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E.g., 25-04-2018
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    Gavekal Research

    The New Source Of Market Risk

    Believe it or not, there was good news, as well as bad, from the US markets last Friday. The bad news was obviously Donald Trump’s threat to escalate the trade war with China and the equally aggressive response from Beijing. The good news was the fall in March’s US payrolls growth to just 103,000 from February’s upwardly-revised 326,000. This slowdown has eliminated, at least until after the summer, the risk of an unexpected Federal Reserve...

    0
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    Gavekal Research

    Reasons To Buy The Dip

    After spending many years as Gavekal’s equity permabull, I joined Charles and Louis last December in warning of the risks to what was then a roaring, and accelerating, bull market. But my way of thinking about these risks was rooted in a different analytical framework, and so I have come to a different conclusion about how investors should respond to this latest sell-off (for Louis’ take, see Following Yesterday’s Pullback). With the lows of mid...

    0
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    Gavekal Research

    Why Aren’t Bond Investors Panicking?

    Once again, the volatility that rocked global financial markets in recent days was at least as interesting for what it didn’t tell us as what it did. Amid growing protectionism, rising rates and fiscal irresponsibility in the US government, the biggest and most important financial market of all—the US treasury market—isn’t bothered.

    7
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    Gavekal Research

    Time To Stop Worrying About EU Political Risk

    Is it time for investors to finally forget about “political risk” in the eurozone? Judging by the weekend’s events in Germany and Italy the answer is an emphatic “Yes”. The big event was the overwhelming vote by Germany’s Social Democratic Party to participate in a “grand coalition” with the center-right. This means that Angela Merkel will be reappointed for a fourth term as chancellor. Thus Germany will have a stable government with no serious...

    6
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    Gavekal Research

    After The Yellen And Bernanke Puts, The Pavlov Put

    Last Monday, I pointed to three reasons why the recent turmoil in global equities would probably prove nothing worse than a counter-trend “buy on dips” correction, rather than the start of a serious bear market. That's not to say that worries about inflation and overheating are unfounded. But investors are still quite relaxed about both growth and inflation, as evidenced by historically modest bond yields.

    3
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    Gavekal Research

    CSI Wall Street

    Bear market massacre or harmless buy-the-dip correction? Financial investigators have spent the weekend sifting through, dismantling and reassembling dozens of clues to determine the true nature of the shocking crime committed on Wall Street last week, as stock prices suddenly went down instead of up. But amid the righteous indignation inspired by this offence against morality and natural law, possibly the most important forensic evidence has...

    5
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    Gavekal Research

    The Five Big Bond Market Questions

    With 10-year US treasury yields near the point of breaking out above their 2017 high of 2.6%, financial commentators around the world have suddenly become obsessed with a single question: Have bonds finally entered a bear market, after the multi-decade bull trend that started back in October 1981, when the 10-year yield peaked at 15.8%?

    0
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    Gavekal Research

    The Big Questions For 2018

    Many of the important questions confronting investors at the beginning of 2018 are the same as they were 12 months ago. And in most cases I would suggest the same answers. This may seem boring or stubborn, but it is quite reasonable in the middle of a long term economic expansion and structural bull market.

    1
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    Gavekal Research

    No Full English Brexit In The EU’s Roach Motel

    Full English Brexit is off the menu. When Theresa May rushed into the Café Berlaymont at 6:00am last Friday, all that was left on the menu was an over-priced double espresso with a side of Irish bacon. When she returned to Brussels yesterday, after losing a crucial parliamentary vote on her Brexit policy, the only new item on the menu was a large slice of humble pie.

    2
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    Gavekal Research

    A Regime Change For Oil?

    Every US or global recession in the past 50 years has been preceded by a doubling or more of oil prices, but not every doubling of oil prices has been followed by recession. While even US$70/bbl probably does not pose a serious risk to the world economy, any rise above US$70 could spark a combination of inflationary pressure and reduced demand that proves lethal to global financial conditions and growth.

    0
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    Gavekal Research

    Fake Brexit? Or No Brexit?

    The British economy since the Brexit referendum is often likened to the suicide jumper who leaps off a 20-storey building, shouting “so far, so good” as he falls past the 10th floor. This comparison is unfair to suicides. The real message about economic performance from the government’s annual budget statement yesterday was “so far, so bad”. While a minority of economists and investors—plus a large majority of Conservative politicians—share...

    10
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    Gavekal Research

    False Dawn For The Dollar — And Oil

    Last week the US dollar broke out of its summer trading range and hit its strongest level against the euro and the yen since July. The Brent oil price broke through US$60/bbl to a two-year high. And even sterling seemed to be on the verge of strengthening beyond its post-French election trading range against the euro. How should investors respond to all these breakouts?

    1
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    Gavekal Research

    Sterling And The Brexit Soup

    Anyone who doubts that interest rate expectations are the main driving force of currency movements, got a wake-up call last week, when sterling surged from US$1.32 to US$1.36 in response to the Bank of England’s bluntly hawkish statement that “there may need to be some [upward] adjustment of interest rates in the coming months”. Nevertheless, I remain a denier.

    0
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    Gavekal Research

    Why Lower Forever Is Good News For Investors In Big Oil

    Suppose you are convinced, as I am, that oil prices will fall to near-zero by the middle of this century, for the reasons I outlined last week. If so, then among the best investments of the coming decades will be the equity of giant international oil companies such as BP, Shell, Exxon, Chevron, ENI and Total.

    7
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    Gavekal Research

    Oily Slope Of Hope

    As Louis often points out, a highly-touted stock that fails to rise on good news is often riding for a fall. The best example of such a “tired bull” at present is not the much-despised US equity market, which has continued making higher highs and higher lows since February 2016, despite a pretty terrible news flow. It is crude oil.

    0
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    Gavekal Research

    Draghi Can’t Lean Against The Euro’s Rise

    After the euro broke out of its three-year trading range last week, it is reasonable to assume that the European Central Bank would much rather see a big correction than a further move to the upside. But central bankers can’t always get what they want—and their powers to control the currency markets are much more limited than generally assumed by day traders and media headline writers.

    1
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    Gavekal Research

    Who’s Afraid Of The ECB?

    Mario Draghi’s hint last month that the European Central Bank’s bond buying may not continue forever unleashed a storm of panic among the perma-bears who still dominate the media and market commentariat. But its actual effect on markets themselves has so far been close to minimal. So should investors worry—or relax—about a repeat of the “taper tantrum” in May 2013, when Ben Bernanke first hinted that the Federal Reserve would eventually start to...

    0
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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.

    2
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    Gavekal Research

    Trading The British Election

    Anyone who claims to be confident about the outcome of tomorrow’s UK election is really just guessing, which is why we have advised against taking big positions in sterling assets—either long or short—before the exit polls are released. But from 10.01pm onwards, the currency markets could start to see major moves that are very tradeable in one direction or another. So for clients who got hooked on overnight currency trading after profitable (or...

    3
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    Gavekal Research

    What Trump Will And Won’t Do

    After President Trump’s shock firing of his top law enforcement official, this week has seen the White House scramble to keep some semblance of control over the news agenda. This means that an administration that was already dialing back the radical parts of its reform agenda will have even less room to drive change.

    1
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