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E.g., 21-07-2017
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    Gavekal Research

    Pierre Gave: Can Sweden Escape The Negative Rate Trap?

    On the surface, Sweden’s two-year experiment with zero, and then negative, interest rates appears to have worked well. Growth is strong by developed world standards, and the economy has escaped deflation. But this success has come at the price of an asset price bubble that looks increasingly dangerous. Pierre Gave assesses the risk, and examines possible exit routes for the Riksbank.

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    A European Sinner Repents

    When Brussels implemented new solvency rules for European insurance companies in 2014, it committed one of the five cardinal sins of government: over-regulation. Of course, stricter rules were always likely following the financial follies of the pre-crisis era, but when they drew up the new “Solvency II” regulations, the European Union’s generals were so focused on fighting the last war, they failed to realize the danger posed by their own...

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    Sweden And The NIRP Trap

    Swedish GDP growth for 4Q15 was just reported at 4.5% YoY, the fastest pace since 2011 and the tenth straight quarterly gain. This makes Sweden by far the best performing developed economy in the post-2008 period. So given that it led the way with negative interest rates, an interesting question is whether the Swedish experience represents a vindication for NIRP.

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    Gavekal Research

    A Worrying Set Of Signals

    Regular readers will know that we keep a battery of indicators to gauge, among other things, economic activity, inflationary pressure, risk appetite and asset valuations. Most of the time this dashboard offers mixed messages, which is not hugely helpful to the investment process. Yet from time to time, the data pack points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a...

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    Gavekal Research

    Tech As A Commodity

    Technology equities have been a solid performer in the post-2008 crisis era, which is perhaps not surprising as the sector tends to do best in periods of innovation-fueled “creative destruction” and strong deflationary forces. Yet with the tech sub-index having outperformed the S&P 500 by more than 15% over the last two years, there are clear indications that this phase may have played out. Not only are the cyclical drivers ebbing, but the...

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    Growth & Markets Monthly (August 2015) – by Pierre Gave

    Our latest monthly indicators look to have taken on a somewhat schizophrenic character. On the growth side, our main indicator of global economic activity is perking up, implying a stronger second half of the year. But our diffusion index of OECD leading indicators is clearly heading south, as are commodities. A similarly bifurcated story can be seen on the risk-appetite side. Our velocity indicator has registered improvement and short term...

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    Growth & Markets Monthly (July 2015)

    With the drama in Athens casting a pall over markets, what is the message from the Gavekal dashboard of economic and risk indicators? Overall, reasonably positive. Our main growth indicator suggests that the momentum of economic activity should pick up in the second half of the year. If correct, this would mark a repeat of the pattern seen in the last few years. Still, given the uncertainty associated with the Greek situation, there has been a...

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    Growth & Markets Monthly (June 2015)

    This month saw a clear deterioration of our growth indicators. The pattern of the last few years with a weaker than expected first half of the year appears to be holding up. The question is whether 2015 will see the habitual pick-up in the second half of the year? On the inflation front, things remain quiet. US breakeven inflation rates, which looked as if they may have been breaking upwards last month, are now heading south again. Given the...

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    Gavekal Research

    What Could Spur US Equities

    A common bias for investors is to assume that relationships between the market and economy in one phase must persist in the next. For example, since 2009 US firms have mostly grown profits by expanding margins—i.e. cost-cutting. Hence, the logic runs that if wages start to rise, profit margins must fall, leading to weak profit growth, and hence lower equity prices. Implicit in this logic is an assumption that margins must drive profits. There is...

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    Gavekal Research

    Growth & Markets Monthly (May 2015)

    While our growth readings ticked higher last month, the big shift came with a sharp rise in our risk appetite indicators. We also note an easing of deflationary pressure with the US breakeven inflation level registering a nine-month high. On the liquidity side, the European Central Bank has cranked up its expansionary efforts and its balance sheet is rising at 16% YoY. Taken together, these moves have benefited equity markets (notwithstanding...

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    Growth & Markets Monthly (April 2015)

    In this post-Easter edition of our Growth & Markets Monthly report, we note a continued (albeit slight) improvement in our growth indicators, which are now hovering in neutral territory. By contrast, our risk measures suggest that the appetite for risk taking is still strong. This provides a decent foundation for continued equity market gains. Growth is decent (but not so strong as to spook central banks), inflation is still missing-in-...

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    Gavekal Research

    Catching The Krona

    A few months back Sweden looked to be sliding into a crippling deflation. This fear has receded with February inflation data swinging positive for the first time in seven months, following a higher-than-expected reading in January. As a result, yields on 10-year government bonds have risen from a record low 0.48% to 0.68%. Most important for the Swedish currency, the interbank rate has swung positive even though the central bank last month...

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    Gavekal Research

    Growth & Markets Monthly (March 2015)

    Our latest monthly report shows that the modest recovery in growth indicators, which started last month, has continued. Since central banks are engaged in aggressive easing action on a number of fronts, it would be surprising if this improvement does not continue. In addition, our velocity indicator has rallied and hovers at a six month high, which mirrors the low level of the VIX index. Such readings point to a “risk-on” environment, but we...

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    Gavekal Research

    Denmark's Dilemma

    Is something rotten in the state of Denmark? Following last month’s shock de-pegging of the Swiss franc, investors have increasingly targeted the Danish krone, challenging Copenhagen’s three-decade-old fixed exchange rate policy. This has set up a battle between the market on one side and the Danish central bank on the other.

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    Growth & Markets Monthly (February 2015)

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    Growth & Markets Monthly (January 2015)

    In this year’s first Growth and Markets monthly, we observe continued deterioration of our main growth indicators. That said, part of this slowing is related to weaker commodity prices, themselves more a result of oversupply than a general lack of demand. On that note, it was interesting to see that our diffusion index of OECD leading indicators (less geared towards commodities) is climbing higher. When it comes to risk, we note that our...

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    Gavekal Research

    Our Holiday Reading List

    For the third year we are publishing a year-end books round-up. The topics covered by the 17 books in our compendium include hardy Gavekal perennials such as economics, politics and the effect of technological transformation on modern life. In addition Charles considers ancient Rome’s decline due to its apparent embrace of socialism over liberalism. Louis kicks us off with a look at the roots of our most basic human urges.

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    Gavekal Research

    Sweden Goes Italian

    Sweden, normally a model of collegiate common sense, is gripped by political chaos. The Social Democrats, once Sweden’s natural party of government, snuck back into power after a general election eight weeks ago allowed them to cobble together a coalition. The government has moved to jack up taxes and unwind the previous administration’s private school reforms and adoption of for-profit healthcare. The rival right wing alliance is grumpy, but...

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    Growth & Markets Monthly (December 2014)

    This month saw our main growth indicator drop into negative territory for the first time in more than a year. The key drags were the commodity-related components and the underperformance of growth-sensitive stock markets such as South Korea and Sweden. The chief concern for markets is whether lower oil prices and the new monetary activism of the Bank of Japan and promises of action from the European Central bank can help reignite market momentum...

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    Gavekal Research

    Growth & Markets Monthly (November 2014)

    In this edition of our monthly report we note that economic activity continues to register weaker momentum while deflationary pressures remain stubbornly present. On the primary liquidity side, the Fed has ended its quantitative easing program, while the Bank of Japan has committed to a more aggressive policy, which may yet inspire the European Central Bank into similar action. Private sector credit multiplication, or the velocity of money, has...

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