By
Stefan Löwenthal,
Jürgen Wurzer
August 14, 2024
Central banks’ balancing act between inflation and growth in the age
of artificial intelligence (AI)
As we navigate the latter half of 2024, the global economy finds itself at a crossroads as financial markets first
experienced a dull couple of months, only to be interrupted by a spike in volatility. Despite the recent turbulence
among
tech giants like Tesla Inc. and Alphabet Inc. (Google), the broader equity market has posted solid gains year to date
amid a belief in the economic “soft landing” narrative, buoyed by strong earnings, robust gross domestic product
(GDP)
growth, and a job market that refuses to cool down. Similarly, fixed income has performed admirably, with spreads
continuously tightening during the seasonal lull in activity.
As markets are turning more volatile, we try to look through the noise as we delve into central banks’ ongoing
dilemma
of fostering economic growth while managing inflation against a backdrop of technological advancements and shifting
market dynamics. We explore the potential implications of stubbornly high core inflation on global equity markets,
and look into the diversification of momentum and the “AI theme” (as well as sectoral and regional dispersion more
broadly). We also assess and the strategic positioning in credit markets, providing a roadmap for navigating this
complex environment.
Highlights
- Economic resilience: We expect a robust economy, fuelled by strong job markets,
rising household
incomes, and
fiscal boosts. Plus, tapping into homeowners’ equity could spark further growth.
- Financial ease: The current easy financial conditions hint at less urgency for rate
cuts than
markets anticipate.
- Persistent inflation: Inflation might prove to be stickier, driven by wage growth
and rising
rents, amid a tight
job
market and a housing crunch.
- Momentum diversified: The momentum factor now showcases a well-rounded sector mix,
challenging
the notion
that it’s all about AI stocks and setting the stage for savvy stock selection.
- Credit caution: With valuations in high-risk credit markets looking overextended, a
mix of
short-term bills and
defensive credit positions might be appealing.
Macroeconomic outlook
Over the Northern Hemisphere summer, the incoming macroeconomic data presented a mixed picture, revealing a
continued divergence between hard and soft data. Notably, US GDP for the second quarter surprised markets by posting
a robust growth rate of 2.8%, significantly outpacing expectations of 2.0% (source: Bloomberg). This positive
deviation
underscored the resilience of the US economy, injecting a dose of optimism into financial markets. However, July's
nonfarm payroll report, purchasing managers’ indices (PMIs) and other leading indicators were painting a more mixed
picture of the economic landscape.
This bifurcation in economic data might be partly explained by the emergence of mini cycles within the economy,
characterised by distinct and desynchronised peaks and troughs across various industries. This phenomenon
complicates the task of assessing where we are in the broader cycle, and it poses a challenge for investors and
policymakers alike as they strive to interpret these mixed signals and position accordingly.
Encouragingly, headline inflation has continued to retreat from its highly elevated levels in the aftermath of the
COVID-19 shock. However, core inflation – particularly within core services – remains stubbornly above pre-pandemic
levels. Recent data even suggest a reacceleration in some areas, presenting a dual narrative of declining headline
inflation compared with persistent and stickier core inflation – an ongoing challenge for policymakers.
Figure 1: US core inflation is declining from its peaks, but services inflation
remains elevated
![US core inflation is declining from its peaks, but services inflation remains elevated figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-1.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from January 1960 to June 2024, based on US Core
Personal Consumption Expenditures Price Index (US Core PCE).
Labour market
We continue to closely monitor wage growth developments, which are a key component driving service sector
inflation. A useful indicator to track the underlying labour market dynamics is the Beveridge curve, which
illustrates the
relationship between job vacancies and unemployment. Its shape provides insights into the health and tightness of the
labour market. We are watching to see whether it will flatten out, indicating a looser labour market similar to the
2010-
2019 period, or remain steep, as has been the case in recent months. The trajectory of the Beveridge curve might be
critical in assessing whether wage-driven inflationary pressures ease or persist.
Figure 2: US Beveridge curve – litmus test for a return to “normal”
![US Beveridge curve – litmus test for a return to “normal” figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-2.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from June 2009 to May 2024.
Recent labour market data present a mixed picture overall, indicating a continued normalisation from the COVID-19
aftermath. The quits rate, often viewed as a barometer of worker confidence in finding new employment, has returned
to its pre-pandemic levels, suggesting stabilisation. However, other reliable labour market indicators, such as wage
growth and job openings, suggest that the labour market remains even tighter than it was pre-COVID, and further
cooling may be necessary to keep inflation in check.
