2018 in (tweeted) charts!
This blog aims to give a relatively concise overview of financial markets in 2018 using a selection of charts I tweeted throughout the year. While this probably aggravates the already pronounced calendar-year thinking of investors, it also offers potential insights to the, at times erratic, behavior of financial markets. Expect a non-comprehensive and subjective coverage of 2018, but hopefully also one that is fun to read…
January
In January bitcoin still dominated the financial headlines. Only this time it was no longer related to the fact that bitcoin made new highs almost every day. After a massive run up, to almost USD 20 000 in December 2017, the cryptocurrency started what has now become one of most epic downturns in history.
#Bitcoin it's all relative chart.
Down 42% from its high mid December.
Up 1015% from January 2017. https://t.co/a9UOw5VjZk
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jeroen blokland (@jsblokland) January 17, 2018
#Bitcoin it's all relative chart. Down 42% from its high mid December. Up 1015% from January 2017. https://t.co/a9UOw5VjZk
—jeroen blokland (@jsblokland) January 17, 2018
Meanwhile, the euro continued its ascent in which it rose to 1.25 against the US Dollar, or up more than 20% since the beginning of 2017. In January, investors were still thinking about some kind of convergence in monetary policy between the Fed and the ECB. The ever-widening gap in interest rates, however, would prove differently, sending the euro down again later in the year.
'Good' #euro morning! The euro is now up 20% against the #USD from the low in December 2016. Did #Draghi sleep well… twitter.com/i/web/status/9…
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jeroen blokland (@jsblokland) January 25, 2018
'Good' #euro morning! The euro is now up 20% against the #USD from the low in December 2016. Did #Draghi sleep well… twitter.com/i/web/status/9…
—jeroen blokland (@jsblokland) January 25, 2018
Expectations surrounding a normalization of monetary policy in the Eurozone were visible outside currency markets as well. Germany’s 10-year bond yield rose to 0.60% as 2018 would surely reflect a decisive turning point in bond markets, right? With hindsight the answer, yet again, has to be ‘it didn’t’.
#YIELD! German 10-year bond yield hits 0.60% https://t.co/I0JzaDQg0Q
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jeroen blokland (@jsblokland) January 12, 2018
#YIELD! German 10-year bond yield hits 0.60% https://t.co/I0JzaDQg0Q
—jeroen blokland (@jsblokland) January 12, 2018
February
February started with a massive spike in volatility sending equity markets down sharply. Worries about China, monetary policy, the global economy, FANG stocks, among others, got investors spooked.
#VIX spikes 50%! https://t.co/PjyaxVqDQv
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jeroen blokland (@jsblokland) February 05, 2018
#VIX spikes 50%! https://t.co/PjyaxVqDQv
—jeroen blokland (@jsblokland) February 05, 2018
Apart from the sell off in equities, some other more exotic developments occurred as well. Due to size and velocity of the rise in the VIX index, the NAVs of a number of short volatility ETFs were wiped out completely. Most of these ETFs were terminated ultimately, underpinning that short volatility strategies are like picking up pennies in front of a steamroller.
Both #XIV and #SVXY short #volatility ETFs are halted on pending news as their NAVs were wiped out by a bigger than… twitter.com/i/web/status/9…
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jeroen blokland (@jsblokland) February 06, 2018
Both #XIV and #SVXY short #volatility ETFs are halted on pending news as their NAVs were wiped out by a bigger than… twitter.com/i/web/status/9…
—jeroen blokland (@jsblokland) February 06, 2018
March
In March, FANG stocks and their ‘colleagues’ in the FANG+ Index determined market sentiment, which was pretty horrible at best. FANG+ stocks fell more than 11% in less than 10 trading days as worries about their, in some case, lofty valuations grew.
ICYMI! The @NYSE #FANG+ Index is down 11%+ in the last nine trading days! https://t.co/n1nZMwDwXF
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jeroen blokland (@jsblokland) March 28, 2018
ICYMI! The @NYSE #FANG+ Index is down 11%+ in the last nine trading days! https://t.co/n1nZMwDwXF
—jeroen blokland (@jsblokland) March 28, 2018
On the economic front, which was looking pretty ok, the wait for faster wage growth continued. Even though the US labor market strengthened each month, as it would do so throughout the year, wages continued to lag, intensifying the discussion among economists if the Phillips curve had broken down. Recent wage growth numbers show that the curve was probably lagged not broken.
