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Gavekal Research
Red States, Green Screens
Will Denyer
6 Nov 2024
The count continues, and technically the White House could still go either way. But barring a miracle, Donald Trump will be the next president of the United States. Beyond that, Trump’s Republicans have won the Senate, and look likely—but not certain—to take the House of Representatives. This makes it possible to draw a number of conclusions for the economy and markets.
Gavekal Research
The Yen, The Dollar And Elections
Will Denyer
5 Nov 2024
Over the last year, the effect of inflation, monetary policy, national elections, and a couple of central bank interventions has sent the yen on a wild ride against the US dollar. Next on the docket is the US general election, whose run-up has seen investors weigh in with trades based on a Republican sweep. In assessing where the USDJPY currency pair goes next, Will maps out some scenarios for potential developments on both sides of the Pacific.
Gavekal Research
A Grand Bargain And US Reindustrialization
Louis-Vincent Gave
5 Nov 2024
When Donald Trump in 2016 won the US presidency, the first victim was Mexico. This time, the perceived victim is China. As Trump’s campaign momentum picked up through October, Chinese stocks went back to falling. Very few people in the market seem to think that a “grand bargain” with China is likely, but Louis argues there are reasons for both countries to want one.
Gavekal Research
It’s The Geopolitics, Stupid
Anatole Kaletsky
4 Nov 2024
The conventional wisdom is that geopolitics does not matter to US elections, and the relative calm of financial markets in the face of heightened geopolitical risk suggests that it doesn’t matter all that much to investors. But Anatole begs to disagree, arguing powerfully that geopolitics has played a key role in domestic US politics recently, and will be an important driver of financial markets following the US election.
Gavekal Dragonomics
The Road To Reflation
Andrew Batson
Trump Tariffs, Take Two?
Thomas Gatley
Macro Update: The Pivot To Stimulus
Andrew Batson, Dragonomics Team
Signs Of Life In Property
Xiaoxi Zhang
The Robotics Boom Consolidates
Tilly Zhang, Thomas Gatley
The Politics Of The Stimulus Pivot
Christopher Beddor
Looking To Fiscal Stimulus
Wei He, Dragonomics Team
The Channels For Consumption Stimulus
Ernan Cui
The Fiscal Strategy Emerges
Wei He
The Case For Monetary Policy
Andrew Batson
More Research
Looks Like I Picked The Wrong Week...
Louis-Vincent Gave
The Yen Carry Trade Is Not Back
Udith Sikand
Webinar: Pricing The Election Outcome
Anatole Kaletsky, Yanmei Xie, Will Denyer, Arthur Kroeber
A US Election Lesson From Financial History
Charles Gave
Britain’s Blundering Budget
Anatole Kaletsky
Video: Good News And Bad For Reindustrialization
Tilly Zhang, Tan Kai Xian
Industrialists Versus Economists
Yanmei Xie
The Post-Election Policy Setup
Louis-Vincent Gave
What If The Market Is Wrong?
Tan Kai Xian
The Wild Ride Of EU Trade
Cedric Gemehl, Yanmei Xie
Gavekal Research
Webinar: Pricing The Election Outcome
Anatole Kaletsky, Yanmei Xie, Will Denyer, Arthur Kroeber
1 Nov 2024
Markets are increasingly convinced that Donald Trump will win the US presidential race and Republicans may achieve a sweep of Congress. Yet with the key “swing states” still effectively in a dead heat between Trump and Kamala Harris, and well within the polling margin of error, the race remains highly competitive. Our panel assessed the underpinnings of the “Trump trade” but also explored macro and market scenarios in the event of Harris securing the White House.
The global view
Webinar: Testing The Reflation Hypothesis
A range of recent developments suggests that the world economy is moving into a period of higher nominal growth and persistent price pressures. China looks to be embracing a more concerted fiscal stimulus and, given the platforms of both presidential candidates, the United States is likely to stay in expansionary mode. Our panel assessed this situation and suggested investing strategies.
Are Markets Starting To Price In A Trump Victory?
The Trump trades are back with a vengeance. As Donald Trump’s poll ratings have risen in recent days, some markets have registered outsized gains, others have suffered abrupt falls. In this paper, Louis examines six affected markets, from US tech stocks and financials, through energy and China, to Mexico and Argentina, to assess whether the moves make sense.
Conversation: What Could Derail The Inflationary Boom
Looking across the macro landscape, Louis and Anatole observe a number of strongly reflationary factors and booming markets. Yet complacency never pays off for investors. So amid the escalating war in the Middle East and the prospect of further trade friction between China and the West, two of Gavekal’s many wise men discuss how investors can protect their portfolios from the risks to the current upbeat sentiment.
