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E.g., 20-09-2017
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    Gavekal Research

    The British Pound: A Two Year View

    The British pound has been on a roller coaster ride to the point that on a purchasing power parity basis it is undervalued by about 10% against the euro and 17.5% versus the US dollar. As a result, sterling has been left 2% below its lower bound against the euro (in average standard deviation terms) and 9% versus the dollar on the same measure. Put another way, the pound is undervalued by more than one standard deviation against the euro and by...

    10
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    Gavekal Research

    As Goes The Pound, So Go Eurozone Exports

    In European capitals this week schadenfreude will no doubt have been expressed at the diminished status of the UK economy and its currency. This morning’s “flash crash” in the pound most likely had technical causes, but the fact the exchange rate could fall so hard without generating automatic buying responses says much about confidence in the unit. Sterling has been under pressure since Prime Minister Theresa May earlier this week said she will...

    3
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    Pierre Gave: Can Sweden Escape The Negative Rate Trap?

    On the surface, Sweden’s two-year experiment with zero, and then negative, interest rates appears to have worked well. Growth is strong by developed world standards, and the economy has escaped deflation. But this success has come at the price of an asset price bubble that looks increasingly dangerous. Pierre Gave assesses the risk, and examines possible exit routes for the Riksbank.

    0
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    Gavekal Research

    Angela Merkel’s Catch 22

    Back in April, we pondered whether, with their negative interest rate policies, central bankers were showing themselves to be particularly incompetent by condemning commercial banks to years of unprofitability, or whether their greater design was to drive weaker banks to the wall to advance a consolidation of banking industries around the world under the umbrella of nationalization (see NIRP: Machiavellian Design Or Policy Mistake?). In other...

    5
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    Gavekal Research

    The Pain Behind The Agony

    The agony at Deutsche Bank is overshadowing the pain elsewhere in the European banking system—but pain there is. Last week Commerzbank, Germany’s second largest bank and biggest Mittelstand lender, announced 9,600 job cuts and sold its Frankfurt headquarters to Samsung of Korea. Yesterday ING said it would lay off some 20% of its Dutch and Belgian headcount and trim its branch network, while in recent days banks elsewhere in the eurozone have...

    0
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    Gavekal Research

    A Hardening Brexit And Softening Sterling

    The second phase of the post-Brexit sterling devaluation probably started this weekend. Theressca May's announcement of March as the deadline for Britain to launch the “Article 50 process” of formally withdrawing from European Union achieved its immediate objective of averting a battle between the Hard Brexit and Soft Brexit factions at this week’s Conservative Party Conference. Unfortunately, May’s party management success is likely to...

    3
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    Gavekal Research

    The Gavekal Monthly: What Price On A Trump Victory?

    Markets seem sanguine about the prospect of a Donald Trump victory in next month's US presidential election—too sanguine. Expert opinion gives Hillary Clinton a 75% chance of winning. But remember that four months ago in the UK, expert opinion discounted polls showing a strong chance of Brexit, and the experts were proved wrong. And the consequences of a Trump win are so huge and potentially destabilizing that even a 25% chance means...

    0
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    Gavekal Research

    The Eurozone Construction Revival

    The eurozone’s construction sector is on the turn as super low interest rates feed through to improved housing demand and as infrastructure building starts to pick-up. The implication is that a reliable new driver of growth should help sustain a moderate eurozone recovery. Investors are advised to take note as the sector has a decently investable universe, which is generating not too shabby earnings growth.

    0
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    Gavekal Research

    The German Banking Problem

    These are not happy times for Europe’s commercial bankers. The adoption of negative interest rates may have averted the slide into a deflationary abyss, but the policy has hit lending margins, and with them profits. Exhibit A is Deutsche Bank, the dominant financial institution in Europe’s largest and most dynamic economy. Deutsche, whose market value has shrunk to just US$14bn, has problems of its own making in the US, yet its plight has been...

