Analyzing Economic Indicators

The global economic outlook has become more uncertain due to the evolving conflict in the Middle East and the resulting energy shock, which is weighing on growth and adding to inflationary pressures. Global GDP growth is now projected at 2.9% in 2026 and 3.0% in 2027. The resilience of growth reflects strong technology investment, lower effective tariffs and momentum carried over from 2025. But the outlook remains uncertain and depends on current energy market disruptions proving temporary. ‪These projections are based on a technical assumption that energy prices evolve in line with futures markets pricing.‬ ‪There is signifiant downside risk to those projections.‬ Inflation pressures will persist for longer than previously expected. In the G20, inflation is now projected to be 4.0% in 2026, reflecting the surge in global energy prices. Given these challenges, central banks should remain vigilant and ensure that inflation expectations are well-anchored. Any measures to mitigate the economic impact of the energy shock must be targeted and temporary, considering most governments’ limited fiscal space. Increasing renewable energy generation and energy efficiency can enhance economic security while boosting resilience to future price shocks. Read more in our latest Interim #EconomicOutlook, released today: https://oe.cd/6pf

Yield Curve 101. When the yield curve flattens and eventually inverts, you worry. But it’s when the curve steepens late in the cycle as the Fed must react to a weaker labor market that you become really scared. Yield curve dynamics represent a crucial macro variable, as they inform us on today’s borrowing conditions and on the market future expectations for growth and inflation. An inverted yield curve often leads towards a recession because it chokes real-economy agents off with tight credit conditions (high front-end yields) which are reflected in weak future growth and inflation expectations (lower long-dated yields). A steep yield curve instead signals accessible borrowing costs (low front-end yields) feeding into expectations for solid growth and inflation down the road (high long-dated yields). Rapid changes in the shape of the yield curve at different stages of the cycle are a key macro variable to understand and incorporate in your portfolio allocation process. There are 4 main yield curve regimes to consider: 1) Bull Flattening = lower front-end yields, flatter curves. Think of 2016: Fed Funds already basically at 0% and weak global growth. Yields stay put at the front-end and could meaningfully move lower only at the long-end, hence bull-flattening the curve. 2) Bear Flattening = higher front-end yields, flatter curves. 2022 was the bear flattening year: Powell raised rates aggressively to fight inflation, but he ended up choking the economy off. This was reflected in lower future growth and inflation expectations at the long-end of the curve. Front-end rates went higher, but the curve bear-flattened. 3) Bear Steepening = higher front-end yields, steeper curves. October 2023: yields are rising but it’s the long end which dominates the move because investors think the economy can handle higher rates for longer and they start pushing up the term premium. Rare and potentially dangerous if growth isn’t strong. 4) Bull Steepening = lower front-end yields, steeper curves This move tends to happen ahead of recessions as the Fed must intervene and cut rapidly as the recession approaches. Front end yields tumble and long end yields drop too but more slowly. The yield curve is a key indicator every macro investor should watch. Did you enjoy this post? Let me know your thoughts in the comments!

Let’s talk about copper imports and some of the complexity right now in anticipating overall effects on users (both in terms of timing and magnitude of effects). Two charts below (one my own, one reproduced from Bloomberg, originally from https://lnkd.in/g__Rvwet). Thoughts: •The top chart shows metric tons of imported copper cathodes & sections of cathodes (HTS 7403.11.0000), which is by far the largest imported type of manufactured copper product (HTS 74), with 2024 imports totaling $8.47 billion dollars (out of $17.2 billion in imports for all of HTS 74, or about 49.4%). In 2024, the average month saw ~75,000 tons of imports. April and May 2025 (last two data points) saw imports of 201,434 and 218,133 tons, respectively (or 2.7x and 2.9x prior year average monthly imports). This frontloading means there is a large stockpile of copper already in the USA that won’t be hit with tariffs. •However, before spiking the inflation football and saying “well, then there will be no inflation”, you need to look at the second chart. This shows the percent premium for US copper futures (Comex) relative to the London Metal Exchange. Normally, that premium is quite low. However, it exploded in 2025, reaching over 20% since 7/8 (when the 50% copper tariffs were announced). For reference, LME copper trades around $10,000 a ton today. What this means is that US users of copper have been paying a 5-15% premium for copper relative to firms in other countries over the past few months, which has now increased to above 20% (and this is before tariffs take effect). •Why does that price premium matter? Simple: higher copper prices in the USA reduce the competitiveness of US exports that contain copper. Moreover, it’s important to remember that far more people are employed in industries that use copper versus the entire copper mining, smelting, refining, and product industrial complex. Simple example: electrical equipment and component manufacturers (NAICS 335) employ 400,000 workers (https://lnkd.in/gEXCTusE), with electrical products extensively using copper. In contrast, the USGS reports just 13,000 workers in the entire copper industrial complex in the USA (https://lnkd.in/gU-pftdr). Implication: Copper tariffs are another example where we are tariffing an upstream intermediate input used by far more workers than employed in the industry that makes the upstream intermediate input. Such trade policies are net job killers, and have even been termed self-harming trade policy (https://lnkd.in/gWgxQjtY). #economics #markets #shipsandshipping #supplychain #construction #supplychainmanagement #manufacturing 

