

Wage growth in the US, euro area and UK This week’s CPI data from the UK revealed further evidence suggesting that service sector inflation remains sticky and too high for comfort for many BoE policymakers. One reason for this probably concerns sticky wage inflation. This is supported by the latest data from the Wage Tracker developed by the hiring company Indeed (see chart 2). According to this Tracker, UK wage growth was running at 6.6% y/y in May, more or less unchanged from the start of the year and only slightly down from 7.1% a year ago. That, moreover, stands in vivid contrast to the data for the US and euro area which have exhibited a far more pronounced deceleration over the past few months. At respective rates of 3.1% and 3.4% in May, the latest data are also far more friendly for their central banks’ inflation objectives.

European bond markets The decision by France’s President Macron to call a snap election – and the potential fiscal policy consequences of a new administration - have amplified concerns about economic and financial stability in the broader European region over the past few weeks. This can be seen via the recent widening of the 10-year government bond yield spreads against Germany in a number of European countries and most notably France (see chart 3).

China’s property market Instability has been a more familiar feature of China’s real estate sector for some time now and there was little evidence this week that this might be coming to an end. House prices in China’s biggest 70 cities, for example, continued to fall, specifically by 8.2% y/y in May (chart 4). Real estate investment, in the meantime, also remained very weak in May and the real estate climate index continued to fall, albeit fractionally compared with April.

Japan’s trade In contrast to this, a brighter picture has emerged about the plight of Japan’s economy from this week’s trade data. For example, export values surged by 13.5% y/y in May, after 8.3% in April. This growth was much stronger than expected and driven, in part, by stronger demand for Japan’s semiconductors. Indeed, as chart 5 below suggests, Japan’s semiconductor exports specifically rose by 24%y/y, their fastest pace for nearly 2 years.

Equity market returns by sector Global equity markets have generally been buoyant this year. Their sector-specific performance, moreover, chimes with the notion that global growth is moderating, but not slumping. Cyclically-sensitive sectors such as basic materials and consumer goods have certainly underperformed, while defensive sectors like utilities, healthcare, and consumer services have outperformed (see chart 6 below). The biggest and most notable outperformer, however, has been the technology sector, despite its cyclical sensitivity. That, in turn, underscores the importance of that sector’s secular drivers, including the advance of Artificial Intelligence.