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E.g., 19-08-2017
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    Gavekal Research

    How Bad Is The Dollar Squeeze?

    This has not been your regular dollar squeeze. Over the last month, the cost of obtaining US dollars offshore has soared to levels last seen in “crisis” periods, yet bank equities have rallied the most in six years. Rather than a new crisis unfolding, we seem to be transitioning to a macro environment where dollars are structurally scarce. This will be challenging for weak link economies, as shown yesterday by adverse market moves in Brazil and...

    2
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    Gavekal Research

    Something's Gotta Give

    Louis Gave held a conference call on December 6 where he discussed the state of global markets as the US gets ready for a Trump presidency. The fundamental challenge for investors is that while equities and the US dollar have rallied strongly and bonds have sold off in a “Trump reflation trade,” it is not clear how long that trade can withstand the reality of Trump’s economic program.

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    Gavekal Research

    The Gavekal Monthly: Preparing For The Trumped-Up Economy

    Markets have been on a startling trajectory since Donald Trump upended investors’ assumptions with his win in the US presidential election. In this issue of the Monthly two Gavekal partners ask whether the macro environment really has fundamentally shifted due to the emerging policy platform of the president-elect.

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    Gavekal Research

    Italy Down To The Wire

    In Italy “less is more” when it comes to opinion polling in the final days of an election campaign, hence the last formal snapshot of voting intentions in Sunday’s constitutional referendum was released on November 18. That poll put the “No” camp squarely ahead by 55% to 45%, which if born out would likely spark the resignation of Matteo Renzi, Italy’s pro-reform prime minister. Still, nature hates a vacuum and the ban on formal polling is...

    1
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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 Rally In European Banks

    More than four months after it bottomed out one and a half standard deviations below its 200-day moving average, the Euro STOXX banks index has rallied 34% and is once again trading at the levels it was at immediately before the summer’s steep post-Brexit losses. Yet despite the rebound the index remains down -18% year to date, and with a clutch of the factors that precipitated the initial sell-off—notably negative interest rates, shaky capital...

    0
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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

    Austerity Lingers In Britain

    Rumors of the death of fiscal austerity are greatly exaggerated, at least in Europe. That is the most important lesson for global markets from the UK Treasury’s long-awaited budgetary response to the Brexit vote. Many investors believed in the immediate aftermath of the British referendum that this shock might be the catalyst for more expansionary fiscal policies all over the world. In the past two weeks, the prospect of a Trump fiscal stimulus...

    1
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    Gavekal Research

    The Italian Domino Teeters

    My thesis has for a while been that we are living in an era characterized by the “little man” revolting against the global elite. I explained this idea in May using the perhaps apocryphal tale of a South Pacific island made up of home-loving tree dwellers and more adventurous boat travellers (see Trump And The Tree People). The point was that the normally laid back people of the trees were stirring from their torpor as shown by the Brexit vote...

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    Gavekal Research

    Video: European Political Dominos

    In the aftermath of the Brexit vote and Donald Trump’s win in the US presidential election, attention has shifted to the eurozone with the assumption that more dominos must topple under the gathering populist political wave. In this video interview Nick considers the good, the bad and the ugly of the European political scene and offers pointers for navigating these risks.

    0
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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...

    0
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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

    Audio & Transcript — Gavekal Research November Call

    Anatole Kaletsky, Arthur Kroeber and Charles Gave presented their views on what a Donald Trump presidency means. Anatole outlined both positive and negative potential outcomes. On the positive side, US growth could see a boost from expansionary fiscal policy, but isolationist trade policies could threaten US firms and equity prices. Arthur warned of the geopolitical risk of a power vacuum should the US pull back from its treaty obligations....

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    Gavekal Research

    Heaping Uncertainty On Brexit Doubt

    Markets and media were shocked by yesterday’s High Court judgement that UK prime minister Theresa May must seek parliamentary approval before pursuing her Brexit strategy. But for London’s legal community the decision was not unexpected. Many senior lawyers had predicted that the ruling would go against the government, if only because its case was so poorly presented by the Attorney General, who was forced for political reasons to concede the...

    1
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    Gavekal Research

    The New Frontier In Aerospace

    The highlight of this week’s Zhuhai airshow in Southern China was a fly-past by two of the People’s Liberation Army’s new J-20 warplanes, touted as China’s first stealth aircraft. Western military analysts reserved their judgment, pointing out they had learned nothing new about the aircraft, except that it was very noisy. Nevertheless, the broader message from Zhuhai was clear, echoing a similar message broadcast by the Japan International...

    0
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    Gavekal Research

    A European Head Fake

    Should investors be worried by a German bond market sell-off that has seen 10-year bund yields rise some 30bp over the last month? The last time European yields climbed this quickly, in early 2015, eurozone stocks swooned in the following year, with the benchmark index falling -27% peak-to-trough. Moreover, unlike the US which has seen a long expansion, it is not clear that a still weak eurozone can handle a rise in the cost of money.

    0
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    Gavekal Research

    The Gavekal Monthly: Deflation Ends; What Next?

    The biggest market move of the past month was a significant rise in bond yields across the US and Europe. Much commentary has suggested that this might be a symptom of a sustained rise in inflationary pressures, as wages and rents start to push up prices in the US, and Chinese producer prices end four long years spent in negative territory. We are skeptical. The recent rise in yields has so far reversed only half of the decline in the first half...

    0
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    Gavekal Research

    Sterling Sellers Look Flushed Out

    Here is a simple question: “Why has the pound fallen so far, so fast?”. My simple answer is that the City of London is the world’s dominant financial center, and so pretty much anyone who deals in global markets has a significant exposure to sterling. As a result, the near term movements of sterling are being dictated less by every twist and turn of the Brexit process, but rather by more prosaic financial transactions.

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    Gavekal Research

    When The Facts Change, I Change My Mind

    After the Brexit vote, Anatole became deeply bearish, fearing that a populist insurgency could unleash a destructive retreat from globalization. With the US electorate seemingly set to reject that pathway on November 8, the likelihood of other nations following Britain by turning in on themselves is greatly diminished.

    17
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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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