Most recent
Gavekal Research
India’s Road To Recovery Runs Through Washington
Tom Miller, Udith Sikand
6 Feb 2025
Indian prime minister Narendra Modi will travel to Washington on February 12, launching a charm offensive that will seek to dissuade Donald Trump from hitting India’s exports with tariffs. Policymakers can then focus on the bigger task of juicing up consumption at home, with tax cuts budgeted for the coming fiscal year and an interest rate cut likely this Friday. While GDP growth should settle at a solid 6-7%, some of the shine has come off the India story.
Gavekal Dragonomics
Exercising Currency Restraint
Wei He
5 Feb 2025
Chinese policymakers announced a slate of retaliatory measures in response to new US tariffs, and more importantly, did not allow the renminbi to depreciate. Wei argues that it suggests they are signaling restraint in the hope that US President Donald Trump will be willing to negotiate a deal—and it means that the central bank is now treating the exchange rate as even more of a constraint.
Gavekal Research
Momentum Or Return To The Mean?
Charles Gave
5 Feb 2025
In recent years, return-to-the-mean strategies have struggled, while momentum strategies have thrived. Meanwhile, with flattish yield curves all across the OECD, carry trades have been unexciting. In this paper, Charles argues that the massive outperformance of momentum strategies against return-to-the-mean strategies may not be an aberration but the symptom of key shifts in our global financial architecture.
Gavekal Research
Trump Tariffs And A Europe Reflation
Cedric Gemehl
5 Feb 2025
To date, Europe has ducked this week’s salvo of US tariffs but it seems only a matter of time before the world’s biggest trading bloc ends up in President Donald Trump’s firing line. Having sold off on Monday morning, European markets then rallied through Tuesday, as the US agreed to negotiate with Canada and Mexico over its threatened 25% import tariffs. That initial move lower in stocks, bond yields and the euro is a signal to take seriously. But there are also limits to this knee-jerk reaction.
Gavekal Dragonomics
Firing The Tariff Artillery
Thomas Gatley
Macro Update: Tending The Green Shoots
Andrew Batson, Dragonomics Team
Vanke’s State Takeover Arrives
Xiaoxi Zhang
Protectionism Puts The Brakes On Auto Exports
Ernan Cui
Trump’s Trade Surprise
Wei He
A Precarious Acceleration
Wei He, Dragonomics Team
Taxis Prepare For Takeoff
Tilly Zhang
The PBOC’s Aggressive Governor
Wei He
Navigating The New Year Volatility
Thomas Gatley
Welfare Or Wealth
Andrew Batson
More research
What The Market Gets Wrong About Tariffs
Tan Kai Xian
Odd One Out: Has The Yen Bottomed?
Louis-Vincent Gave
The Politics Behind The Tariffs On Canada
Louis-Vincent Gave
Geoeconomic Monitor: The Strategy Of Dominance
Arthur Kroeber, Tom Miller, Yanmei Xie
The Long-Term Certainty For Gas
Tom Holland
AI, Inflation And Interest Rates
Will Denyer
What DeepSeek Means For China’s AI
Tilly Zhang
Conversation: The Trump Doctrine Emerges
Arthur Kroeber, Tom Miller, Yanmei Xie
Towards A More Hawkish ECB In 2Q
Cedric Gemehl, August Gudmundsson
Video: The DeepSeek Leap
Louis-Vincent Gave
Gavekal Research
Another Sputnik Moment
Louis-Vincent Gave
27 Jan 2025
China’s launch of its new DeepSeek large language model at a fraction of the cost of comparable US AI solutions calls into question a whole raft of the beliefs that have underpinned the bull market in US growth stocks over the last couple of years, writes Louis, potentially leaving the AI bubble facing its dot-com moment.
The global view
Conversation: The Trump Doctrine Emerges
It’s early days, but the outline of President Donald Trump’s vision for US foreign policy in his second term is taking shape. Rather than the isolationist agenda some expected, the animating idea so far seems to be a neo-imperialist revival of the Monroe Doctrine and the policies of President William McKinley at the end of the 19th century. Gavekal’s geopolitics team sat down to discuss what this would mean for trade and international relations for the next four years.
Webinar: The Trump Agenda
All eyes were on the White House after Donald Trump’s inauguration on Monday to see the initial flurry of executive orders that may indicate his governing priorities. Would he pursuse a maximalist trade-protection agenda, or invite allies and rivals alike to the bargaining table? Would he move quickly towards mass deportations of Illegal immigrants or be more surgical in his approach? Our team sat down to unpack the flurry of news from Trump's first days in office.
The Interregnum Ends
The US's 11-week period between the presidential election and the transfer of power allows for the formation of a cabinet and, inevitably, gives time for the incoming administration to signal where its priorities will lie; messages that the market takes on board and discounts. Louis looks at how markets have behaved since Trump's reelection, and considers which trends may fade.