Changing Narratives Around The World
John Maynard Keynes famously observed that price discovery in financial markets was akin to a beauty contest. However, the real challenge was not to pick the prettiest lady, but to instead identify which lady the judges would choose as the prettiest. These were not always the same outcome. With this in mind, it seems that the past few weeks have witnessed a number of important “narrative changes” across different economies and markets.
Test Your Knowledge
In 2022, China bought US$43bn of agricultural commodities from the US. How much did China buy in the first nine months of 2024?
Post Your Answer
Chart of the Week
Cyclical equities are beginning to outperform defensives and US high-yield corporate bonds are outperforming US investment-grade corporate bonds, suggesting that investors are starting to price in stronger US growth. Lingering summer concerns about an impending soft patch in the US economy were also crushed by the robust September payroll report. The Citi economic surprise index shows that since August 22, US economic data started to surprise less on the downside, and since October 1 has surprised more on the upside. Looking ahead, investors are likely expecting the potential for a wider fiscal deficit and easier Federal Reserve policy next year to put upward pressure on US economic growth.
Open Chart
Gavekal Research
Essential Reading: A Book For Every Week Of The Year
Gavekal is often asked for a recommended reading list. So, here it is: a book a week that everyone interested in the world of macro investing—whether hoary veteran or eager apprentice—can benefit from reading.
US economy & markets
Red States, Green Screens
The count continues, and technically the White House could still go either way. But barring a miracle, Donald Trump will be the next president of the United States. Beyond that, Trump’s Republicans have won the Senate, and look likely—but not certain—to take the House of Representatives. This makes it possible to draw a number of conclusions for the economy and markets.
The Yen, The Dollar And Elections
Over the last year, the effect of inflation, monetary policy, national elections, and a couple of central bank interventions has sent the yen on a wild ride against the US dollar. Next on the docket is the US general election, whose run-up has seen investors weigh in with trades based on a Republican sweep. In assessing where the USDJPY currency pair goes next, Will maps out some scenarios for potential developments on both sides of the Pacific.
What If The Market Is Wrong?
Since early October, financial markets have increasingly been pricing both victory for Donald Trump in the US presidential election and also a clean sweep of both houses of Congress for the Republican Party. However, the apparent extent of the market’s confidence in a Republican sweep is not fully justified by recent opinion polls. If the election outcome is anything other than a GOP sweep, the market moves could be much more pronounced.
The Election And US Debt Sustainability
Voters don’t seem to care about the ever-growing US debt mountain, but investors are concerned. In recent meetings across the globe, clients repeatedly asked the same three questions. What impact will the election have on the US deficit and debt? Is the US fiscal situation sustainable? And what will be the endgame?
Gavekal Research
Webinar: Pricing The Election Outcome
Anatole Kaletsky, Yanmei Xie, Will Denyer, Arthur Kroeber
1 Nov 2024
Markets are increasingly convinced that Donald Trump will win the US presidential race and Republicans may achieve a sweep of Congress. Yet with the key “swing states” still effectively in a dead heat between Trump and Kamala Harris, and well within the polling margin of error, the race remains highly competitive. Our panel assessed the underpinnings of the “Trump trade” but also explored macro and market scenarios in the event of Harris securing the White House.
Emerging markets
China Turbocharges EM Investment
As the rich world pulls up the protectionist drawbridge, investors risk missing a bigger story
in emerging markets. Here, Chinese outbound investment is rebounding after the fallow Covid years, and is driving a new wave of industrialization that promises to lower the cost of the green-energy transition.
Why This Time Has Been Different
During past episodes of risk-off volatility, the correlation between emerging market risk assets has shot up. But early August’s bout of market volatility saw a bifurcation in EMs, and no broader macroeconomic spillover effects—which speaks well of the growing maturity of emerging markets as an asset class.
Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
A Budget For Modi 3.0
Concerns that Indian Prime Minister Narendra Modi would take a populist lurch were alleviated on Tuesday, as finance minister Nirmala Sitharaman pledged to reduce the deficit in the new budget, while maintaining healthy levels of infrastructure spending. But three new schemes to boost jobs, largely borrowed from opposition party policies, suggest that the government has heeded the lessons of the election.