In addition, the dynamics of immigration could influence future wage growth. As illustrated in the left chart of
Figure
3,
the population of foreign-born workers has been expanding at a faster pace than that of the native-born population
in recent years. This shift has momentarily interrupted a multiyear trend of increasing relative wage growth, as seen
in Figure 3’s right chart. This implies that foreign-born workers have been earning relatively lower wages than they
were before the pandemic. If the previous trend were to resume – potentially as a result of more stringent
immigration
policies – this could represent an additional source of inflationary pressure that may not be fully accounted for in
current inflation expectations.
Figure 3: Population growth has been a key driver for the labour force and
possibly wage inflation
![Population growth has been a key driver for the labour force and possibly wage inflation figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-3-1.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from January 2007 to May 2024.
![Population growth has been a key driver for the labour force and possibly wage inflation figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-3-2.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from 2005 to 2023.
Another key component of core services inflation is the housing market. Here, the “lock-in effect” (homeowners being
reluctant to sell their homes amid rising mortgage rates) has significantly contributed to unusually low housing
turnover.
According to estimates from the Federal Housing Finance Agency (FHFA), there has been a staggering 60% decline in
home sales, and it could take many years for this to normalise again. A prolonged period of low housing turnover
could
be another source of structurally higher services inflation, as the scarcity and high price of available homes for
sale
might force people to rent, potentially driving up costs for renters and contributing to overall inflationary
pressures.
Central banks
Balancing inflation and growth continues to be the key focus for central banks globally, as they strive to rein in
inflation
back to target levels. Notably, the European Central Bank (ECB) has already initiated an easing of its monetary
policy,
fuelling speculation that the US Federal Reserve (Fed) might soon follow suit. However, market expectations regarding
rate cuts have proven to be highly volatile this year. We continue to expect that, unlike what the market currently
anticipates, the Fed won’t cut very much in the coming 12 months amid a more elevated core inflation environment.
Meanwhile, financial conditions have already shown signs of easing, making additional cuts potentially less
necessary.
Banks seem to be in good shape, with solid earnings reports amid favourable interest rate margins, and well exceeding
regulatory capital reserve requirements. Complementing this positive scenario is the latest Senior Loan Officer
Opinion
Survey on Bank Lending Practices (SLOOS), which indicates a trend towards more lenient lending conditions. This has
historically been a precursor to declining default rates, further reducing recession risks.
Households
Similarly, households are exhibiting encouraging signs of resilience and recovery, in spite of some evidence that the
majority of consumers have already deployed any excess savings accumulated in prior years. As inflation recedes from
its peak levels and wages continue to rise, there has been a notable improvement in real income growth across major
economies. This positive shift in household finances is bolstering consumption, providing a tailwind for economic
activity.
And there might be more to come.
An innovative pilot program for secondary mortgages by Freddie Mac1 might represent a significant development in the
financial landscape for US homeowners. By providing an alternative to traditional cash-out refinancing, this program
could serve as a catalyst for unlocking substantial untapped equity for millions of Americans. It could allow
homeowners
to access additional funds without refinancing their entire mortgage at higher rates. This financially viable option
might enhance homeowners’ flexibility and could stimulate economic activity further – an interesting development to
watch.
Fiscal policy
In addition to comparably easy financial conditions and the resilience of the household sector, we also believe that
fiscal stimulus will remain strong in the near term. Fiscal expenditures authorised in recent years include
allocations
that will only begin to be spent in coming quarters, suggesting a sustained flow of fiscal support into the real
economy.
Historical trends further reinforce this outlook, indicating that government spending tends to peak in the year
following
a presidential election.
Moreover, the US Treasury has played an increasingly active role in markets by targeting a greater share of its
issuance
in short-dated Treasury bills, which some believe has a similar effect to quantitative easing (QE) by reducing the
supply
of longer-dated securities available to the market. Additionally, the Treasury General Account has amassed more than
$US750 billion, which is poised for deployment at the Treasury’s discretion. All these factors lead us to believe
that
fiscal
spending could present an upside surprise for economic growth beyond current expectations.
Recent fiscal policies notably supported manufacturing construction, as clearly depicted in Figure 4. This rise in
manufacturing investment is poised to boost future GDP as the output from these newly operational factories comes
online. Additionally, the transition from destocking to restocking of inventories could represent another growth
catalyst,
although the pace of this inventory cycle adjustment will vary among sectors due to differences in demand
anticipation,
market dynamics, or supply chain challenges.
