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E.g., 21-07-2017
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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.”

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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...

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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.

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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.

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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.

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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...

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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.

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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).

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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.

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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...

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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 “...

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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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    Gavekal Research

    A New Franco-German Axis

    For the last decade, pretty much every politician who counted in France has spoken of the European Union in scathing terms. That is likely to change on Sunday if the pro-integrationist Emmanuel Macron confirms poll forecasts and scores a resounding win in the French presidential election. His upbeat belief in federal solutions to Europe’s structural problems will not just change the discourse, but according to Nick could renew the Franco-German...

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    Gavekal Research

    A Positive Cycle For Eurozone Earnings

    For many investors, last night’s televised debate will have removed any lingering fears about French political risk, freeing them to focus on the eurozone earnings picture—which is increasingly rosy. The majority of pundits awarded the debate on points to centrist candidate Emmanuel Macron. Their verdict was that the performance of far-right Euroskeptic Marine Le Pen was insufficiently “presidential” to sway undecided voters. As a result,...

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    Gavekal Research

    Video: The French Election And Beyond

    In these video interviews Cedric looks at likely scenarios in the second round of the French presidential election, while Nick considers the potential for a renewed Franco-German axis as the driver of progress in the European Union.

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    Gavekal Research

    Europe’s Road To Reflation

    With fears of a political upset laid to rest, the European reflation trade is in full swing. The flash eurozone composite PMI hit a six-year high last week, French manufacturing confidence is at its highest since June 2011, and the European Central Bank’s bank lending survey published yesterday showed that banks are continuing to relax credit standards as demand for borrowing grows. With employment growth lifting domestic demand and external...

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    Gavekal Research

    Strategy Monthly: Europe Braces For The French Election

    The macroeconomic stars are aligning for the eurozone. The region’s cyclical recovery is extending itself across economies and sectors alike. Inflation remains modest, reducing the chances of an early monetary tightening. Eurozone equities are relatively cheap in an expensive world. And the euro is fundamentally undervalued against the US dollar. However, the big risk for investors remains the possibility that nationalist euroskeptic Marine Le...

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    Gavekal Research

    Yes To Brexit, No To Rate Hikes

    Tomorrow should see the UK initiate its departure from the European Union by triggering Article 50 and starting the clock on a two year exit negotiation. Yet far from anxiously counting down the days, investors have spent the last week bidding sterling higher, largely on the belief that a robust UK economy may soon spur tighter monetary policy. That is probably a bullish interpretation too far, and the pound’s next significant move will probably...

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    Gavekal Research

    Europe’s Surest Bet

    As investors fret about the trajectory of US growth and the sustainability of the Trump reflation trade, Europe is getting drawn in. Sovereign yields fell pretty much across the board yesterday on worries that the eurozone’s gathering cyclical upturn could be disrupted. In this case, the thinking is that monetary stimulus by the European Central Bank gets extended. To our mind, such worries are overdone as—absent an external shock—Europe’s pick-...

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    Gavekal Research

    Audio & Transcript — Gavekal Research March Call

    Yesterday’s call had Cedric Gemehl and Anatole Kaletsky opine on political risk leading up to French and German national elections later this year. Nick Andrews argued that the eurozone recovery is becoming self-sustaining, and offered views on capturing the upside, while hedging against political risk.

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