Industrial production data for June came out this morning, so time to update one of my favorite chart. The chart splits manufacturing into two groups. Advanced manufacturing — machinery, computers and electronics, chemicals, transportation equipment: the capital- and technology-intensive core of the sector — is at a record high and still accelerating. The rest of manufacturing is not growing. The gap between the two continues to widen. But this chart is not even the best news for advanced manufacturing this week. That would be TSMC announcing another $100 billion for Arizona, on top of the $165 billion from March 2025. $265 billion total, the largest foreign direct investment in US history. And TSMC is hardly alone. Micron is now at $250 billion (upstate New York, Boise, Virginia). Texas Instruments announced $60 billion for seven fabs in Texas and Utah last year. Intel has $20 billion in Ohio and about the same in Arizona. Samsung is around $40 billion in Taylor, TX. GlobalFoundries, SK Hynix, and the whole supplier chain behind them. That's over $600 billion in commitments — and the biggest announcements, from 2025 and 2026, have barely started reaching production. What's in the chart today is the early vintage. The pipeline behind it is much bigger. And this is just chips. The same thing is happening across tech manufacturing. AI servers, batteries, electrical equipment and grid components and more. And pharma may be the biggest of all. I'm telling you, we are at the beginning of a new golden age of advanced manufacturing in the US. One unfortunate caveat: this is a renaissance in production, not in jobs. A modern fab uses something like $10 million of capital per worker. We are reshoring exactly the industries where labor matters least, and the next generation of robots will only push further in that direction. Manufacturing output will keep rising while manufacturing employment keeps falling. #manufacturing #labormarkets #Phoenix #futureofwork #careers #recruitment

Botswana’s Devaluation: A Calculated Response to a Shifting Global and Domestic Landscape - My Two Cents as a Mathematics of Finance Graduate The Bank of Botswana recently devalued the pula by 2.76%, bringing the exchange rate to 13.35 against the USD. At first glance, this might seem modest, but in a nation so tightly linked to global trade, especially in diamonds, beef, and textiles, the implications run deeper than the numbers suggest. So, why now? Let’s unpack the economic pressure cooker behind the move: 1. Falling Diamond Revenues Botswana’s fiscal and export performance is still highly reliant on diamond sales. Global demand for luxury goods has softened amid tightening global monetary policies and geopolitical uncertainty (think: Russia-Ukraine, Red Sea disruptions, and slower-than-expected recovery in China). With De Beers sales softening, the pula has come under pressure. 2. Dwindling Foreign Reserves The Bank of Botswana has been drawing down reserves to defend the currency and meet import bills, especially for essentials like fuel, medicine, and food. Devaluing the pula helps ease this drain by reducing demand for foreign currency and boosting local export competitiveness. 3. Inflation and Imported Costs A weaker pula means higher prices for imported goods. Expect rising costs in fuel, pharmaceuticals, and machinery in the coming months. This imported inflation will likely nudge up the headline inflation rate, potentially prompting future monetary policy tightening. What this means for households and businesses: • For households, budgets will tighten. Higher fuel and transport costs could cascade into food prices, schooling expenses, and medical bills. • For businesses, especially those relying on imported inputs (manufacturing, retail, construction), margins may shrink. Some may pass on costs to consumers; others might delay expansion or rethink sourcing strategies. From a risk management perspective, this kind of environment underscores the importance of: • Scenario analysis • Interest rate & FX hedging • Liquidity planning Policy & Industry Response: • Financial institutions can step in to provide guidance, beyond credit, by offering practical exchange-rate risk training to clients and front-line staff. • Government & private sector collaboration will be key. Globally, we’re seeing a trend of currencies weakening against a resurgent dollar, driven by persistent Fed rate hikes and capital flows toward “safe” assets. Even the South African Rand has faced similar pressure. Botswana is not immune. This is not just a monetary policy adjustment, it’s a strategic recalibration in response to external shocks and internal vulnerabilities. If approached with coordination and foresight, it can help build resilience, stimulate local production, and reshape how we engage with the global economy. Let’s keep talking, analyzing, and most importantly, adapting.

