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E.g., 28-03-2017
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    Gavekal Research

    On Borrowed Time In Hong Kong

    Last month, home prices in Hong Kong’s secondary market climbed to a record high, up more than 150% from the depths of the financial crisis. At the same time, Hong Kong’s stock market has been among the world’s strongest major markets so far this year, comfortably outperforming the S&P 500. The buoyancy of Hong Kong assets owes more than a little to investor enthusiasm for the global reflation trade, and to inflows of Chinese money. But more...

    2
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    Gavekal Research

    The Big US Dollar Risk

    The US dollar enters 2017 up by 25% against a broad basket of currencies over the last two-and-half years. The single biggest question for investors in the new year must be whether the dollar continues its bull run.

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    Gavekal Research

    The Dollar Surge Continues, For Now

    Louis likes to say that the foreign exchange market is a serial monogamist. At any one time, the market is faithful to a single idea. The trouble is that at any moment it is liable to switch the object of its affections. Right now the foreign exchange market is clearly still smitten by the Trumpflation trade. Following the US Federal Reserve’s decision earlier this week to raise interest rates, yesterday the US currency’s DXY index climbed to...

    2
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    Gavekal Research

    The Unsustainable Oil Price Spike

    It took a while, but the spike in the oil price expected at the end of November finally occurred this morning in Asia, when front-month Brent crude futures briefly hit US$57.89/bbl, up from US$54.33/bbl on Friday. The jump higher was triggered by news over the weekend that a handful of major non-Opec producers led by Russia have agreed to cut their output by 558,000 barrels per day on top of the 1.2mn b/d reduction announced by Opec at the end...

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    Gavekal Research

    The Cost Of Italy’s “No” Vote

    Europe lurched another step towards the eventual break-up of the eurozone yesterday, when the Italian electorate rejected constitutional reforms that would have broken the country’s legislative logjam, allowing much-needed economic restructuring. For European policymakers, the simultaneous rejection across the Alps of far-right candidate Norbert Hofer in Austria’s presidential election was small consolation. Hofer’s defeat shows that the...

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    Gavekal Research

    Why Oil Production Cuts Won’t Work

    In January 1991, in a last-ditch effort to avoid all-out war, United Nations secretary general Javier Perez de Cuellar flew to Baghdad in an attempt to persuade Saddam Hussein to withdraw his forces from Kuwait. On his return to Paris, the secretary general spoke to the press in an address that was carried live on television. Nowhere was the broadcast watched more keenly than on the floor of the International Petroleum Exchange in London....

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    Gavekal Research

    That Sinking Feeling

    You almost have to feel sorry for poor Haruhiko Kuroda. Just over a week after the Bank of Japan governor announced his intention to overshoot the central bank’s 2% inflation target, it is painfully obvious that investors believe he will fall short. That much is clear from the Japanese government bond market. At last week’s meeting the BoJ announced that from now on it will tailor its JGB purchases to target a 10-year yield of zero. In the days...

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    Gavekal Research

    When Cartels Become Impotent

    Opec has become impotent. Despite the 6% overnight rally in oil triggered by news that the exporters’ cartel has struck an agreement in principle to make modest production cuts, the group’s members no longer have the ability, or even the desire, to maintain crude prices substantially above present levels. As a result, even if the proposed production cuts are confirmed, yesterday’s deal will be no game-changer for the international oil market.

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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.

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    Gavekal Research

    Don’t Misread The BoJ’s Signals

    The monetary policy committees of both the Federal Reserve and the Bank of Japan meet tomorrow. But whereas the Fed faces a simple binary call—either raise rates or don’t—the decision confronting the Bank of Japan is more complex.

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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...

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    Gavekal Research

    Real Yields Still Favor A Strong Yen

    Haruhiko Kuroda didn’t quite say he will do “whatever it takes” to push up inflation expectations, but he did the next best thing. Speaking at Jackson Hole on Saturday, the Bank of Japan governor promised “to take additional easing measures without hesitation”. Declaring there is “ample space” to expand the size and the scope of the BoJ’s asset purchases, as well as to push short term interest rates further into negative territory, Kuroda...

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    Gavekal Research

    It Still Pays To Pump

    The dog days of August have proved anything but dull for the oil market. As chatter began to circulate about a production freeze next month, funds rushed to cover their shorts and put on new longs in the futures market. In response the benchmark Brent crude price rebounded some 17% in the first two weeks of the month to within a whisker of US$50/bbl, reversing much of its -21% correction since early June. It feels very much as if we have seen...

    0
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    Gavekal Research

    The Death Throes Of The JGB Market

    While the Japanese government was rolling out its latest stimulus package yesterday—with a headline value of ¥28trn, but only ¥4.6trn of additional fiscal spending this year—investor attention was fixated on the spasms in the JGB market. Having touched a record low of -0.3% last Wednesday, the yield on 10-year JGBs leapt 28bp in just five trading days to hit a four and a half month high of -0.02% yesterday morning. On one level the spike in...

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    Gavekal Research

    The Options For Italy

    In the wake of the Brexit vote, investors fearful of contagion have woken to the slow-burn banking crisis in Italy. It should have been news to no one that Italy’s banks are sitting on non-performing loans. Yet with the sector index down -30%, banks are suddenly front and center in investors’ minds as the next source of European uncertainty.

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    Gavekal Research

    Positioning For Uncertain Times

    Regular readers will know that Gavekal is a broad church. And while the church choir only occasionally sings in perfect unison, the different singers can often hit harmonies that are all the more powerful for being unexpected. This may be one of those occasions. Yesterday, Anatole, Charles and Louis took part in a conference call in which they laid out their different views of Brexit and what it will mean for the economy and markets of the UK,...

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    Gavekal Research

    Towards A Fiscal Union By Stealth

    Unlike most fish, sharks possess no swim bladder, which means they rely on dynamic lift to maintain their buoyancy. If they stop moving forwards, they sink. In that much, at least, Europe resembles a shark. Following the UK’s Brexit vote, if the EU does not press forward with closer union, it risks sinking under the weight of the forces dragging it into the abyss.

    2
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    Gavekal Research

    Oil’s Busted Flush

    Buoyant expectations that the world’s major oil producers could agree a production freeze when they meet in Doha on Sunday have helped push the price of crude to a four-month high this week. The international Brent blend benchmark reached just shy of US$45/bbl, up 66% from its late January low of US$27, with at least some brokerage houses predicting the price could breach US$50 in the event of a deal. Maybe—but forecasts that the crude price...

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    Gavekal Research

    No Need To Fear For The HK Dollar

    In times as volatile as these, a currency move of 0.8% in a week hardly sounds remarkable. But when the currency is the Hong Kong dollar, people sit up and pay attention. As sentiment towards China’s renminbi has turned deeply bearish over the last few weeks, the Hong Kong dollar has moved away from the strong side of its HKD7.75-7.85 convertibility band against the US currency. In early trading on Wednesday, the Hong Kong dollar reached HKD7....

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    Gavekal Research

    Hong Kong Finally Rolls Over

    One of the world’s great bull markets may finally be rolling over. In the 12 years to August 2015, Hong Kong’s residential property prices climbed 557%, with most of the increase occurring since the 2008 financial crisis as prices surged on the back of plentiful liquidity and ultra-low mortgage rates. Now evidence is mounting that the market has peaked. Over the last three months, secondary market prices have slipped by -5%. With the US Federal...

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