Gavekal Research

Most Recent

Policy Support Falls Short

Gavekal Dragonomics

Lock

Policy Support Falls Short

Wei He, Dragonomics Team
18 Mar 2024
China's economic data for January and February were mixed, but overall the economic growth momentum decelerated slightly. Wei and the Dragonomics team argue that recent policy measures have shown no sign of gaining traction in the data, and increase the uncertainty around coming policy support.
What The Fed Did Next

Gavekal Research

Lock

What The Fed Did Next

Louis-Vincent Gave
18 Mar 2024
Over the past two months the case for Federal Reserve rate cuts has taken on some serious water. This leaves investors with an important question. What will the Fed do next? Will it try to get ahead of the curve and beat back the expectations of imminent rate cuts that it raised in December? Or will the Fed deliver on the promise of rate cuts, even though the macro backdrop is no longer so supportive of easier policy?

Gavekal Research

Lock

How And When To Hedge

Charles Gave
15 Mar 2024
“May you live in interesting times,” is reputably an ancient Chinese curse. We have been living in interesting times for quite a while now, but they may be about to become even more interesting. If so, investors should pay close attention to how and when to hedge their equity exposure.

Gavekal Dragonomics

Lock

A Tale Of Two Housing Markets

Rosealea Yao
15 Mar 2024
China’s property market may be in crisis, but there is one segment where growth is still strong: sales of existing housing on the secondary market. Rosealea argues that strength in this market shows that Chinese households have not lost interest in real estate, and if developer finances stabilize, demand in the primary market should come back.

Gavekal Dragonomics

The Supply-Side Structural Problem
Lock
Andrew Batson
Decelerating Auto Demand
Lock
Ernan Cui
Decoding The New Productive Forces
Lock
Tilly Zhang
Introducing Fiscal Forward Guidance
Lock
Wei He
Remembrance Of Crises Past
Lock
Andrew Batson
How To Fight The Demographic Drag
Lock
Arthur Kroeber, Ernan Cui
The Solar Surge
Lock
Rosealea Yao
Eager Travelers, Cautious Spenders
Lock
Ernan Cui
Overdelivering A Rate Cut
Lock
Wei He
Support For Stocks Arrives
Lock
Thomas Gatley

More Research

Meshing All The Moving Parts
Lock
Louis-Vincent Gave
Video: The Importance Of TikTok
Louis-Vincent Gave
Where Is All The Money Coming From?
Lock
Louis-Vincent Gave
Why Did US Equities Rally On An Upside Inflation Surprise?
Lock
Will Denyer
China’s Tools Of Economic Coercion
Lock
Yanmei Xie
The BoJ And Japan’s Equity Bull Run
Lock
Tom Holland
How Bad Is Germany?
Lock
Cedric Gemehl
Steaming Into The Ides Of March
Lock
Louis-Vincent Gave
Video: Peering Through The China Policy Opacity
Lock
Christopher Beddor
Trump 2
Lock
Will Denyer, Tan Kai Xian, Tom Holland

Gavekal Dragonomics

Lock

A Breather, Until November, In Cold War 2.0

Arthur Kroeber
16 Feb 2024
Among the geopolitical risks for 2024, the US-China cold war ranks low. Both sides, distracted by other worries, have strong reasons for keeping the relationship calm this year. But that relative calm will only last until the US elections on November 5. After that, under most electoral scenarios, there will be intense pressure in the US to get tougher on China. In this piece, Arthur lays out the possibilities under either Biden or Trump’s second term.