The #wage growth conundrum in one chart... https://t.co/1csLmeOT68
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jeroen blokland (@jsblokland) March 14, 2018
The #wage growth conundrum in one chart... https://t.co/1csLmeOT68
—jeroen blokland (@jsblokland) March 14, 2018
April
April provided the first signs that economic growth was becoming less synchronized. Especially in the Eurozone, circumstances deteriorated quickly with the Citi economic surprise index falling to its lowest level since 2012. By this time, the trade war between China and the US had really started with the first round(s) of tariffs being implemented. Coinciding with what would have a been a soft patch in the economy any way, the decline in macro numbers and the escalation of the trade war probably accumulated into the negative Q3 GDP growth number in Germany. On top of some car sectors specific issues of course.
Eurozone macro data continues to disappoint. #meanreverting https://t.co/aOwu7Hae5g
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jeroen blokland (@jsblokland) April 11, 2018
Eurozone macro data continues to disappoint. #meanreverting https://t.co/aOwu7Hae5g
—jeroen blokland (@jsblokland) April 11, 2018
Equity markets bottomed in April, yet the Bofa Merrill Lynch’s monthly Fund Manager Survey for April showed fund managers had gone long cash and underweight equities. Given the fact that the S&P 500 Index would rise another 8% until October, these fund managers are either very good at forecasting longer-term equity movements, or heavily influenced by the poor stock market returns that just occurred, making them too negative about future stock market performance. I’ll let you answer that question for yourself.
#Cash is king! https://t.co/hO2d8DVmln
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jeroen blokland (@jsblokland) April 17, 2018
#Cash is king! https://t.co/hO2d8DVmln
—jeroen blokland (@jsblokland) April 17, 2018
May
May saw two new risks emerge that would shape a large part of 2018. First, cracks in some of the smaller and weaker emerging countries started to emerge. It was Argentina’s central bank, which raised its reference rate by almost 10% to 40% to halt the decline of the Argentine Peso. Argentina, however, would not remain on its own.
WOW! #Argentina's central bank just raised its reference rate to a whopping 40%... https://t.co/uhwYJvo9Me
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jeroen blokland (@jsblokland) May 04, 2018
WOW! #Argentina's central bank just raised its reference rate to a whopping 40%... https://t.co/uhwYJvo9Me
—jeroen blokland (@jsblokland) May 04, 2018
The other risk came from Europe, obviously. Europe has realized an impressive track record of politics hampering financial markets, and 2018 has been no exception. Italy’s new government, a mixture of two very different parties, was always a risk for Italian political stability. But slowing GDP growth, something Italy can’t afford given its massive pile of government debt, and the upcoming budget round within the EU already send Italian bond yields firmly higher.
#Italy’s 10-year bond #yield in one chart! https://t.co/RjraGuYYNf
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jeroen blokland (@jsblokland) May 21, 2018
#Italy’s 10-year bond #yield in one chart! https://t.co/RjraGuYYNf
—jeroen blokland (@jsblokland) May 21, 2018
June
Turkey took over the headlines in June. Like Argentina, its currency collapsed too. Different from Argentina however, Turkey’s central bank refrained from intervention, a decision that surely seemed to reflect some political interference. In July, President Erdogan would name his son-in-law economy chief. When Moody’s (finally) lowered Turkey’s credit rating things really started to look ugly. With relatively large amounts of foreign debt in Turkey’s financial system, the fall of the Turkish lira put a massive strain of Turkish banks. Emerging currencies as a group sold off as well, pushing their value down more than 10% against the US Dollar since February.
