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E.g., 30-03-2017
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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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    Gavekal Research

    Playing The Eurozone Recovery

    For the first time in years you don’t have to be a swivel-eyed loon to think the eurozone has a fairly bright economic future. Growth is broadening, deepening and frankly becoming less newsworthy. The wrinkle is political tail risk, but we think this threat is containable.

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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

    Polls, Big Data And The French Primary

    It’s been said that big data is like carnal knowledge in teenage boys’ locker rooms: everyone talks about it, but noone really knows much about it. A slew of election results in the last few years supports such a viewpoint, for in an age when everything can supposedly be measured, political forecasts have been proven hugely flawed—the UK general election in 2015, the Brexit vote, the Colombian peace-process referendum, Donald Trump winning the...

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    Gavekal Research

    The Lady Is Not For Turning

    As she kicked off her general election campaign this week, Angela Merkel declared that Germany “had never had it so good”. The economy is humming so nicely that Germany’s council of economic advisors recently warned about overheating. This would seem to rule out a fiscal stimulus, which conflicts with Brussels’ policy of engineering a more expansionary fiscal environment.

    1
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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

    A Trumpian Europe?

    Donald Trump’s win in the US presidential election has emboldened populist movements in continental Europe and raised the specter of a similar anti-establishment electoral wave taking hold. The next 10 months will see national votes that could reshape Europe, with perhaps the most important happening in Italy on December 4. Myself and Nick Andrews have argued all year that the European Union is in the grip of destructive centrifugal forces due...

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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

    The Eurozone Construction Revival

    The eurozone’s construction sector is on the turn as super low interest rates feed through to improved housing demand and as infrastructure building starts to pick-up. The implication is that a reliable new driver of growth should help sustain a moderate eurozone recovery. Investors are advised to take note as the sector has a decently investable universe, which is generating not too shabby earnings growth.

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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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