Figure 4: Manufacturing construction spending has increased significantly in
recent years
![Manufacturing construction spending has increased significantly in recent years](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-4.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from January 2002 to May 2024.
Global developments
Looking at other regions, China’s real estate sector, once a powerhouse of economic growth, is still facing
significant
challenges. In 2014, rate cuts spurred a surge in home purchases, but the same strategy has not stemmed the decline
in new home sales in the present scenario. From 2017 to 2022, real estate was a major contributor to China’s GDP,
accounting for an average of 35%. However, this figure has sharply fallen to less than 20%, a level last seen in
2005.
This downturn signals a critical need for China to address its real estate woes to pave the way for economic recovery
and growth. Furthermore, the Third Plenum, a key meeting of China’s leadership, did not reveal meaningful additional
measures that could invigorate the sector. This ongoing crisis in China’s real estate market not only impacts
domestic
growth but also has repercussions for global economies, particularly dragging down Europe’s economic performance
due to the interconnected nature of global trade and investment.
We will now look into the investment opportunities that emerge in the context of these multifaceted economic
developments.
Asset class implications
Equity markets have benefitted from the solid economic backdrop, growing earnings, and more benign inflation prints.
However, the second quarter of 2024 in particular saw continued dispersion between the largest US technology
companies such as Amazon.com and Microsoft Corp. compared with the rest of the market. Just like in 2023, the 10
largest stocks of the S&P 500® Index are responsible for more than half of the total market return year to date.
US equities
In that context, a striking visual is the rolling 3-month z-scores of relative performance between the S&P 500 Index
and
other benchmarks for various parts of the US equity market, such as the large-cap Russell 1000® Growth Index and
Russell 1000® Value Index, the small-cap Russell 2000® Index, or the S&P 500® Equal Weight Index. In an exceptional
move through mid-July, growth outperformed the broad market by more than two standard deviations, while value
underperformed by more than three. But with mean reversion unfolding quickly towards the end of July, relative market
movements don’t currently provide any guidance.
Figure 5: Relative equity market performance has been massively distorted, but
July led to quick mean reversion
Sources: Bloomberg, Macrobond, Macquarie. Data from 3 January 2020 to 26 July 2024.
However, what stands out in these developments is that despite the strong returns of the momentum style factor –
which captures the tendency of winning stocks to continue outperforming and losing stocks to keep underperforming
– over the past year, its valuation spread appears surprisingly cheap. This anomaly is partly explained by the
changed
sectoral composition within momentum quintiles, where information technology (IT) stocks are now more evenly
distributed across both the top and bottom quintiles. We believe this debunks the myth that momentum is equal to the
AI theme, i.e. comprising a simple “long-IT/short-everything-else” logic. Instead, momentum is more aligned with
being
long in financials and industrials, while being short in real estate, staples, and healthcare.
The more balanced distribution of expensive tech stocks across momentum quintiles contributes to the seemingly
low valuation spread. Additionally, the presence of tech stocks in the bottom quintile reflects the market’s
efficiency
in
distinguishing between AI winners and losers (the “debate stocks”), hinting at either a more rational market
potentially
averting a bubble burst or, more pessimistically, the early stages of a bubble burst beginning to unfold, especially
within
the context of high valuations in large-cap growth stocks.
Figure 6: The momentum anomaly – style factor returns look extended but not
expensive
Sources: MSCI Barra, FactSet, Macquarie. Data from 3 January 1997 to 26 July 2024.
Generally, a bigger bifurcation between winners and losers within sectors or industries – as seems to be happening
now
around AI – could prove to be good news for active managers in the months to come. High industry dispersion often
correlates with stronger manager alpha, as the ability to discern and select the best-performing stocks becomes
crucial.
This scenario, marked by significant performance variances within sectors, offers skilled managers a prime
opportunity
to use their expertise and insights, thereby enhancing returns relative to passive strategies.
Figure 7: High return dispersion is often a fruitful environment for active
managers
![High return dispersion is often a fruitful environment for active managers figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-7.svg)
Sources: Bloomberg, Macrobond, Morningstar, Macquarie. Data from January 1991 to April 2024.
Global equities
Looking at equity markets outside the US, relative earnings momentum has seen a more significant improvement
in Europe and Asia recently. However, this positive development has not been mirrored in the relative equity
market performance between the regions, potentially setting the stage for a near-term catalyst that could drive
outperformance of European markets compared with their US counterparts. From a valuation perspective, we believe
Europe continues to present a compelling case for investors across a variety of metrics, such as Price-to-Earnings
ratios.