#Turkey: Moody's places Turkey's Ba2 ratings on review for downgrade, Fitch Places Turkish Banks’ Ratings on Watch… twitter.com/i/web/status/1…
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jeroen blokland (@jsblokland) June 04, 2018
#Turkey: Moody's places Turkey's Ba2 ratings on review for downgrade, Fitch Places Turkish Banks’ Ratings on Watch… twitter.com/i/web/status/1…
—jeroen blokland (@jsblokland) June 04, 2018
June also brought the first bear market within the major stock markets. China was the ‘lucky’ one with company earnings pressured because of lower growth and the seemingly unwillingness of the Chinese government to stimulate growth. While this would change later in the year, China’s possibilities remain limited given the massive amount of corporate debt in the Chinese financial system.
It's official! #China has entered a bear market. Shanghai composite down more than 20% from its January high. https://t.co/MaVF0fUX9n
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jeroen blokland (@jsblokland) June 26, 2018
It's official! #China has entered a bear market. Shanghai composite down more than 20% from its January high. https://t.co/MaVF0fUX9n
—jeroen blokland (@jsblokland) June 26, 2018
July
The China – US trade war was now in full swing, resulting in China’s first current account deficit in 25 years. More importantly, countries and companies all over the world started preparing for a prolonged dispute that would negatively impact trade and growth. A classic example that politics unfortunately do matter.
Hello Monday! China reports its first current account deficit in the last 25 years... https://t.co/lDSDSqZhiW
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jeroen blokland (@jsblokland) July 22, 2018
Hello Monday! China reports its first current account deficit in the last 25 years... https://t.co/lDSDSqZhiW
—jeroen blokland (@jsblokland) July 22, 2018
Facebook probably won’t look back at July with that much joy either. It now, undesirably, tops the list with the largest one-day market cap losses in big cap stocks, after reporting worse than expected sales and user numbers. The stock slumped 19%.
#Facebook is heading for an undesirable record! Largest USD market cap loss of all time. ht @ArendJanKamp https://t.co/nuIT43lYkD
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jeroen blokland (@jsblokland) July 26, 2018
#Facebook is heading for an undesirable record! Largest USD market cap loss of all time. ht @ArendJanKamp https://t.co/nuIT43lYkD
—jeroen blokland (@jsblokland) July 26, 2018
August
Turkey ‘gets’ two charts in the 2018 overview. In August investors fled the country, sending the USDTRY exchange rate through 7, almost halving the value of the Turkish Lira against the US dollar relative to the beginning of the year. Turkey’s central bank finally gave in and raised its repo rate to 24% later on. Since then things have stabilized somewhat but remain shaky at best. Also, the currency remains heavily depressed in value, it is down roughly 60% since 2010, suggesting an accident can still happen.
WOW! Turkish #Lira ‘opens’ another 20%+ lower #USDTRY> 7! https://t.co/xZ61Ia3kVy
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jeroen blokland (@jsblokland) August 12, 2018
WOW! Turkish #Lira ‘opens’ another 20%+ lower #USDTRY> 7! https://t.co/xZ61Ia3kVy
—jeroen blokland (@jsblokland) August 12, 2018
September
We have reached September, a difficult month for equities most of the time, but not on this occasion. Emerging currencies, however, hit new lows on Argentina and Turkey, and declining sentiment towards emerging markets in general.
Emerging currencies hit another low! https://t.co/I02Mg8PVdi
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jeroen blokland (@jsblokland) September 04, 2018
Emerging currencies hit another low! https://t.co/I02Mg8PVdi
—jeroen blokland (@jsblokland) September 04, 2018
By now, the ongoing monetary tightening of the Federal Reserve also started to weigh on financial markets. Chairman Powell suggested the Fed was still some distance away from the neutral rate, even though the reduction of the balance sheet continued. The ‘r* debate’ gets a bit out of hand, as we can tell later on, but the effect of tightening is becoming more apparent. Powell would send markets tumbling in October after suggesting the tightening was far from over, although he tried to correct this in November.