📉 What’s going on in FX markets? A break with rate logic. For years, the EUR/USD exchange rate has largely followed the interest rate differential between the EU and the US – especially in short-term government bonds. But that connection seems to be breaking down: The 1-year yield spread is at -2.3% – clearly favoring the US dollar. Investors earn significantly more on 1-year US Treasuries than on their eurozone counterparts. Normally, this would be a strong case for USD appreciation. And yet: The euro has strengthened against the dollar since the so-called “Liberation Day” in April 2025, the day Donald Trump announced sweeping new tariffs. At that very point, EUR/USD and the rate spread diverge – a decoupling not seen in years. 💡 What does this mean? Markets seem to be prioritizing political over monetary signals. Classic FX logic based on yield advantage is being overshadowed – by geopolitical tensions, protectionism, and growing doubts about the USD’s safe-haven status. 📊 Conclusion: The exchange rate is breaking out of its historical pattern – a red flag for analysts, exporters, and investors alike. Traditional models no longer apply automatically. 👉 What do you think: temporary distortion – or the start of a new FX paradigm? Chart by TradingView #Forex #Currency #AssetManagement

Here is a detailed breakdown of how CBOE Calculate Implied volatility for American options The methodology constructs a volatility surface using American-style options. This surface supports generating indicative prices for existing or hypothetical option series for intra-day and end-of-day analysis. 1. Input Components for Calculation Dividends and Interest Rates Dividend Inputs: Collected from Cboe/Hanweck. Predictions for future dividend payments and dates are made using a hybrid approach (algorithm + analyst input). Historical patterns, corporate actions (rights issues, consolidations, etc.), and other factors are analyzed. Where patterns are unclear (e.g., due to fiscal changes), securities are flagged for analyst review. Analysts ensure the quality of forecasts through historical accuracy monitoring. Interest Rate Inputs: U.S. Treasury yield curve rates (Constant Maturity Treasury rates) are used. A cubic spline is applied to interpolate rates on option expiration dates. Forward Price Calculation FT(Divs to Expiry T)=∑Die^−ri(T−ti) Parameters: Di : Dividend payment at time tit_iti. ri: Risk-free rate from tit_iti to TTT. T: Time to expiration. 2. Implied Volatility Calculation Utilizes the Cox-Ross-Rubinstein Binomial Model. Implied volatility (VVV) is derived by equating: Model Option Price: Computed price based on the model, dividends, and interest rates. Observed Option Price: Actual market price. A convergence criterion ensures accuracy: ∣Model Pricei−Option Pricei∣<Tolerance 3. Smile Interpolation and Extrapolation Interpolation (Spline Technique) Applied to strikes (K) and expiration ranges (T). Cubic Spline in Implied Variance Space: Piecewise cubic polynomials are fitted between given points. Polynomials are of the form: fi(x)=αix^3+βix^2+γix+δi Smoothness is maintained by matching the first and second derivatives at adjacent points. Results in coefficients that interpolate implied volatility for intermediate strikes and maturities. Extrapolation (SABR Model) Used for strikes beyond observed data. SABR (Stochastic Alpha Beta Rho) Model: Captures the dynamics of forward rates and instantaneous volatility using correlated Brownian motions Where ρ is the correlation between W1 and W2 Parameters (α,β,ν,ρ) are fitted to the observed smile. Implied volatility formula accounts for: Leverage (β). Volatility of volatility (ν). Correlation (ρ) effects. 4. Output The methodology produces a complete volatility surface. The surface can be used for pricing American-style options at various strikes and maturities, supporting both real-time and end-of-day analytics.

As our President said yesterday: only what gets measured gets done . Let me share some insights from our DG GROW kitchen on how we observe and measure the #SingleMarketEconomy to build robust data for policy making. DG GROW is continuously working sourcing , processing and interpreting relevant information to better understand industrial trends and better anticipate potential risks or disruptions. Such data informs not only policy making but is relevant to planning and decisions for industry and other users. This summer, we’re making available two useful new tools: 1. 𝐒𝐂𝐀𝐍 𝐃𝐚𝐬𝐡𝐛𝐨𝐚𝐫𝐝 Powered by Eurostat COMEXT data, the SCAN Dashboard helps detect supply chain distress by identifying anomalous changes in import prices and quantities. Users can: - Examine all raw materials essential for Net Zero Techs (EV batteries, fuel cells, heat pumps, solar panels, wind turbines) and detect potential supply chain issues. - Select and analyse other products of interest. - View information in intuitive ‘quadrants’ with the top left indicating the highest distress. - Access detailed Product Charts on products showing import sources, price evolution, and more. Recent data reveals intriguing shifts in the EU's import patterns for solar panel materials. From February to April 2024, imports of gallium, molybdenum, boron, and copper decreased compared to 2021-2023, while prices rose. These materials, except gallium, are also vital for wind turbine technologies. The Dashboard indicates potential supply chain distress for these materials, proving invaluable for industry experts. 2. 𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐢𝐚𝐥 𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐃𝐚𝐬𝐡𝐛𝐨𝐚𝐫𝐝 The Industrial Production Dashboard enables users to explore manufacturing output trends in major EU producer countries and key sectors (automotive, machinery, chemicals, fabricated metals, food) using Eurostat’s Industrial Production Index (IPI). This tool offers: - A clear view of the EU’s industrial performance through price-adjusted output. - Insights into production trends across various sectors and regions. - Intuitive clustering of countries for comparative analysis, displaying maximum and minimum scores per group. The latest data highlights a decline in automotive production in Germany, France and Italy, while Eastern Europe experiences a boom. The machinery sector remains stable overall, despite varying performances across countries, and the chemicals industry is showing signs of recovery. These new Dashboards are designed to support the monitoring of industrial activity and are complementary to our confidence indicators and producer price inflation analysis. SCAN Dashboard 👉 https://lnkd.in/eBMRSHa7 Industrial Production Dashboard 👉 https://lnkd.in/eTH5Mvji Confidence Indicator for ecosystems 👉 https://europa.eu/!whVqnv Decomposition of producer price inflation in the Euro area 👉 https://europa.eu/!dkVqTT

