This blog covers the general topic of financial markets.

CPI, Rates and Currency for US, EU, JP, CN: Fed Data

first posted: 2023-11-30 09:34:29.073201

GDP and CPI Data

Nominal GDP (in USD) and CPI on Fred, the St Louis Fed data service look as follow:

As of Dec 2023, note the last update in Jan 2022, more than 23 month ago.

US Rates Data

We show short term and long term rates, as well as mortgages in the US:


Rates and Inflation Data

Money market real returns (inflation adjusted) in each currency:


This shows that Chinese investors and Japanese investors were not too penalised by inflation, whereas US and EU money market investors lost to inflation.

We now show inflation rates and money market returns, providing another visualisation of why US and EU real returns are so dismal: the money market rate is below recent inflation:

The secret of higher real returns for CNY and JPY is subdued inflation.

Rates and FX

Short rate differential enable carry strategy. These may entail exposure to foreign currency exchange rates:

We see that earlier that money market returns are stable in an investor's reference currency, they are positive in nominal terms and can be negative if inflation rate is higher than interest rates.

We now look at the effect of switching to a different currency for an investor whose reference is in any of the G4 currency. This increases returns volatility by the FX volatility and opens further possibility of nominal loss.

The best absolute return was CNY whereas EUR investors lost most compared to converting to another currency.

Note that JP inflation is low despite the JPY not appreciating, which is a conundrum. Either the JPY will appreciate or JP inflation would need to increase.