Top 5 Charts of the Week: Booming Job Markets, Iron Ore, EM Equities, US Dollar

1. Developed Markets — Unemployment Rate: This series comes from something I’m working on for the monthly chartbook, but I felt it worth sharing because it’s so interesting. The chart shows the GDP-weighted unemployment rate across the major developed economies, and the punchline is that labor markets are very tight across developed economies.
There’s a lot we could say about this chart e.g. the time/magnitude it took to recover, the passing of the previous low points of 2000 & 2007, possible upside risks to inflation if the growth-scare passes, and possible structural changes… but for now I will leave you to ponder this stark chart.

2. Philly Fed Faked: Regular readers will recognize this one – it’s the Philly Fed index, which put in a strong showing for May (16.5 vs 10 expected and 8.5 previous). Indeed it’s a sharp contrast to the February reading, which at the time I suggested could be another “Philly Fed Fakeout” – where the index takes a sharp dive, and then immediately recovers.
I guess the key point is that it seems to be behaving more like 1998 than 2001, and that’s important…

3. Aussie Dollar — Iron Ore…? In case you missed it, Iron Ore prices have undertaken a series of breakouts (broke out from triangle/wedge formation, cleared its 200 day moving average, and broke out above the key $100 level). There’s a few things going on here such as supply-side issues, but the China demand story is real (property prices picking up again, inventory draws etc).
One interesting aspect about it though is the way iron ore has been diverging (to the upside) against the Aussie dollar. Obviously there’s a lot of other things going on there (housing market downturn, prospective RBA cuts), but given heavy short positioning it’s certainly some contrarian food for thought.

4. Emerging Market Equity Valuation Trends: EM equities have been on the receiving end of the trade-war-escalation. One positive out of this for longer term minded asset allocators is that it has improved the valuation picture slightly for emerging market equities.
The chart below shows the median and upper/lower quartiles of historical valuation indicators across the 24 countries in the MSCI EM index – giving an overall feel for the trend in valuations across countries. Though there are plenty of risks and other important factors to round out the case, at least on this metric things look interesting… (chart source)

5. US Dollar Index — Longer Term Perspective: Last but not least, and certainly relevant to the previous chart (EM equities tend to be very sensitive to the swings and cycles in the US dollar), this chart provides some longer term perspective as short-term possible upside breakouts come into focus.
Although there’s probably something for everyone in this chart, my comment would be that the US dollar bull market seems long in the tooth. I still want to lean bearish, but there’s a couple of things in that chart which give me pause for thought at least… (chart source)