The global view

Meshing All The Moving Parts
There is a lot to take on board in the news right now, with crypto prices soaring, the Mag 7 stalling, the US dollar weakening, US inflation reaccelerating, the Bank of Japan looking to shift policy, gold in a renewed bull market...and fitting it all into one handy narrative is a tall ask. Louis attempts to tie it all together.
Lock
Where Is All The Money Coming From?
It’s the big conundrum of the day: despite the Federal Reserve’s tightening, and the US Treasury’s ever-expanding debt issuance, risk assets—tech stocks, crypto, gold—are behaving as if the liquidity spigot will never run dry. Louis examines the sources of the liquidity propelling today’s bull markets, and concludes that the flow might dwindle in the coming months, leading to higher risk-asset volatility.
Lock
Webinar: Asset Allocation For The Ages
In recent years, Charles Gave and Didier Darcet have headed an initiative in Paris to develop a more perfect form of asset allocation. In this webinar, they review how their asset allocation strategy works during phase changes in the economic environment, as now seems to be the case.
Lock
The Gold Breakout
The first week of March has seen gold follow the Nasdaq, bitcoin and other cryptos, and—with much less fanfare and media attention—break out to new all-time highs. The quiet nature of the gold breakout may illustrate a long-held Gavekal belief that the price of gold is no longer set in London or New York as much as it is in Mumbai or Shanghai.
Lock
Test Your Knowledge
Japanese unions secured record wage gains not seen since the 1990s during this year’s shunto annual wage negotiations. What share of Japan’s workforce is unionized?
Post Your Answer

Chart of the Week

Week 11, 2024
US households’ net worth is rebounding as asset prices—especially equities—push higher. Household wealth now amounts to about 8.3 years' worth of nominal consumption flows, significantly above the long-term trend. If asset prices continue to rise and the positive wealth effect increases, it could put upward pressure on nominal consumption and inflation. This may spell trouble for recent disinflationary trends and expectations of interest rate cuts from the Federal Reserve.
Open Chart

Gavekal Research

Essential Reading: A Book For Every Week Of The Year

Gavekal is often asked for a recommended reading list. So, here it is: a book a week that everyone interested in the world of macro investing—whether hoary veteran or eager apprentice—can benefit from reading.

US economy & markets

Why Did US Equities Rally On An Upside Inflation Surprise?
These days, you would expect investors to be hypersensitive to inflation data. Interest rates are elevated, equity valuations are stretched, and the Federal Reserve is saying it will cut rates only if the inflation data support cuts. Yet February’s CPI release surprised to the upside on Tuesday, and the S&P 500 rallied 1.1% to a new all-time high, led by tech stocks. Why did the market brush off this “bad” CPI print? Will reviews the possibilities.
Lock
Trump 2
It always looked by far the most likely outcome. Now it is confirmed. Donald Trump will be the Republican Party’s candidate in November’s US presidential election. If a week is a long time in politics, eight months feels like an eternity. Nevertheless, it is now necessary to consider what a new Trump term might mean for US government policy and financial markets.
Lock
Back To Just-In-Time
As the global supply chain disruptions of the Covid years have abated, and after US businesses have rebuilt inventories from the abnormally low levels of 2021, US companies are beginning to shift away from their recent just-in-case mode of inventory management back towards more of a just-in-time approach.
Lock
Rocket From The Crypt
Cryptos have risen from their crypt. On Wednesday, bitcoin touched an intraday high of US$63,698. That puts the dominant cryptocurrency just -10% below its all-time high reached in November 2021. And it’s not just bitcoin. The number two crypto, ether, is up 46.8% since the beginning of February, although it remains -29% below its November 2021 record. So what is driving this remarkable resurrection, and is it sustainable?
Lock

Gavekal Research

Lock

Webinar: Asset Allocation For The Ages

Didier Darcet, Charles Gave
8 Mar 2024
In recent years, Charles Gave and Didier Darcet have headed an initiative in Paris to develop a more perfect form of asset allocation. In this webinar, they review how their asset allocation strategy works during phase changes in the economic environment, as now seems to be the case.