In the past two months, the price of Copper has experienced a significant downturn, giving little reason for optimism. Following China's substantial replenishment of their Copper reserves, Chinese smelters have sent significant amounts of Copper to London Metal Exchange (LME) warehouses. This influx pushed LME inventory to a three-year high last week. The surplus has raised concerns about demand being unable to keep up with supply, leading to a substantial surplus and the potential for markedly lower prices soon. The recent technical analysis indicates a strongly negative momentum, leading to many Commodity Trading Advisors (CTAs) taking short positions in the past two months. The Copper Futures chart reveals that the 200-day Moving Average has been breached. Without short positions being closed out for profit in the coming days, there is a real and urgent possibility of a further decline. This trend in the copper market, often referred to as "Doctor #Copper" for its predictive abilities, is a concerning signal for the global economy. It suggests that global growth could fall short of expectations in the third and fourth quarters of 2024. Furthermore, any negative surprises in the US unemployment data this week might also exert additional downward pressure on commodity prices in the near term. Please feel free to comment. I always value the opinions of my followers! #Investing #Economy #Sourcing #RealEstate #Finance #PortfolioManagement #management #VentureCapital #Economics

Is the Canary in the Coal Mine Singing? A Contrarian View on U.S. Recession Signals A contrarian view is emerging, suggesting that we could be on the brink of a recession, with commodities and the U.S. yield curve flashing warning signals. The commodity market, a reliable indicator of economic health, has seen prices weaken over the past three months. This decline is particularly noticeable in oil, where West Texas Intermediate (WTI) crude has fallen 9% as U.S. unemployment has risen from 3.5% to 4.3% in the same period. Historically, such a pattern has signaled an economic slowdown. Since 1980, each time U.S. unemployment surged by more than 100 basis points, WTI crude dropped by an average of 44%. This correlation suggests that if unemployment continues to rise, we may see further declines in oil prices, reflecting reduced energy demand—a classic precursor to a recession. Adding to these concerns is the inversion of the U.S. yield curve, a traditional predictor of recessions. The spread between the three-month T-bill and the 10-year U.S. Treasury bond has been negative for 648 days, a sign of significant economic distress. The inversion of the two- and 10-year Treasury bond spread further supports the recession narrative. As this yield curve has inverted, the forward price curve for WTI futures has flattened, indicating weaker short-term demand for oil, a pattern reminiscent of the early 1980s when runaway inflation was followed by a severe recession. These signals are not just theoretical. They have practical implications for OPEC, which may need to reconsider its 2024 oil-demand growth forecast of 2.11 million barrels per day (mmbpd), especially as the U.S. Energy Information Administration projects a more modest 1.1 mmbpd growth. If history repeats itself, the narrowing yield spread could herald a slowdown in global oil demand within the next 12-24 months. Moreover, U.S. oil inventory levels are adding to the bearish outlook. A comparative price-inventory model suggests WTI crude could drop to $65 per barrel, assuming the market prices in an economic hard landing. This is well below the market price of $79 currently, indicating that while a risk premium still exists, it is narrowing. The key takeaway? While predicting the exact timing of economic downturns is notoriously difficult, the signals from the commodity market and the yield curve are too strong to ignore. For investors, this might be the time to consider a more defensive portfolio stance, focusing on assets that traditionally perform well during recessions. For policymakers, it could mean rethinking current strategies to avoid exacerbating the downturn. In a market full of noise, the contrarian view suggests that the canary in the coal mine might just be singing a song of caution. As always, staying informed and being prepared is crucial. Balanced Mandate over focused Growth only makes sense