This week’s 5 must-see charts
The next UK debt crisis, an uncertain future for the services sector, copper’s decline, and the euro’s enduring strength.
We bring you some of our favourite analysts’ picks of the most important graphs this week.
Christian Schulz, senior economist at Berenberg
Does this look familiar? The Office for Budget Responsibility expects a major rise in UK household debt. Because it is backed by higher house prices and stable financial markets, households believe they can afford to save less.
But what if the housing market blows a new bubble, and that bubble then bursts some three years down the road? Unlike the Eurozone, which has changed over the last three years, Britain has not. Enjoy the ride – it could be a rollercoaster again.
Jeremy Cook, chief economist at World First
The UK services sector continues to punch out strong data prints. Rising consumer confidence and a closing of the gap between wages and price increases have helped, but we have to caveat this by looking at consumer credit and how sustainable these increases can be.
The Office for Budget Responsibility has highlighted the potential slowing of spending later in the year given consumers dipping into their savings. While wages settlements are starting to move higher, we doubt that the shortfall will be made up soon.
Julian Jessop, chief global economist at Capital Economics
The slowdown in China’s manufacturing sector points to continued weakness in the prices of industrial metals. Admittedly, copper has already fallen to within a whisker of our end-2014 forecast of $6,350 per tonne (which was well below-consensus at the start of the year).
But with strong growth in supply, a squeeze on the use of metals as collateral, and no immediate catalysts for a rebound in final demand, copper prices may well fall further.
Alex Dryden, analyst at JP Morgan Asset Management
This chart suggests that the European Central Bank (ECB) has become a victim of its own success. As the economy has stabilised, it has attracted capital and strengthened the euro, exacerbating the region’s disinflation problem.
In the long run, the euro should depreciate as real rates and inflation pick up, but in the mean time the demand for European assets and continued contraction of the ECB’s balance sheet could cause the currency to strengthen and weigh on company profits. The ECB needs to take action soon to break this damaging trend.
Sebastien Galy, senior currency strategist at Societe Generale
The Federal Reserve has won the battle but not the war on guidance. Forward rates, as well as 10-year US treasuries, suggest that nominal growth over the long term will be just below 4 per cent, or likely 2 per cent real growth in line with a less debt-fuelled economy than before 2008.
The trigger for higher US rates and the dollar will come from the market becoming more sensitive to Fed tightening expectations. That sensitivity will naturally rise as Fed asset purchases continue to taper off into year-end. The tensions between cheap Fed guidance talk and market positioning will then tell. It will likely uncover new vulnerabilities in emerging markets as well.