Emerging markets

EM Debt Market Issuance Cranks Up
Heightened US bond market volatility has often coincided with emerging-market assets incurring higher risk premiums. That was then. This cycle has differed since emerging markets have survived the most aggressive Fed tightening cycle in a generation with minimal fuss. So what accounts for EMs’ apparent new-found resilience?
Lock
The China-EM Equity Decoupling
Global investors have long treated Chinese and other emerging-market equities as a single asset class. Those days may now be over. Thomas and Udith examine why declining US treasury yields and a weakening dollar have spurred capital flows into emerging markets, but foreign investors continue to pull money out of Chinese equity markets.
Lock
The Near Term Challenge For EMs
Emerging markets have generally avoided the economic volatility that comes with a Federal Reserve tightening cycle. Having stuck to orthodox fiscal and monetary policies, such economies have improved macro prospects and can potentially benefit from an asset price rerating. In the medium term, this outcome is likely but in the near term EMs may not offer a safe harbor in a potentially brewing global storm.
Lock
The Trials Ahead For India’s Finances
From June 2024, Indian government bonds will be included in J.P. Morgan’s flagship emerging markets local currency bond index. Inclusion may also pave the way for further internationalization of the rupee, but will also cast a spotlight on India’s relatively weak public finances, while making its economy more vulnerable to external shocks. On balance, Udith argues that India has a lot more to gain than lose from bond index inclusion.
Lock

Latest video

Gavekal Research

Video: The Importance Of TikTok

Louis-Vincent Gave
14 Mar 2024
The US House of Representatives’ approval of a bill aimed at forcing China’s Bytedance to divest TikTok has implications in areas far beyond the future of the wildly popular video-sharing platform. In this short video interview, Louis Gave examines the potential consequences for media freedom, for US-owned big-tech platforms, and for foreign investment in the United States.

Middle East

India Flexes Its Muscles In The Middle East
Lock
Video: Gulf States In Transition
Lock
China Misses A Trick In The Middle East
Lock
The Long And Short Of Energy Risk
Lock
China’s Red Sea Calculus
Lock
The Middle Eastern Kink In Global Supply Chains
Lock

India chartbook

Gavekal Research

Lock

India Macro Update: Limited Upside Ahead

Udith Sikand, Tom Miller
26 Sep 2023
India’s economic growth drivers are broadening amid a pick-up in domestic demand. But with limited scope for policy support and mounting external headwinds, the balance of risks is tilted to the downside, at least in the near term.

China chartbook

Gavekal Dragonomics

Lock

Macro Update: Another Supply-Side Stimulus

Andrew Batson, Dragonomics Team
26 Jan 2024
China managed to avoid entering a full-on deflationary spiral in 2023, but prices are still falling, growth is fragile and confidence is poor. Hopes for 2024 are pinned mostly on the government’s promises of more supply-side stimulus, yet this strategy poses its own challenges. In our latest quarterly chartbook, the Dragonomics team diagnoses the current economic difficulties and analyzes the implications of the response.

Europe's economy

Sabotaging Your Successor, Tory-Style
By scrapping tax privileges for “non-dom” wealthy foreign residents and cutting payroll taxes, the UK’s Conservative government has sought to paralyze its probable Labour successor’s fiscal policy by stealing its main revenue-raising measure and devoting the funds to tax cuts rather than spending increases, argues Anatole. A Labour government could evade this fiscal straitjacket, but may lack the good sense to make the necessary reforms.
Lock
Introducing The S Club 7
Nothing better captures the market’s imagination or more neatly encapsulates a current investment theme than a nifty nickname or acronym. Just consider the focus on the “Magnificent 7,” as a useful shorthand for the concentration of US equity market performance among a handful of megacap stocks seen as leaders of the artificial intelligence boom. Not to be outdone in this department, Cedric introduces the “S Club 7.”
Lock
Could The ECB Cut Before The Fed?
With the US economy growing strongly and inflation still running fairly hot, investors are reassessing their view of when the Federal Reserve will start to cut interest rates. In Europe, by contrast, growth and inflation data point to economic stagnation and disinflation. This situation raises the prospect of the European Central Bank starting to cut interest rates before the Fed.
Lock
Spare A Thought For German Demographers
The economic news in Germany goes from bad to worse as structural and cyclical challenges emasculate Europe’s former powerhouse. Yet amid the gloom consuming investors about Germany’s economic prospects in the next decade, it is worth highlighting a perhaps unexpected bright spot.
Lock

