This week’s 4 must-see charts

What bond yields are really telling us, the halfway point in Eurozone austerity, China's not-so-great economy, and the new merger and acquisition frenzy.

 

We bring you some of our favourite analysts' picks of the most important graphs this week.

 

 

 

 

Deflation has continued to drive European sovereign bond yields lower, exacerbated by this week's poor month-on-month German and Italian inflation measures. The prospect that, if it all goes to hell in a hand basket, the ECB will step in and buy sovereign debt via a QE program has also helped this. However, this is not a sign of the "recovery".

 

On the other side of the argument is what is going on in UK debt; gilt yields are moving higher as GDP reaches the best levels in the G7. Some would have you think that lower borrowing costs are better, but I'll take what gilts are telling me at 2.68 per cent over what bunds at 1.46 per cent are screaming.

 

Such is the divergence in prospects for Germany and the UK, that the spread between gilts and bunds is now 1.2 per cent – the highest since 1998. 

 

 

 

Austerity in many of Europe's crisis countries is now past the halfway mark. Countries in the Eurozone periphery have tightened their belts. The reforms were the right medicine – but Greece has been asked to swallow an overdose of it.

 

The worst of austerity is now over. The red bars refer to a very ambitious benchmark: a 60 per cent debt ratio by 2030. Not all countries need to meet that. 

 

 

 

New "purchasing power parity" (PPP) estimates suggest China's economy may overtake the US's in size as soon as this year. But this is not as significant as some of the news headlines imply.

 

For a start, to the extent that GDP is useful as a measure of economic power, comparisons using actual market exchange rates may be more meaningful than hypothetical PPPs. On the basis of market exchange rates, it may be at least ten years before China "overtakes" the US as the world's largest economy.

 

What's more, headline GDP alone is a poor measure of a country's importance in the global economy, let alone in financial markets. For example, China started to dominate low-cost manufacturing and incremental demand for commodities last decade. But the US is still the leading financial player, and should remain so for the foreseeable future.

 

 

 

Merger and acquisition (M&A) activity has increased dramatically in April to reach a six year high, as firms attempt to utilise some of the large amounts of cash on their balance sheets to acquiring rivals and boost profitability.

 

However, it is important for the long-term sustainability of firms to do the "right" sort of deals. Investors should be careful and assess each potential acquisition on its own relative merits.