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E.g., 22-01-2018
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    Gavekal Dragonomics

    Reviewing The Risks For 2018

    After a solid performance in 2017, worries about China have broadly receded, and our view is that 2018 should see continuity in economic policy and only a moderate slowdown in growth. In this piece, Andrew assesses the state of four major risks to this sanguine outlook, based on the latest economic data and a flurry of recent policy statements.

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    Gavekal Research

    Taxes And Yields

    US equity markets have started 2018 committed to the idea that Goldilocks is alive and well. Although no clear picture has emerged of its impact, the passage of the most significant tax reform since the 1980s has had S&P 500 firms opining publicly that they hope to invest more and treat staff better. The corollary is that this cycle might be getting a second wind. The fear is inflation, as shown by yesterday’s move in treasury yields to...

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    Gavekal Research

    Securing The Indo-Pacific

    Forty years after the Southeast Asia Treaty Organization was dissolved, Tom argues that an expanded version of that “Asian NATO” concept may be developing, but this time the potential theater of operations stretches across the Indo-Pacific and includes the full panoply of great powers. What has not changed is that China remains the protagonists’ key bogeyman.

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    Gavekal Research

    From Recovery To Expansion

    Perception is a funny thing. Yesterday President Emmanuel Macron pitched up in London and wowed the British by loaning them a 70 meter piece of embroidered propaganda that celebrates their conquest 950 years ago. By contrast, the last French president to visit Britain had a pint of warm beer with David Cameron in a pub and no one noticed. A similarly discombobulated dynamic can be seen in European equity markets, where years of pessimism have...

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    Gavekal Research

    Video: The Next Phase Of Europe's Recovery

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    Gavekal Research

    Audio & Transcript — Gavekal Research Call January 2018

    In Gavekal’s monthly research call yesterday, Louis Gave reviewed evidence that the investment environment is experiencing a once-in-a-generation shift from a deflationary environment to one that is broadly inflationary. Anatole Kaletsky argued that this metamorphosis will likely be an orderly affair. Arthur Kroeber updated his view on China’s likely impact on global commodity markets.

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    Gavekal Research

    Stick With Dollar Depreciation Plays

    The last year has seen a rare outbreak of consensus at Gavekal. Since last January partners and analysts have been almost universally bearish on the US dollar. In that time, the DXY dollar index has slumped some -12% from its heavily overvalued level at the beginning of 2017. Now the first 12 trading days of 2018 have seen the DXY slide -1.9%, breaching September’s support level to sink to its lowest since the end of 2014. This latest...

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    Gavekal Dragonomics

    The Regulatory Storm Continues

    China’s financial-regulatory storm is far from over: in recent weeks, the banking regulator has issued a half-dozen new or proposed rules, and launched another campaign to uncover financial malpractice. While this means credit growth will slow further, Chen Long argues regulators can still avoid shocks to the economy and market sentiment.

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    Gavekal Research

    The Yield Curve As A Duration Guide

    With US stock markets scaling new heights, there are multiple reasons why nervous equity investors might want to reduce portfolio risk. The usual way to do this would be by increasing allocations to long-duration treasury debt. But with long-dated yields now rising, what duration of treasuries should investors hold? And when and how should they adjust duration?

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    Gavekal Research

    The Five Big Bond Market Questions

    With 10-year US treasury yields near the point of breaking out above their 2017 high of 2.6%, financial commentators around the world have suddenly become obsessed with a single question: Have bonds finally entered a bear market, after the multi-decade bull trend that started back in October 1981, when the 10-year yield peaked at 15.8%?

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    Gavekal Research

    Sunshine (For China) In Korea

    Sunshine has dispelled the clouds of war on the Korean Peninsula, at least for now. News headlines are cautiously celebrating the de-escalation of tensions leading up to the South Korean Winter Olympics. Behind the scenes, it appears that China's freeze-for-freeze diplomacy which was outwardly rejected by both Pyongyang and Washington, is in fact taking shape.

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    Gavekal Research

    Don’t Fear The End Of The Bond Bull Market

    Bond bears have been given succor in the opening days of 2018. First the Bank of Japan trimmed buying of long-dated Japanese government bonds, indirectly causing 10-year treasury yields to surge to 2.6%. Then European Central Bank policymakers were yesterday shown to be bulled up on the state of the eurozone recovery. On the face of it, central banks seem to be whistling a very different tune. In fact, it is investors who have caught up with...

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    Gavekal Research

    Spending Again In Germany

    Picture the typical German consumer. The image that comes to mind is almost certainly of a deeply conservative individual: cautious, thrifty in his or her spending habits, and with a deep-seated aversion to maxing out the credit card. As with most stereotypes, this one has some foundation in experience. But like many, it also looks increasingly out of date. While Germany’s booming export sector has got most of the attention recently, it is...

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    Gavekal Dragonomics

    After The Bounce In Coal Demand

    After three straight years of decline, China’s consumption of coal rose 1% in 2017, and prices are rallying. But in this piece, Rosealea argues that this bounce in demand is unlikely to persist. With the property market cooling and official efforts to switch away from coal continuing, coal use should resume its decline in 2018.

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    Gavekal Research

    US Inflation Expectations: Further To Run To Catch-Up

    Over the last six weeks, market inflation expectations have undergone a signal shift to the upside. The US five-year break-even inflation rate has climbed from below 1.7% in early December to 1.95% this week. In other words, market expectations for US inflation, which had long remained markedly subdued, have now played catch-up with the Federal Reserve’s own projections, which see core PCE inflation rising to 1.9% this year and 2% in 2019....

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    Gavekal Research

    Worry Not About Asian Currencies

    Asian central banks have in recent weeks taken actions or sent signals that seemingly aim to weaken their currencies. The worry is that a source of return which contributed to last year's outperformance has been lost and exchange rate declines may presage an inflationary breakout. Such a tightening scenario may materialize down the road, but it is far from being a concern.

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    Gavekal Research

    Strategy Monthly: Everything Looks Fine, But…

    The year has opened with growth expectations and risk appetites at their highest levels in years. The consensus is probably right that it will be a good year for economies and stock markets. The main thing to watch out for is a faster-than-expected withdrawal of QE and low-interest rate policies by the ECB and the BOJ, which could send US bond yields sharply higher.

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    Gavekal Research

    Indian Politics And The Cycle

    Despite its soaring equity markets, India had a sticky year in 2017. Quarterly GDP growth dipped below 6% in the summer, laid low by disruptive reforms, bad debt, anemic credit and weak private investment (see India’s Economic Funk). The outlook for 2018 is healthier: the twin shocks from demonetization and the introduction of a goods and sales tax have largely dissipated, consumption has rebounded, and manufacturing is accelerating. Feeble...

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    Gavekal Dragonomics

    The Working-Capital Heist

    Amid the ups and downs of China's recent investment cycles, one trend has stayed constant: the slowdown in private-sector investment. In this piece, Thomas shows that a key problem is state firms routinely delaying payments to their private suppliers, forcing them to hold huge reserves of working capital that can’t be productively invested.

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    Gavekal Research

    Dare To Dabble In US High Yield

    Last week US high yield spreads narrowed to within a whisker of their cycle low, bringing them within striking distance of their 2007 low. When things cannot get much better, they seldom do. However, this may be one of those rare historical occasions when things do indeed go from good to even better. The US tax changes that went into effect last week have the potential to drive credit spreads to record depths.

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