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E.g., 25-04-2017
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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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    Gavekal Research

    Beyond The Election Risk: Upturn Still Favors Eurozone Stocks

    For the next three weeks at least, the upcoming two-round French presidential election will continue to dictate short term sentiment among investors in the eurozone. Following a late surge in the opinion polls from far left candidate Jean-Luc Mélenchon, two of the four leading contenders are now professed Euroskeptics. That knowledge has colored investor attitudes, keeping the spreads between French and German sovereigns elevated—the 10-year...

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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

    Video: The Self-Sustaining Eurozone Recovery

    A broadening and deepening of the eurozone’s economic recovery suggests that the expansion has finally become self-sustaining. The worry is that a political shock from upcoming national elections tips the single currency area back into crisis. Nick Andrews does not think such a bearish outcome is likely, and in this video explains his preferred investment strategy.

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    Gavekal Research

    The Eurozone’s Ongoing Rebalancing

    Yesterday the European Commission criticized Germany for its “persistently high current account surplus”. Berlin should take more steps to boost domestic demand in Germany, Brussels suggested, in order to trim its external surplus and to help the rest of the euro-area rebalance. It is hardly new advice, but the EC does not seem optimistic it will be heeded anytime soon. In the same release, it forecast that Germany’s current account surplus will...

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    Gavekal Research

    The Eurozone’s Silver Lining

    Just as it has been hard to work up much excitement over the last couple of years about the eurozone’s grinding emergence from economic despond, so investors should not be too downhearted at the latest lackluster growth data. Yesterday Eurostat revised down its flash estimate for 4Q2016 eurozone GDP growth to 0.4% QoQ, compared with its advance estimate of 0.5% released two weeks ago. The downward revision was due mainly to weaker than expected...

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    Gavekal Research

    The Eurozone Upturn Continues

    The data flow out of the eurozone—both forward and backward-looking—continues to paint a picture of accelerating activity, subdued core inflation, ongoing monetary accommodation, and—most notably for investors—improving corporate earnings.

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    Gavekal Research

    Germany’s Date With Destiny

    Germany, more than any other European economy, has relied on the US-dictated, rules-based international system to define its post-World War II identity. Germany’s highly specialized export-orientated economy has thrived within the World Trade Organization and its security has been ensured by the American nuclear umbrella. It is not clear whether Donald Trump’s recent broadside against Berlin reflects a permanent rupture in that order, but...

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    Gavekal Research

    Firing On Three Cylinders

    The upturn in the eurozone continues to gain momentum. The recovery in France which long has been among the European economy's laggards, coupled with brisk activity in Germany and Spain, suggests that the eurozone is now firing on three of its four main cylinders in a cyclical upswing that promises to become self-sustaining.

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    Gavekal Research

    A Higher Headline CPI Does Not Spell ECB Tapering

    According to the financial media, eurozone inflation is “soaring”. The initial estimate released yesterday showed that consumer price index inflation picked up to 1.1% year-on-year in December, from 0.6% the previous month. That is the fastest rate since 2013. What’s more the rise occurred against a background of generally accelerating economic activity. In December, the eurozone composite PMI ticked up to 54.4, its highest reading since May...

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    Gavekal Research

    For The ECB, Less Really Is More

    Mario Draghi and his colleagues in the European Central Bank had a difficult line to tread yesterday. On one hand the ECB president faced pressure to wind down his program of quantitative easing. On the other, lingering risks in Europe’s periphery argued for a continuation of ECB asset purchases in order to avoid rocking the financial boat heading into next year’s packed political calendar.

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    Gavekal Research

    Better Late Than Never

    When Brussels officials admitted in May that there was scope to loosen Europe’s fiscal straitjacket, this seemed like an expedient measure so that counties could breach their deficit limits without being penalized (see Fiscal Rules Are There To Be Broken). It is now clear that this shift was more than a one-off accommodation and the policymaking ground has moved. Yesterday the European Commission updated its view on state spending with a...

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    Gavekal Research

    Europe’s Breakout Problem

    The eurozone’s cyclical recovery remains less than stellar, yet at least it lives. The single currency area’s composite flash PMI for October recorded its strongest reading since January 2015, rising to 53.7 against an expected 52.8.The reading was flattered by weakness in the last two months, but confirms that Europe has, for now at least, weathered the Brexit vote shock. What is especially encouraging is the breadth of the improvement, which...

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    Gavekal Research

    No Change In Frankfurt

    Despite multiple European Central Bank officials protesting a steady-as-she-goes approach to monetary policy, the recent rise in eurozone bond yields reflects market concern about a potential tapering of its bond buying. After all, inflation has ticked higher, European banks continue to grumble about a profit-sapping yield curve and the ECB’s dealing desk in Frankfurt will soon run out of eligible bunds to buy. Despite all that, tomorrow will...

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    Gavekal Research

    Why The ECB Will Not Turn Japanese

    European bank stocks have enjoyed a near 5% bounce in the last two trading sessions on hopes that the European Central Bank will follow its Japanese counterpart by explicitly adopting policies that help steepen the yield curve and so lessen the squeeze on bank lending margins. There are reasons to be more cheery about the outlook for European financials, but a Japanese-style rescue mission may not be one of them.

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    Gavekal Research

    The EU’s Post-Brexit Paralysis

    It was billed as a show of post-Brexit unity of purpose. Without the fractious Brits to obstruct progress, leaders of the remaining 27 members of the European Union would come together to affirm their unshaken commitment to the goal of “ever-closer union”. Unsurprisingly, the reality of the weekend’s Bratislava gathering failed to live up to its billing. Without the presence of the habitually adversarial British to unite them in antagonism, the...

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    Gavekal Research

    Battered But Still Standing

    Battered by terrorist attacks and crippling strikes, France has hardly been having a good time of it. These problems were amply reflected in second quarter growth data which stalled after a mildly encouraging 0.7% QoQ rise in the first quarter. Yet a decent flash PMI for August—which rose to a 10-month high of 51.6—suggests an underlying resilience, which may render the 2Q16 soft patch a blip on a modest, but concerted, economic upturn of the...

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    Gavekal Research

    One Certainty In An Uncertain World

    In an uncertain world, in which Brexit, the US presidential elections, the future of the eurozone, are all strewn with wild cards whose potential impact is impossible to quantify, investors are left grasping for certainties. One is that whatever happens in the near term, the European Central Bank will continue to buy financial assets, including corporate debt.

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    The ECB Embraces Total QE

    The European Central Bank pushed further into uncharted territory this week, when it made its first foray into the corporate bond market. Three months after announcing its new initiative, the ECB added the Corporate Sector Purchase Program, or CSPP, to its alphabet soup of monetary operations. Under the CSPP, the central bank will make purchases of investment grade non-bank corporate debt, to go with the sovereign debt, covered bonds and asset-...

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