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E.g., 23-01-2018
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    Gavekal Research

    The German Coalition And Europe

    Late Sunday, party delegates of Germany’s social democrat SPD voted 362 to 279 to begin formal coalition talks with chancellor Angela Merkel’s CDU/CSU conservatives. Hurdles still remain, but our base case is that the weekend’s vote paves the way for the formation of a Grand Coalition by April. After months without a stable government, any reduction in uncertainty will naturally be positive for markets. But for investors, the most significant...

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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

    Where Has Eurozone Inflation Gone?

    The eurozone’s recovery continues, but all is not proceeding quite as expected. At its meeting last week, the European Central Bank’s governing council raised its forecasts for eurozone growth over the next two years to reflect the single currency area’s strengthening cyclical upswing. But while growth is accelerating, inflation remains largely missing in action, with the ECB last week revising down its forecasts for core inflation.

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    Gavekal Research

    Turning The Page On The Eurocrisis

    You can be forgiven for having missed yesterday’s not so momentous news that Portugal’s finance minister Mario Centeno is taking over the presidency of the Eurogroup of finance ministers. Yet, look a little closer and this switch may, in fact, signify the end of the eurocrisis and a move onto the next phase of eurozone development.

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    The Pain In Spain

    To date, the situation in Catalonia reminds that a political imbroglio does not have to morph into an economic crisis. It all depends on the context. Recent data shows that Spain’s economy has broadly shrugged off the secession drama being played out in Barcelona and Madrid.

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    Gavekal Research

    Tapering Without The Tantrum

    Mario Draghi yesterday confirmed the European Central Bank’s decision to opt for a “slower for longer” approach to winding down its quantitative easing program of asset purchases. His announcement outlined a threefold approach to ECB tapering:

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    Gavekal Research

    Why A Jamaican Outcome Is Best

    Electoral math says there is little alternative in Germany to a “Jamaica coalition” and Angela Merkel has made it clear this is her plan. Investors are unimpressed and have pushed the euro lower on worries that a government comprised of Christian Democrats, Liberals and Greens augurs a more nativist Germany that will turn away from its European partners, and in particular a certain eager beaver in Paris. My initial reaction to the election...

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    Gavekal Research

    Better Than It Looks In Germany

    Headline writers seem unsure whether to laud Angela Merkel for winning a likely fourth term as German chancellor, or dub her a lame duck amid a fractured political landscape. With the Social Democratic Party (SPD) polling just 20%, it is clear that the implosion of center-left continental parties continues apace, while the stellar performance of an avowedly far-right party shows that populism remains a potent force. My bet, however, is that the...

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    Gavekal Research

    Macron Goes To Work On Reform

    The moment of truth is approaching for French president Emmanuel Macron. Four months after he pledged an early reform of France’s overly rigid labor market he is pushing ahead. On Thursday the French government unveiled proposals to the lighten the regulatory burden on employers and clear away the legal uncertainties that have long deterred businesses from hiring.

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    Gavekal Research

    Korean Rage And European Angst

    When North Korea fired off another ballistic missile yesterday morning the immediate response of investors in the most directly affected neighboring economies was to shrug. Curiously it took far-away Europe to get in a flap, with the euro soaring and equities falling. Granted, currency players were also reacting to the Texas flooding, especially as London was closed for a public holiday on Monday. Yet it was strange for the region least...

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    Gavekal Research

    Leading Europe Into Reflation

    The Czech National Bank has become the first central bank in Europe to raise interest rates in this cycle. Yesterday the CNB lifted its policy rate from 0.05% to 0.25%, its first rate hike since 2008. Where the Czechs are leading, others, including the European Central Bank, will follow—but in the case of the ECB, likely not for another two years or more.

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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...

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    Gavekal Research

    Watch US-Eurozone Rate Differentials

    Interest rate differentials between the US and eurozone are wide by historical standards. This is no surprise. The US has enjoyed uninterrupted growth (at least in year-on-year terms) since 2010, and today the Federal Reserve stands as the most hawkish big central bank in town. In contrast, the eurozone slumped back into recession in 2012, and the European Central Bank remains in full-blown easing mode. As a result, interest rate differentials...

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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

    Draghi’s Two Ps And The Euro

    When choosing three adjectives to describe the ECB’s evolving monetary policy stance, Mario Draghi this week alighted on confidence, persistence and prudence. Yet judging by the big reaction in currency and bond markets, traders ignored the two Ps and heard only about Draghi’s confidence in Europe’s strengthening recovery. Markets treated the speech as a unambiguous signal that the ECB is turning more hawkish.

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    Gavekal Research

    The French Reset

    French voters have handed President Emmanuel Macron a clear parliamentary majority after his La République en Marche party yesterday secured an estimated 360 out of 577 seats. He will also get support from many of the 170 or so Republican and Socialist party deputies who were just elected. After a record low turnout, critics may question his moral authority, but there is no doubting that Macron is now the master of French politics. Hence, he is...

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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

    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

    Takeaways From France’s First Round

    For once the opinion pollsters got things right. Although the candidates of France’s traditionally dominant left and right wing parties were both eliminated in yesterday’s first round presidential election, the political center held. Independent Europhile centrist Emmanuel Macron emerged with the largest share—23.9%—of the vote, for a second round face-off against nationalist Euroskeptic Marine Le Pen, who captured 21.4%.

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    Gavekal Research

    Final Thoughts On The French First Round

    Going into Sunday’s first round vote in France’s presidential election, it is widely assumed that yesterday’s tragic events on the Champs Élysées will boost nationalist-populist candidate Marine Le Pen. What is clear is that the race has tightened: centrist outsider Emmanuel Macron is polling at 24%, Le Pen at 22.5%, Republican François Fillon at 19% and firebrand socialist Jean-Luc Mélenchon at 18.5%. Here are some final thoughts for navigating...

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