• Current Reports  

    Published on October 31st, 2014

    The strong third quarter growth in US gross domestic product announced yesterday—a 3.5% annualized rate—not only suggested that the American economy is on a sustainable upward trajectory; it also confirmed that the Federal Reserve’s decision to end quantitative easing is appropriate. Although the faster-than-expected headline growth figure was partly driven by government spending, the two key engines of the economy—business capital spending and personal consumption—both turned in a respectable performance...
    Published on October 31st, 2014

    Just two days after the US Federal Reserve ended its program of quantitative easing, and with the world still waiting to see if the European Central Bank will ever launch effective action, the Bank of Japan stepped up to the plate, stunning markets by announcing a major expansion of its own balance sheet. The acceleration of the BoJ’s “quantitative and qualitative easing” will markedly widen the divergence of monetary policy between Japan and other major economies. While the balance sheets of the Fed, the ECB, and the Bank of England have all topped out relative to gross domestic product, the Bank of Japan’s balance sheet, which is more than double the relative size of its counterparts, is not even close to reaching a ceiling...
    Published on October 31st, 2014

    We held our autumn seminar in London on October 28 with Anatole, Francois, Tom, Will and Charles offering their take on the state of the world economy and the outlook for financial markets. Anatole Kaletsky ponders whether markets are at the end of a cyclical bounce or the start of a structural break-out. For visuals, see . His presentation can be listened to here.Francois Chauchat assesses the conflicting forces at work in the battle for European reflation. For visuals, see . His presentation can be listened to here.Tom Miller considers China’s great power ambitions by looking at the growth of its informal empire across East Asia. For visuals, see . His presentation can be listened to here.Will Denyer explains why the US recovery really is the real deal. For visuals, see . His...
    Published on October 30th, 2014

    Is the latest downturn in China’s housing market just another cyclical correction, or the bursting of an unsustainable bubble? The huge range of views out there shows how difficult it is to come to grips with the messy reality of Chinese property. To cut through the confusion, we propose a simple technique: think about modern apartments as just another consumer good. In this article, we will show in detail how this intuition can be developed into a model, but the conclusion is straightforward: the housing market is not collapsing, but it is maturing and will decline. Our model shows that China’s housing demand has completed its high-growth phase, and has been hovering around its peak level since 2011. The upgrading of housing—as rising incomes lead Chinese people to demand larger accommodation—will not end, but the boost to housing from each yuan of new income will get smaller over time. Since this upgrading process drove most of the past decade’s boom, its fading means total housing demand will also decline. We project construction volume will...
    Published on October 30th, 2014

    After three rounds, six years and some US$3.7trn in asset purchases, the US Federal Reserve yesterday finally called time on its program of quantitative easing, and shifted its language on the US labor market from ultra-dovish to something slightly closer to neutral. Investors took the news in their stride, largely untroubled by the Fed’s confirmation that it is to take away what many had long regarded as an essential crutch for asset prices. Long bonds and equities did lurch briefly downward, but by the end of the day had recovered most of their losses. The only significant effect was on the US dollar, which ticked higher. Although one should never read too much into a single day’s trading, this muted reaction was reassuring. It suggests markets are trading more on economic fundamentals, and not simply relying on a ‘Yellen put’...
  • Chart of The Day