Latest video
Gavekal Research
Video: Good News And Bad For Reindustrialization
Tilly Zhang, Tan Kai Xian
31 Oct 2024
Enthusiasts for the revitalization of US manufacturing have been heartened by recent news that TSMC’s Arizona chip fabrication plant is delivering higher production yields than the company’s fabs back home in Taiwan. This appears to be good news for the competitiveness of US manufacturing. But digging beneath the surface, Tilly and KX find things are less simple.
India chartbook
Gavekal Research
India Macro Update: On An Even Keel
Udith Sikand, Tom Miller
5 Sep 2024
A slowdown in India’s headline GDP masks an improvement in the underlying drivers of growth, argue Udith and Tom. Now that election-related uncertainty is over, government spending should pick up and aid the incipient recovery in private consumption and investment. Indian bonds and equities should continue to fare well, with monetary easing likely to get underway soon.
China chartbook
Gavekal Dragonomics
Macro Update: The Pivot To Stimulus
Andrew Batson, Dragonomics Team
29 Oct 2024
The new policy package China’s government is now rolling out is not its first attempt to halt the economy’s deflationary spiral, but this time the effort is more substantial. The package is still evolving, with more fiscal details expected in November, but the broad outline is clear. In our latest quarterly chartbook, Andrew and the Dragonomics team assess the stimulus package.
Europe's economy
It’s The Geopolitics, Stupid
The conventional wisdom is that geopolitics does not matter to US elections, and the relative calm of financial markets in the face of heightened geopolitical risk suggests that it doesn’t matter all that much to investors. But Anatole begs to disagree, arguing powerfully that geopolitics has played a key role in domestic US politics recently, and will be an important driver of financial markets following the US election.
Britain’s Blundering Budget
Wednesday’s British budget confirmed Anatole's worst fears about the outlook for the UK economy and sterling assets. In this piece, he sets out the four key implications for businesses and investors, all of which are likely to deepen the gloom about Britain, at least until a U-turn in economic, trade and fiscal policy happens in the next few years.
The Wild Ride Of EU Trade
The European Union has endured big swings in its trade performance over the last three years and the “interesting times” could be here to stay. Depending on the US election result, this rollercoaster ride may have only just gotten started, say Cedric and Yanmei.
A New Era For Eurozone Bonds
Over the last three years or so, investors in eurozone fixed income have done well to keep duration short. Given recent bond market ructions and given that the European Central Bank is now accelerating rate cuts, Cedric asks: is this the time to extend duration in the eurozone?
Strategy Chartbook
Gavekal Research
US Strategy: Trading Politics
Will Denyer, Tan Kai Xian
27 Aug 2024
In November, US voters will decide who controls the White House, Senate and House of Representatives. The two parties differ significantly on key policy positions that will heavily impact the economy and markets. In this Strategy Chartbook, Will and KX compare the parties’ major policy stances and assess what they mean for markets—especially US equities, US bonds and the US dollar.
Equities
A Grand Bargain And US Reindustrialization
It’s The Geopolitics, Stupid
Are Markets Starting To Price In A Trump Victory?
Election Optimism
So Long, Soft Patch
Conversation: What Could Derail The Inflationary Boom
Oil & commodities
Conversation: What Could Derail The Inflationary Boom
Hedging The Inflationary Bust
The Energy Faceplant
Who Is Going Bust?
Video: Beyond The Slide In Energy Prices
Will Recent Trends Last?
China tech
Xi Goes All In On Tech
Webinar: Setting The Agenda For China's Plenum
The Localization Drive Steps Up
After The Melt-Up In Semiconductors
Vietnam’s Bamboo Diplomacy
Big Tech’s Rearguard Action
Then Yen Carry Trade Unwinds
Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
More Questions Than Answers
It’s a dedicated Frenchman who consents to work in August. But the financial market volatility of the last week has seen Louis hard at it, fielding client questions about the outlook for global markets and economies. In this paper, he sets out the most salient questions, and offers his answers.
The Root Cause Of Summer Ructions
Investors are no longer seeing virtue in a Goldilocks scenario of moderating demand and easing price pressures, but having a summer freak-out over faltering global growth. Udith and Kai Xian diagnose the market jitters and say that the sell-off in high-yield currencies and tech stocks likely stems from movements in Japan rather than disappointing US economic data.
The Yen And Deindustrialization
There is a theory out there which holds that the extreme undervaluation of the yen is a consequence of Japanese deindustrialization, as Japan Inc. has shipped its factories abroad, pushing Japan's economy into an irreversible trade deficit even while it continues to run a monster current account surplus. Not so fast, says Charles, whose analysis of Japan’s external balances throws up a different explanation—and suggests a compelling investment opportunity.
