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E.g., 23-09-2017
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    Gavekal Research

    A Somewhat Changed Germany

    After recent high-drama elections in the US, France and Britain, Germany’s national democratic exercise has been a relative snooze-fest. On Sunday, Angela Merkel’s Christian Democratic Union grouping should comfortably win the biggest slice of the vote and the coalition building will start. There are, however, reasons to think that Merkel could attempt to strike out on her own.

    6
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    Gavekal Research

    A Very British Zombie Apocalypse

    After the Bank of England signaled its intent to raise interest rates yesterday, sterling jumped more than 1% against the US dollar and the international FTSE 100 index fell similarly. With the UK’s latest inflation reading rising to 2.9% and unemployment hitting a post-1975 low of 4.3%, it is increasingly hard to justify leaving the policy lending rate at 0.25%. One argument for deferring hikes is the UK’s lack of wage growth, but such thinking...

    4
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    Gavekal Research

    2002 All Over Again For Europe?

    The eurozone’s recovery is speeding up despite the unresolved “original sin” of lumping a single currency on to a heterogeneous economy. Yesterday Charles argued that this conceit meant the next big move for Europe would be back toward crisis, and among other things investors should avoid eurozone banks. I would not dispute this basic analysis, but take a different view on timing.

    0
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    Gavekal Research

    Don’t Sweat The Euro

    In response to a stronger euro, the European Central Bank yesterday cut its inflation forecasts. Since the ECB’s monetary policy mandate is entirely focused on consumer prices, the disinflationary impact of a stronger currency leaves policymakers with a conundrum: do they go ahead and taper asset purchases as expected, or instead hold back, figuring that the currency markets are doing the “tightening” job for them?

    0
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    Gavekal Research

    Despite Draghi, Flows Favor The Euro

    All eyes will be on Mario Draghi this week. Last Thursday’s release of minutes from July’s European Central Bank monetary policy meeting highlighted policymakers’ unease at the strength of the euro. The suspicion now is that the ECB president may attempt to talk down the euro when he stands up to make his lunchtime speech this Friday at Jackson Hole. Yet even if Draghi does play down the prospect of an early or rapid ECB exit from either...

    0
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    Gavekal Research

    In Work But Out Of Pocket

    Data released yesterday showed that the UK’s unemployment rate fell to 4.4% in the second quarter, its lowest since the second quarter of 1975 (when Britons voted by a 34pp margin in favor of membership of the precursor to the European Union). Yet despite the lowest unemployment in generations, wage growth in the UK remains for the most part missing in action. Workers’ total earnings rose by a muted 2.1% in 2Q. With CPI inflation running at a...

    0
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    Gavekal Research

    Testing Europe’s Escape Velocity

    The eurozone has exited the emergency room and is looking to sustain a recovery that takes it back to rude health. T Last year’s Chinese stimulus helped spur the latest eurozone pickup and the worry is that recent weakness in both Chinese and German trade data points to an external weakening. So could a stronger euro and slowing China spark another setback?

    0
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    Gavekal Research

    Get Selective Over Eurozone Stocks

    Emmanuel Macron’s political honeymoon proved short-lived, but the new French president’s honeymoon with eurozone equity investors was over before it began. In a classic case of buy the rumor sell the fact, the euro Stoxx index peaked on May 5, the last trading day before the second round of the French presidential election. That run-up had been driven by receding fears of deflation, as investors embraced the idea of eurozone reflation, coupled...

    0
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    Gavekal Research

    Making Sense Of Mario Draghi

    Mario Draghi got people scratching their heads last month. “As the economy continues to recover, a constant policy stance will become more accommodative,” declared the European Central Bank president. “The central bank can accompany the recovery by adjusting the parameters of its policy instruments—not in order to tighten the policy stance, but to keep it broadly unchanged.”

