• Current Reports  

    Published on July 31st, 2015

    When the stimulative effects of the weak euro and the fall in oil prices fade from the picture, what will sustain Europe’s growth? At first glance it is unlikely to be investment. Structural reforms were meant to cut the costs of doing business, increasing returns on capital and so providing firms with both the confidence and the resources to expand production. Yet a glance at the headline numbers suggests things haven’t worked out that way. In the first quarter of 2015, eurozone gross fixed capital formation was still 14% below its pre-crisis peak in 2008...
    Published on July 30th, 2015

    Four and a half years ago, in February 2011, I published one of my first pieces of Wicksellian research, entitled The High Cost Of Free Money. In it I wrote that negative real interest rates were going to cause a sustained decline in the productivity growth of US labor, which in turn would lead to a deterioration in the structural growth rate of the economy. In making these observations, I was merely following the logic of 19th century Swedish economist Knut Wicksell to its unassailable conclusion. Put simply, one of Wicksell’s central ideas is that if interest rates are too low (or indeed too high), then economic growth craters...
    Published on July 30th, 2015

    Since last summer China’s housing policy has switched from suppressing to supporting demand. In recent months the authorities have both eased restrictions on multiple purchases and cut interest rates. The latest data releases suggest the shift is working. Sales have bounced back, and figures released this month showed that prices rose month-on-month in June, the second monthly gain following a year of declines. But how long the rebound can last is questionable. After two rounds of regulatory relaxation, the authorities have almost run out ammunition within the existing policy framework. As a result, the authorities are eyeing new tools to support demand: a greatly expanded market in mortgage-backed securities and a housing policy bank to help finance home purchases...
    Published on July 30th, 2015

    Exactly six months ago, we declared we were Turning Cautious On US Equities. At the time we noted that while US domestic demand was healthy, US stocks no longer looked cheap, the US dollar was no longer competitively valued, and the Federal Reserve was moving unambiguously towards tightening monetary policy. Half a year later, the S&P 500 has risen 4.3% and the Nasdaq Composite 9.2%. On the face of it those look like respectable returns; not quite up there with Japan’s Topix, which is up 10.5% in US dollar terms, but ahead of the Euro Stoxx 50, which has delivered a modest 3.5%. Yet just over half way through the second quarter earnings season, we see only strengthening reasons why investors should scale back their exposure to US equities...
    Published on July 29th, 2015

    Overview: After years in which the world’s major governments have been busy manipulating prices, Charles Gave finds it astonishing that anyone should be surprised by the current slowdown in global trade. United States: Trade balances are zero sum game. So, with the US trade deficit widening once again, Tan Kai Xian asks who stands to gain the most. Europe: The recovery of European economies has marked a major turnaround in the region’s trade, notes François-Xavier Chauchat, with intra-EU export growth overtaking export growth to the rest of the world for the first time in years. China: The double digit decline in China’s imports over the last year, while the economy has continued to grow at a 7% clip, has prompted accusations that China’s GDP figures are wildly inaccurate. But...
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