Oil & commodities

Trump 2
Lock
The Long And Short Of Energy Risk
Lock
China’s Red Sea Calculus
Lock
Video: The Middle Eastern Conflict Metastasizes
Lock
When Yields And Energy Prices Rise At The Same Time
Lock
The Bear Markets Of 2023: The Last Shall Be The First?
Lock

China tech

Video: The Importance Of TikTok
The Coming Price War In Chips
Lock
Geopolitical Uncertainty And Record Valuations On Semi Stocks
Lock
An Unusual Friday
Lock
Secret Success In Supercomputers
Lock
Balancing Act On Growth
Lock

The Inflation Question

Why Did US Equities Rally On An Upside Inflation Surprise?
These days, you would expect investors to be hypersensitive to inflation data. Interest rates are elevated, equity valuations are stretched, and the Federal Reserve is saying it will cut rates only if the inflation data support cuts. Yet February’s CPI release surprised to the upside on Tuesday, and the S&P 500 rallied 1.1% to a new all-time high, led by tech stocks. Why did the market brush off this “bad” CPI print? Will reviews the possibilities.
Lock
What Happened To My “Inflation Shock”?
Last Wednesday Anatole wrote that “investors should prepare for a shock” when the US PCE inflation data for January was published the following day. He was right about inflation, but very wrong about the shock. He then suggests six broad explanations for the market’s indifference to this adverse inflation data, each implying a different investment conclusion.
Lock
Housing And Another US Inflation Shock
Investors should prepare for a shock on Thursday when the US BEA publishes its monthly PCE index, the gauge used by the Federal Reserve for its 2% “price stability” target. If the consensus turns out to be right, as Anatole believes it will—because much of the PCE information was already released in the CPI and PPI figures two weeks ago—bonds all over the world will probably suffer a big selloff.
Lock
Webinar: Reading The Market’s Conflicting Signals
So far in 2024, yields have rebounded on stronger-than-expected growth and inflation, along with heavy issuance by the US Treasury. Yet the rally in equities has continued undismayed, with especially strong gains in big US growth stocks. With the bond market and equity market sending conflicting signals, Anatole and Louis examined the macro and market scenarios for the rest of the year and drew conclusions for asset allocation.
Lock

From the archives: oldies but goodies

Deficit Deniers Of The World Unite
Gavekal Research
Lock

Deficit Deniers Of The World Unite

Anatole Kaletsky
In our politically correct age the pressure to bow down before certain popularly accepted and apparently proven “truths” can be overwhelming. In the aftermath of the US elections, two such nostrums are unnecessarily vexing investors—the urgency of deficit reduction and fear of higher taxes. I believe that both of these obsessions will soon be forgotten.
More
Are We Entering into Revolutionary Times?
Gavekal Research
Lock

Are We Entering into Revolutionary Times?

Louis-Vincent Gave
The role of a society’s elite is to rise to the challenges of the times, and find solutions fitting to those times, even if this involves a radical break with the past. But the modus operandi for most leaders is to try and maintain the status quo. But if the problems are large enough, this does not work, and the same challenges reappear until either a solution is found, the elite is replaced by a new elite, or the country, system or civilization disappears.
More
The High Cost Of Free Money
Gavekal Research
Lock

The High Cost Of Free Money

Charles Gave
Perhaps the most famous economic law is the one that there is no such thing as a free lunch. By keeping US short rates at abnormally low levels beyond the financial crisis and as growth bounces back beyond the dreams of the wildest optimists, the Fed increasingly seems to be trying to ‘feed the US economy for nothing’. This is worrying, for extended periods of cheap money typically come back with a hefty price tag.
More