This combination of underappreciated earnings momentum and attractive valuations could position Europe favourably
relative to the US in the months ahead.
Figure 8: The improving outlook for Europe has not been reflected in relative
equity market returns
![The improving outlook for Europe has not been reflected in relative equity market return figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-8.svg)
Sources: Bloomberg, LSEG Datastream, Macquarie. Data from 31 December 2009 to 18 July 2024.
Europe, Australasia, Far East (EAFE) are the most developed geographical areas of the
world outside the US and Canada. These regions are commonly referred to by the acronym EAFE, and many different
exchange-traded funds (ETFs) and mutual funds focus their efforts
on investing in companies in these regions.
Similar observations can be made about emerging markets and China. Despite the potential parallels, China remains
an unloved equity market for reasons detailed in the macroeconomic section, potentially making it an interesting
investment opportunity from a contrarian standpoint. However, this interest hinges on the presence of a near-term
catalyst that could shift market sentiment and dynamics, potentially unlocking value for investors willing to go
against
the prevailing market trends.
Equities vs. fixed income
Overall, there is a cautiously optimistic view that global equity markets could continue to perform well as we
navigate
a comparably solid economic backdrop, which could support earnings growth. However, it’s important for investors to
approach the markets with a degree of caution, as seen by the equity risk premium and yields in comparison to fixed
income. For example, the dividend and buyback yield of the S&P 500 Index is only 3.5%, compared with the 10-year US
Treasury yield of 4.2% (source: Bloomberg).
Admittedly, valuation metrics in equity markets might be somewhat skewed, particularly due to the outsized influence
of the mega-cap technology names in the US. However, signals such as fear and greed indicators and options-based
models suggest a degree of complacency among market participants, underscoring the need for vigilance. While there
are reasons to be optimistic about the potential for equity markets to continue their positive performance, it is
crucial
to proceed with caution, keeping an eye on valuation discrepancies and market sentiment indicators. This is further
evidenced by the spike in volatility in early August.
Figure 9: Fear and greed indicators and options-market based models signal
complacency
![Fear and greed indicators and options-market based models signal complacency figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-9-1.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from 31 December 2021 to
29 July 2024.
![Fear and greed indicators and options-market based models signal complacency figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-9-2.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from 2 January 2014 to 29 July 2024.
Emerging markets debt
Turning to fixed income, absolute yields continue to remain at levels that seem exciting to investors who witnessed
the
low/negative yield period before the COVID-19 pandemic, but spreads are coming under increased scrutiny. A good
example is the emerging markets (EM) hard-currency bond spread. Excluding the CCC-and-below rated segment of
the market (countries like Egypt, Pakistan, Nigeria, and Ukraine), the spread sits at its lowest level since the 2008
global
financial crisis. Hence we recommend staying cautious.
Figure 10: EM hard-currency bond spreads skewed by the lowest-rated countries
![EM hard-currency bond spreads skewed by the lowest-rated countries figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-10-1.svg)
Sources: Bloomberg, Macrobond, Macquarie. Data from 3 January 2011 to 29 July 2024.
![EM hard-currency bond spreads skewed by the lowest-rated countries figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-10-2.svg)
Sources: Bloomberg, Macquarie. Data from 31 December 2019 to 29 July 2024.
Corporate credit
It is a similar story for high yield credit. Spreads are near their historic lows, providing little compensation for
the
additional risk. Traditionally viewed as a harbinger of recession, the yield curve inversion has now persisted for
more
than 500 days, marking its longest duration on record. While this extended inversion seems to be less predictive in
the
current economic cycle, it is adding to the challenges faced by policymakers and investors in interpreting the
signals
from financial markets, and hence justifies a cautious approach towards credit markets, in our view.
Figure 11: High yield spreads are near their lows as the cycle is prolonged
![High yield spreads are near their lows as the cycle is prolonged figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-11.svg)
Sources: Bloomberg, Macquarie. Data from 30 December 1988 to 23 July 2024.
One of the few areas that we don’t find overly expensive within fixed income is investment grade corporate bonds.
Currently, spreads are slightly below long-term median levels, meaning they are neither excessively rich nor cheap.
Moreover, the absolute yields on offer are compelling, presenting an attractive proposition for income-seeking
investors,
in our view. Importantly, the carry these bonds provide acts as a safety net, offering some cushion against a
potential
further rise in yields should inflation remain elevated. We believe this combination of factors makes investment
grade
corporate bonds a noteworthy segment within the fixed income universe, especially for those looking to navigate the
current economic landscape with a measure of prudence.
