Charts of the Week: Growth versus value, Europe’s cold snap and inflation expectations

This week’s charts cover the following data:

• Looking back at winning and losing growth and value sectors
• Watching Germany as its biggest trade partner relaxes Covid zero
• Cold European winter is as much of an outlier as the warm autumn
• Visualising the growth and value eras
• US growth and inflation expectations are sliding
• M2 suggests US inflation will tumble
• Americans are switching jobs to get big wage increases
• The Bank of England has been overly gloomy on unemployment
• The correlation between UK house prices and unemployment
• China relaxes Covid zero as cases rise

Looking back at winning and losing growth and value sectors

This table ranks winners and losers among US equity sectors for every year between 2015 and 2022. Two distinct eras jump out.

The Covid year of 2020 was defined by recession, anemic inflation, low interest rates, low commodity prices and elevated risk aversion. It was the perfect environment for growth stocks in sectors like IT and communication services. (Interestingly, 2019 equity trends were similar.)??

The second era is the 2021-2022 “post-Covid” period: stronger growth, stronger inflation, higher rates and commodity prices, and lower risk aversion. It was the sweet spot for value stocks, such as energy and financials.

The change of leadership from growth to value has been extreme. In 2023, we will probably see more balanced returns from the two investment styles, as both economic growth and inflation expectations are cooling.

Watching Germany as its biggest trade partner relaxes Covid zero

The following chart is?a version of the European Commission “clock” ?that tracks economic progress through the business cycle, divided into four quadrants: contraction, upswing, expansion, and downswing.

Germany’s economy has deteriorated more quickly than France, Italy and Spain, as our chart shows. That’s due to the knock-on effect of China’s Covid-zero policy and a greater impact from this year's energy crisis.

Growth in Europe’s largest economy has long been export-driven, and China is Germany’s biggest trading partner. As China loosens the Covid-zero policy, Germany may benefit. But the experience of other countries suggests cases may surge, and it’s not guaranteed that supply-chain and trade disruptions will disappear.?

Cold European winter is as much of an outlier as the warm autumn

After a mild autumn, many Europeans are shivering in a much-colder-than usual winter.?

The cold snap is important because of the potential for energy shortages.?German regulators recently warned ?that firms and households must save much more gas to avoid winter rationing or outages.?

The chart below shows how temperatures in Germany, as tracked by the purple line, have plunged below not just the historic average but the 10 to 90 percentile range of previous years.

The opposite was the case as recently as mid-October –?when we wrote that Europe was taking advantage of balmy temperatures ?to refill its gas storage facilities.?

Europe’s energy needs have been in focus this year after Russia slashed gas deliveries, increasing scrutiny of previous German policy to phase out nuclear plants.

Don't forget to sign up to our Charts of the Week newsletter!?https://lnkd.in/dPBrnHif

One platform. Unlimited insight.

Macrobond delivers the world’s most extensive?#macroeconomic ?and financial data alongside the tools and technologies to quickly visualise and share insights -- via beautiful, dynamic charts and tables.

By putting a world of intelligence at your fingertips, we empower you to make more informed investment decisions, more quickly.

Find out more:?https://ow.ly/myWT50KLkyZ

Request a demo:?https://ow.ly/hX4o50KLkz0

All written and electronic communication from Macrobond Financial AB is for information or marketing purposes and does not qualify as substantive research.