    1
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    Gavekal Research

    Why The ECB Will Not Turn Japanese

    European bank stocks have enjoyed a near 5% bounce in the last two trading sessions on hopes that the European Central Bank will follow its Japanese counterpart by explicitly adopting policies that help steepen the yield curve and so lessen the squeeze on bank lending margins. There are reasons to be more cheery about the outlook for European financials, but a Japanese-style rescue mission may not be one of them.

    0
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    Gavekal Research

    Neil Newman: BoJ Policy Meeting In A Nutshell

    After the Bank of Japan’s announcement earlier today of quantitative easing “with yield curve control”, Neil delivers a quick-fire video assessment of the new policy slant, and what it will mean for markets and the broader Japanese economy.

    0
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    Gavekal Research

    The EU’s Post-Brexit Paralysis

    It was billed as a show of post-Brexit unity of purpose. Without the fractious Brits to obstruct progress, leaders of the remaining 27 members of the European Union would come together to affirm their unshaken commitment to the goal of “ever-closer union”. Unsurprisingly, the reality of the weekend’s Bratislava gathering failed to live up to its billing. Without the presence of the habitually adversarial British to unite them in antagonism, the...

    0
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    Gavekal Research

    Will & KX: Soft Growth And Volatile Markets

    Will and KX present the quick view on the US economy and financial markets

    0
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    Gavekal Research

    The End Of A Bubble?

    Ask three economists for the definition of a financial bubble, and you will be lucky to get fewer than four different answers. Even in our little shop, we like to make distinctions between bubbles in productive assets (US railroads, the internet, fiber optic cables, shale gas wells...) and bubbles in unproductive assets (gold, tulips, Japanese land, Florida condos…). We also like to make distinctions on how bubbles are financed: equity (good) or...

    2
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    Gavekal Research

    Real Yields In The Driving Seat

    Notwithstanding yesterday’s bounce, the stock market is a nervous place just now. After riding a post-Brexit rebound that saw both the S&P 500 and the Nasdaq Composite scale record highs on minimal volatility, investors are increasingly wondering about the extent of the potential near term downside, not just in the US but around the world

    2
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    Gavekal Research

    Prepare For Hurricanes

    After months of contented lethargy, Friday’s big sell-off seemed to confirm the main points that Louis and I made in our conference call two days earlier. Firstly, the faith in “lower forever” bond yields is not a reason for reassurance, but a cause for concern. Secondly, political risks have not been eliminated by the summer’s market rally, merely ignored. Thirdly, what I call the “financial hurricane season” usually starts in early autumn—and...

    8
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    Gavekal Research

    The ECB And BoJ: Brothers Disarmed

    The combination of negative interest rates and quantitative easing is not working as central banks had hoped. Yesterday European Central Bank president Mario Draghi conceded that more than two years after introducing negative rates and 18 months after commencing asset purchases, the ECB is no closer to hitting its 2% inflation target than when it first adopted its unconventional policies. Although headline inflation is set to tick up over the...

    0
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    Gavekal Research

    The New Ineptocracy

    In times past, capitalist systems were organized on a simple premise. At the centre sat “money” as the medium to express all values. The primary operating dynamic of this system was that surplus money (savings) got channelled into economic activity, with a secondary effect that “unused”, or “left over”, money ended up in financial assets, usually equities, such that at times of great optimism a bull market resulted. After running for a year or...

    7
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    Gavekal Research

    Gavekal Research Monthly Conference Call — September 2016

    In the inaugural Gavekal Research monthly conference call, Louis, Anatole and Arthur addressed the global growth environment and offered asset allocation suggestions.

    0
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    Gavekal Research

    How Deep Is That Rabbit Hole?

    It is only three months since the European Central Bank crossed its latest “unconventional” threshold with corporate bond purchases, yet when policymakers meet tomorrow, more monetary expansion is in the cards. Eurozone economic growth is not collapsing, but it remains weak as shown by the latest flash PMI reading which slumped to a 19-month low, and consumer inflation running at just 0.2%. With the ECB’s quantitative easing program set to...

    0
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