• Current Reports  

    Published on November 27th, 2014

    Yesterday’s announcement that the European Central Bank is preparing to buy government bonds from the first quarter of next year is an event of historic importance. As the logical follow-up to Mario Draghi’s commitment to expand the ECB’s balance sheet by €1trn, yesterday’s statement by ECB vice-president Vitor Constâncio confirms beyond reasonable doubt that Europe is ready, at last, to implement full-blown quantitative easing, over-riding the political and philosophical opposition from Germany. The ECB’s break-out from German influence—combined with the abandonment of fiscal consolidation in last month’s French and Italian budget deals and the €315bn infrastructure investment plan announced this week by European Commission president Jean-Claude Juncker—means that key policymakers no longer believe Europe operates by different economic principles from the rest of the world. The implication is that Europe will, for better or worse, now follow the US model of post-crisis macroeconomic management pioneered by Ben Bernanke, Larry Summers and Tim Geithner...
    Published on November 27th, 2014

    Is the latest downturn in China’s housing market just another cyclical correction, or the bursting of an unsustainable bubble? To cut through the confusion surrounding this key part of the economy, it is crucial to understand the fundamentals. In this chartbook, our annual review of the housing and construction market, Rosealea explains our outlook for the long-term prospects for housing demand in China; explores the implication of changing housing and urbanization policies; and outlines the likely cyclical trajectory. For the full report, please click here...
    Published on November 26th, 2014

    As inflation has weakened in China since 2011, the real interest rates paid by corporate borrowers have risen steadily. At the same time demand growth has slowed across the board. Heavy industrial firms in particular—and most state-owned enterprises fall into that basket—operate in sectors suffering from overcapacity with scant top line growth and particularly acute deflationary pressure. It is little wonder then that few are keen to pay higher real interest costs to install unnecessary new capacity...
    Published on November 26th, 2014

    Overview: With short term interest rates at zero and BAA bond yields at 5%, it is only natural that capital spending should collapse, argues Charles, introducing a two company economic model to demonstrate his thesis. United States: Will & KX take the opposing view, contending that the latest US numbers point to a sustainable increase in US capital spending. Europe: In Europe François believes investment is bottoming out, with Brussels’ grand investment plans likely to be the icing on the cake. China: With real borrowing costs up steeply and much of industry suffering from overcapacity, China’s capital spending will remain on a downward trajectory despite the recent interest rate cut, explains Thomas Gatley. Asia: In India the stars are aligned for a long-awaited revival in capital spending...
    Published on November 26th, 2014

    Yesterday the lower house of the Italian parliament passed Prime Minister Matteo Renzi’s Jobs Act, dismantling some of the protections and privileges that have long made Italy one of the most inflexible labor markets in Europe. Set against the magnitude of Italy’s economic problems, this may seem a small triumph. Nevertheless the bill’s passage is an important step in the right direction towards structural reform. With this ‘Thatcherite’ element of his program in place, Renzi will have a stronger base from which to lobby Brussels for more expansionary budget targets in future, so establishing the ‘Keynesian’ pillar of a pro-growth policy of ‘Thatcherite Keynesianism’ (see Italy Aligned On Thatcherite Keynesianism). Alongside the prospect of aggressive balance sheet expansion by the European Central Bank, yesterday’s news should prove positive for Italian asset prices...