The US 2-year Treasury #yield has risen sevenfold to 2.76% over the last five years. For comparison the German 2-ye… twitter.com/i/web/status/1…
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jeroen blokland (@jsblokland) September 14, 2018
The US 2-year Treasury #yield has risen sevenfold to 2.76% over the last five years. For comparison the German 2-ye… twitter.com/i/web/status/1…
—jeroen blokland (@jsblokland) September 14, 2018
October
In October, Angela Merkel announced she will not be running for a firth term as Germany’s chancellor. While less relevant for markets, she deserves a spot in the 2018 review. During the month, however, investors are far more focused on Italy, which has submitted a budget deficit proposal of 2.4% of GDP using a number of pretty unrealistic assumptions. The likely rejection by the EU steers Italy’s 10-year bond yield up to an impressive 3.75%, not that far from levels that would create direct solvency problems for Italian banks.
Wow chart! #Italy's 10-year bond #yield now at 3.75%. https://t.co/JLUJpI0z70
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jeroen blokland (@jsblokland) October 19, 2018
Wow chart! #Italy's 10-year bond #yield now at 3.75%. https://t.co/JLUJpI0z70
—jeroen blokland (@jsblokland) October 19, 2018
Meanwhile, Chinese stocks are down almost 30% from their high earlier in the year. The Chinese government has increased stimulus, but by no means comparable to the stimulus started in 2015, and signs of any uptick remain elusive.
Chinese stocks close at their lowest level of the year. Shanghai Composite Index down 28% from its high in January.… twitter.com/i/web/status/1…
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jeroen blokland (@jsblokland) October 16, 2018
Chinese stocks close at their lowest level of the year. Shanghai Composite Index down 28% from its high in January.… twitter.com/i/web/status/1…
—jeroen blokland (@jsblokland) October 16, 2018
November brings a new bear market. In oil this time. Slower economic growth, rising supply and OPEC that is struggling to determine the direction of oil prices send oil into bear market territory. It remains ‘interesting’ to this day that just over a month before the bear market started many investors were expecting oil prices to top USD 100 once again. Commodities are a very difficult asset class to forecast, and the massive reversal of oil prices confirms this in my view.
It's official! Crude #oil is now in a bear market and it took just over one month to get there. https://t.co/cR37lJTcUP
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jeroen blokland (@jsblokland) November 08, 2018
It's official! Crude #oil is now in a bear market and it took just over one month to get there. https://t.co/cR37lJTcUP
—jeroen blokland (@jsblokland) November 08, 2018
Bitcoin is still alive in November, but it too has entered an undesirable list, that of biggest bubbles of all time. While I don’t know if this is the end of bitcoin, I tend to think not, it surely is the end of many other cryptocurrency projects. The total market cap of all cryptocurrencies has fallen to from above USD 800 billion to just over USD 100 billion now. It’s the combination of the size of the collapse and the emergence of a new ‘asset class’, that makes this ‘bubble’ one to remember.
Is #bitcoin the biggest bubble of all time? https://t.co/WWDJIIq67y
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jeroen blokland (@jsblokland) November 22, 2018
Is #bitcoin the biggest bubble of all time? https://t.co/WWDJIIq67y
—jeroen blokland (@jsblokland) November 22, 2018
December
The collapse of equity markets in December, usually a pretty investor-friendly month, obviously doesn’t qualify under: ‘saving the best for last’. The S&P 500 Index, by far the strongest of the global equity markets during the last 10 years, also entered a bear market. Many emerging and European markets went already before that. Recession scares, overdoing it by the Fed, China growth worries, trade wars, Brexit fears, they all accumulated into making it at one of worst December months in history.
S&P 500 Index enters bear market... https://t.co/toxhCPaG3P
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jeroen blokland (@jsblokland) December 24, 2018
S&P 500 Index enters bear market... https://t.co/toxhCPaG3P
—jeroen blokland (@jsblokland) December 24, 2018
equities were not alone in the carnage. As a result of the meltdowns in many financial markets in December, 2018 has turned out to be a year in which basically all major asset classes realized a negative return. If anything, 2018 was a year in which earning a decent return was very, very hard using traditional investment strategies.
2018 - A year that ‘nothing’ worked... https://t.co/QVLHmhUfLX
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jeroen blokland (@jsblokland) December 23, 2018
2018 - A year that ‘nothing’ worked... https://t.co/QVLHmhUfLX
—jeroen blokland (@jsblokland) December 23, 2018