Figure 12: Duration-adjusted risk premium of investment grade credit seems fairly
priced
![Duration-adjusted risk premium of investment grade credit seems fairly priced figure](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/figure-12.svg)
Sources: Bloomberg, Macquarie. Data from 4 January 2010 to 24 July 2024.
Real assets
Lastly, our outlook for real assets remains largely unchanged. We continue to view the asset class as a potentially
meaningful value-add to investors’ portfolios, particularly against the prevailing inflation backdrop. Within real
estate and
also infrastructure, companies have taken steps to reduce their sensitivity to interest rate fluctuations, shifting
the focus
towards profitability as the critical factor for future success. Meanwhile, in the energy sector, refiners face the
prospect
of declining profitability due to narrower crack spreads; however, the overarching driver of global oil demand – and
consequently, price – will hinge on overall economic growth. And while the price of gold appears elevated relative to
fair
value models, gold retains its allure as a potential hedge against geopolitical uncertainties, underscoring its
relevance in a
well-rounded investment strategy. Consequently, we think that real assets as a heterogeneous asset class not only
offer
diversification within themselves but may also provide a crucial layer of inflation protection for traditional
portfolios that
may lack this feature.
Conclusion: Views at a glance
The investment environment is poised to remain challenging in the foreseeable future, marked by elevated geopolitical
risks. Amid higher dispersion across and within sectors, there emerges a broader opportunity for exploiting relative
value
opportunities, accessible through both top-down assessments and bottom-up stock picking. This scenario underscores
the importance of risk-based portfolio construction as an approach to navigate the uncertain environment,
prioritising
probabilistic outcomes and enhancing the potential for resilience and growth in this cycle.
![Views at a glance graphic](-/media/assets/img/us/articles/content/manic-markets-monetary-magic/views-at-a-glance.svg)
[3699196]
1
https://www.fhfa.gov/news/news-release/fhfa-announces-conditional-approval-of-freddie-mac-pilot-to-purchase-second-mortgages
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problem-solving tasks.
The Beveridge curve is a central concept in the
macroeconomics of labor markets. It captures an inverse
relationship between unemployment and vacancies.
Duration is a measurement of a bond’s interest rate risk
that considers a bond’s maturity, yield, coupon and call
features. These many factors are calculated into one
number that measures how sensitive a bond’s value may
be to interest rate changes.
Europe, Australasia, and the Far East are the most
developed geographical areas of the world outside the
United States and Canada. These regions are commonly
referred to by the acronym EAFE, and many different
exchange-traded funds (ETFs) and mutual funds focus
their efforts on investing in companies in these regions.
Factor return is the return attributable to a particular
common factor. We decompose asset returns into
common factor components, based on the asset’s
exposures to common factors times the factor returns,
and a specific return.
The global financial crisis (GFC) refers to the period of
extreme stress in global financial markets and banking
systems between mid-2007 and early 2009.
Gross domestic product (GDP) is a measure of all goods
and services produced by a nation in a year. It is a
measure of economic activity.
Inflation is the rate at which the general level of prices
for goods and services is rising, and, subsequently,
purchasing power is falling. Central banks attempt to
stop severe inflation, along with severe deflation, in an
attempt to keep the excessive growth of prices to a
minimum.
Monetary policy is a set of actions available to a nation’s
central bank to achieve sustainable economic growth by
adjusting the money supply.
North America is a continent containing the United
States, Canada, Greenland, Mexico, and Central America.
A junk bond is debt that has been given a low credit
rating by a ratings agency, below investment grade.
Credit rating agencies assign letter grades for their view
of the issue. For example, Standard & Poor’s has a credit
rating scale ranging from AAA—excellent—to lower
ratings of C and D. Any bond that carries a rating lower
than BB is said to be of speculative-grade or a junk bond.
The momentum factor refers to the tendency of winning
stocks to continue performing well in the near term.
Momentum is categorized as a “persistence” factor i.e., it
tends to benefit from continued trends in markets.
Quantitative easing (QE) is a government monetary
policy used to increase the money supply by buying
government securities or other securities from the
market. Quantitative easing increased the money supply
by flooding financial institutions with capital in an effort
to promote increased lending and liquidity.
Recession is a period of temporary economic decline
during which trade and industrial activity are reduced,
generally identified by a fall in gross domestic product
(GDP) in two successive quarters.