    0
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    Gavekal Research

    Don’t Give Up On Eurozone Equities

    When a market fails to rally further on successive rounds of good news, investors can be forgiven for feeling a tad nervous about the outlook. It is little surprise, therefore, that many portfolio managers are expressing skepticism about the near-term sustainability of the bull market in eurozone equities. Since the election of Emmanuel Macron as French president two months ago, the macro headlines from the single currency area have been...

    0
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    Gavekal Research

    Video: A Cure For The Italian Malaise

    Italy’s economy is enjoying a cyclical upswing, and a long-delayed banking clean-up is finally under way. But while both these developments are welcome, they are not sufficient to change the underlying picture. Nick argues there is little chance that the general election due to be held by May 2018 will produce a government strong enough to press ahead with reform.

    0
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    Gavekal Research

    Italy: Stuck At The Back Of The Peloton

    In the Tour de France, the cyclists at the back of the peloton benefit enormously by riding in the slipstream of stronger competitors at the front of the pack. That’s fine for most of the time, but when the leaders stage a breakaway, the weaker riders can struggle to maintain the pace.

    1
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    Gavekal Research

    Common Sense Prevails In Italy

    The European Union authorities bowed to the inevitable yesterday. They agreed to let Rome spend as much as €17bn in Italian taxpayers’ cash to prevent losses among the senior bondholders and depositors in two Italian regional banks that the European Central Bank declared on Friday to be failing.

    0
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    Gavekal Research

    A Hard Road Ahead For Italy’s Banks

    The eurozone’s rising tide is floating Italy’s boat. Earlier this month, the national statistics agency revised the country’s first quarter growth up from 0.2% on the previous quarter to 0.4%, marking nine consecutive quarters of economic expansion. This equals the longest stretch of continuous growth since the mid-1990s. What’s more, with unemployment down steeply to a five-year low of 11.1% in April and the composite PMI at a buoyant 55.2, the...

    0
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    Gavekal Research

    A British Rebalancing?

    Last week the Bank of England left interest rates unchanged, but three out of eight policymakers voted for a hike. In the past any weakness in UK consumption has been met with a soothing monetary response. The fact that the consumer looks increasingly forlorn, yet the BoE is hanging tough suggests the game has changed.

    0
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    Gavekal Research

    Goldilocks Beds Down

    Headline attention today is clearly focused on the car-crash general election result for UK prime minister Theresa May. At the time of writing, it was still unclear whether May would be able to form a viable government after the vote. Unsurprisingly, the uncertainty triggered a steep 1.6% sell-off in sterling (see Trading The UK Election).

    1
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    Gavekal Research

    A Less Flexible Britain

    Yesterday saw the release of robust UK retail sales data for April that reversed a weakening trend and pointed to still strong consumers. So it was notable that on a day that confirmed British economic resilience despite attendant uncertainties, Prime Minister Theresa May effectively renounced free market policies that long have been core tenants of the Conservative Party credo.

    1
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    Gavekal Research

    What Germany Wants

    What does Germany want? That was a question we asked in January as sabre rattling by the new US president unnerved Europe’s instinctive mercantilist. Our answer was that Germany was at a cross-roads in its modern history and could either double down on a narrow pursuit of surpluses, or instead embrace its European Union members with a fresh push to federalism. Monday’s meeting between Emmanuel Macron and Angela Merkel confirmed that the latter...

    0
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    Gavekal Research

    Why A Brexit Deal May Not Be So Hard

    European Union membership entails four core freedoms—goods, services, capital and people. To keep the first three, but not the last one as the UK wants has been dubbed “having one’s cake and eating it”. The UK also wants to be exempt from the European Court of Justice’s control and to exit the EU customs union, opening the way for free trade agreements to be made elsewhere. The assumption is that these demands will ensure the UK ends up with a “...

    2
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    Gavekal Research

    Video: How Brexit May Work

    The consensus is for a tortuous few years of negotiations between the UK and the European Union over the terms of Brexit and any subsequent free trade agreement. Following up on today’s Daily, Nick argues in this video interview that a deal may be easier than most people think. Moreover, the template for an FTA may already be in place.

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