Charts of the Week: An asset-class scorecard and applying the Taylor Rule to the ECB
This week’s charts cover the following data:
Bitcoin and wine are anomalies in our eight year asset class scorecard
The following chart displays the annual performance of different asset classes from 2015 to 2022.
Several things stand out. First, Bitcoin returns have been “binary” over the last few years. For every calendar year in this time frame, it was either the best or worst asset class. The S&P 500 performs quite well most years, whereas emerging market equities and commodities, including gold and oil, are much more volatile.
Wine is another interesting case as it’s one of the few remaining assets measured in GBP. Returns in sterling terms have been decent, but in USD, your cellar would have lost money due to the greenback’s surge.
UK stands out as a weak market in commercial property scenarios
Real estate will be a key sector to watch in 2023 as interest rates rise. And in the office market, the long-term impact of the pandemic-driven shift to work from home is unknown.
The following chart compares commercial real estate values in different countries in 2021 with forecasts for 2023, courtesy of our newly extended partnership with Oxford Economics.
In any scenario, from a strong economic rebound to severe disruptions stemming from a renewed coronavirus outbreak to geopolitical conflict, the UK stands out as a weak market for commercial property.
The following chart can only be accessed with a subscription to Oxford Economics Real Estate data.
US CPI inflation would be lower using market rental prices
Lagging indicators in economic data can lead to policy mistakes. With this in mind, it’s interesting that real-time residential rents differ from shelter costs used in the US consumer price index (CPI).
The following chart displays US core CPI, which uses the cost of shelter index calculated by the US Bureau of Labor Statistics (BLS), and a hypothetical alternative that uses market-based rents.
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Core CPI would have been significantly higher last year using market-based rents, easily exceeding 10% throughout 2021. Now, however, the situation has completely reversed.
Consequently, the hypothetical core CPI would be close to the Fed’s 2% target. The actual core CPI series is still above 5%.
If you use the BLS numbers, the Fed should stay hawkish. But market rents are suggesting that tighter policy has already had a significant impact on at least one segment of the economy.
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