Safe Haven Demand shows the difference between
Treasury bond and stock returns over the past 20 trading
days.
A Treasury yield refers to the effective yearly interest
rate the US government pays on money it borrows to
raise capital through selling Treasury bonds, also referred
to as Treasury notes or Treasury bills depending on
maturity length.
The yield curve is a line that plots the interest rates, at
a set point in time, of bonds having equal credit quality,
but differing maturity dates. The most frequently
reported yield curve compares the 3-month, 2-year,
5-year, and 30-year US Treasury debt. This yield curve is
used as a benchmark for other debt in the market, such
as mortgage rates or bank lending rates. It is also used to
predict changes in economic output and growth.
The shape of the yield curve is closely scrutinized
because it helps to give an idea of future interest rate
change and economic activity. There are three main
types of yield curve shapes: normal, inverted and flat
(or humped). A normal yield curve is one in which longer
maturity bonds have a higher yield compared to shorterterm
bonds due to the risks associated with time. An
inverted yield curve is one in which the shorter-term
yields are higher than the longer-term yields, which can
be a sign of upcoming recession. A flat (or humped) yield
curve is one in which the shorter- and longer-term yields
are very close to each other, which is also a predictor of
an economic transition. The slope of the yield curve is
also seen as important: the greater the slope, the greater
the gap between short- and long-term rates.
Z-score is a statistical measurement that describes a
value’s relationship to the mean of a group of values.
Z-score is measured in terms of standard deviations
from the mean. In investing and trading, Z-scores are
measures of an instrument’s variability and can be used
by traders to help determine volatility.
The Category Development Index (CDI) measures the
sales performance of a product category in comparison
with the average performance among all consumers.
The Citi U.S. Earnings Revisions Index is calculated
as the ratio of analysts’ earnings per share revisions
to listed companies tracking equity analyst revisions
upgrades (positive) vs. downgrades (negative).
The J.P. Morgan Emerging Markets Bond Index
(EMBI) Global Diversified tracks total returns for
US dollar-denominated debt instruments issued by
emerging market sovereign and quasi-sovereign entities,
including Brady bonds, loans, and Eurobonds, and limits
the weights of the index countries by only including a
specified portion of those countries’ eligible current face
amounts of debt outstanding.
The Purchasing Managers' Index (PMI) is an indicator
of the prevailing direction of economic trends in the
manufacturing and service sectors. The indicator
is compiled and released monthly by the Institute
for Supply Management (ISM), a nonprofit supply
management organization.
The Russell 1000 Index measures the performance of
the large-cap segment of the US equity universe.
The Russell 1000 Growth Index measures the
performance of the large-cap growth segment of the US
equity universe. It includes those Russell 1000 companies
with higher price-to-book ratios and higher forecasted
growth values.
The Russell 1000 Value Index measures the performance
of the large-cap value segment of the US equity universe.
It includes those Russell 1000 companies with lower
price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index measures the performance of
the small-cap segment of the US equity universe.
The S&P 500 Index measures the performance of 500
mostly large-cap stocks weighted by market value and
is often used to represent performance of the US stock
market.
The S&P 500 Equal Weight Index (EWI) is the equalweight
version of the widely used S&P 500 Index. It
includes the same constitutes as the capitalisationweighted
S&P 500 Index, but each company in the S&P
500 EWI is allocated the same weight at each quarterly
rebalance.
The US Core Personal Consumption Expenditures Price
Index (Core PCE) measures the prices paid by consumers
for goods and services excluding food and energy prices,
because of the volatility caused by movements in food
and energy prices, to reveal underlying inflation trends.
Index performance returns do not reflect any
management fees, transaction costs or expenses. Indices
are unmanaged and one cannot invest directly in an
index.
Frank Russell Company is the source and owner of the
trademarks, service marks and copyrights related to the
Russell Indexes. Russell® is a trademark of Frank Russell
Company.
Macquarie Group, its employees and officers may act
in different, potentially conflicting, roles in providing
the financial services referred to in this document. The
Macquarie Group entities may from time to time act as
trustee, administrator, registrar, custodian, investment
manager or investment advisor, representative or
otherwise for a product or may be otherwise involved
in or with, other products and clients which have similar
investment objectives to those of the products described
herein. Due to the conflicting nature of these roles, the
interests of Macquarie Group may from time to time be
inconsistent with the Interests of investors. Macquarie
Group entities may receive remuneration as a result
of acting in these roles. Macquarie Group has conflict
of interest policies which aim to manage conflicts of
interest.
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