Geoeconomic Monitor: Bracing For Tariff Man
Donald Trump will take office on Monday, vowing to use massive tariffs—and other forms of coercion—to remake the world on America-first lines. We are launching a biweekly Geoeconomics Monitor which will offer short takes on key developments. In today’s first edition, we assess the impacts of Trump’s tariff-based foreign policy, the impact on oil of prospective peace deals, and how emerging economies will hedge their bets.
Test Your Knowledge
Donald Trump wants to establish a US sovereign wealth fund. What is the biggest asset on the federal government’s balance sheet?
Post Your Answer
Chart of the Week
With a 4.6% dividend yield—more than twice the yield provided by the overall US equity market—US office REITs present a good dividend play amid the otherwise continuous decline in US stock market dividends. This yield is similar to that offered by 10-year US treasuries, with the added benefit that rental income generally rises with inflation.
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
What The Market Gets Wrong About Tariffs
What tariffs the United States ends up levying on which of its trading partners remains to be seen. However, the market has already concluded that tariffs on imports into the US are bad news for US equities but positive for the US dollar. While it is likely right about equities, the market could well turn out to be wrong about the effect of tariffs on the US dollar.
AI, Inflation And Interest Rates
The Federal Reserve's post-meeting press conference provided confirmation that, for now at least, the Fed is no longer in easing mode. Will this pause in—and potential end of—the Fed’s easing cycle be a problem for US equities? In isolation, probably not. However, several narratives that helped push US equities to new highs have recently been called into question.
Fool Me Twice, Shame On Me
Wednesday’s gains in US treasuries can be characterized as a relief rally after December’s CPI inflation printed in line with the consensus, and core CPI came in a touch softer. Cheered by the news, market participants brought forward their expectations for the Federal Reserve’s next rate cut to June or July, from September or October previously, and duly bid up bonds.
Kai Xian thinks the celebrations are premature.
Not Yet Time To Extend US Duration
US treasuries have sold off since mid-September on factors that resolve to US growth prospects being robust. That impetus got another kicker on Friday, with a blowout payroll report causing 10-year yields to jump to within 20bp of their 2023 high. With the yield curve having disinverted, investors will be asking if such moves mean it is time to extend duration in bond portfolios.
Gavekal Research
Webinar: The Trump Agenda
Anatole Kaletsky, Yanmei Xie, Will Denyer, Thomas Gatley
24 Jan 2025
All eyes were on the White House after Donald Trump’s inauguration on Monday to see the initial flurry of executive orders that may indicate his governing priorities. Would he pursuse a maximalist trade-protection agenda, or invite allies and rivals alike to the bargaining table? Would he move quickly towards mass deportations of Illegal immigrants or be more surgical in his approach? Our team sat down to unpack the flurry of news from Trump's first days in office.
Emerging markets
Video: Southeast Asia Under Trump 2.0
Global investors are rightly focused on the potential losers from the United States pursuing an aggressively protectionist trade policy agenda, but there may be winners as well. Tom went in search of such economies last week. Today he explains how such “swing states” are likely to perform in an intensified period of great power rivalry between the US and China.
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.
Latest video
Gavekal Research
Video: The DeepSeek Leap
Louis-Vincent Gave
28 Jan 2025
The release by Chinese company DeepSeek of a new AI large language model comparable with models from US industry leaders like OpenAI or Anthropic has called into question many of the assumptions that have powered the bull market in US tech stocks. Louis looks at how DeepSeek developed its model and considers the effects on the US and Chinese investment environments.
India chartbook
Gavekal Research
India Macro Update: A Normal Slowdown
Udith Sikand, Tom Miller
10 Dec 2024
Despite consternation over the sharp deceleration in GDP growth, India’s economic slowdown looks cyclical rather than structural, argue Udith and Tom. A continued pickup in private consumption together with a revival of government spending is expected to improve the growth outlook in the near term.
China chartbook
Gavekal Dragonomics
Macro Update: Tending The Green Shoots
Andrew Batson, Dragonomics Team
31 Jan 2025
After China’s pivot to stimulus in late September, green shoots have appeared across the economy, with property sales bouncing, consumption improving and deflation easing. But the turn in growth is tentative and markets are still unconvinced: the green shoots need more tending from government policy support. In our latest quarterly chartbook, Andrew and the Dragonomics team assess the prospects for 2025.
Europe's economy
Trump Tariffs And A Europe Reflation
To date, Europe has ducked this week’s salvo of US tariffs but it seems only a matter of time before the world’s biggest trading bloc ends up in President Donald Trump’s firing line. Having sold off on Monday morning, European markets then rallied through Tuesday, as the US agreed to negotiate with Canada and Mexico over its threatened 25% import tariffs. That initial move lower in stocks, bond yields and the euro is a signal to take seriously. But there are also limits to this knee-jerk reaction.
Towards A More Hawkish ECB In 2Q
When the European Central Bank cuts its policy rate by -25bp on Thursday, it will surprise no one. The consensus for the ECB’s March meeting is almost as strong. Beyond March, however, things get a lot more questionable. In recent weeks, a flock of ECB policymakers have doubled down on the bank's dovish stance for 2025, but the market is less confident.
Value Trap Or Opportunity?
If global investors were thinking at all about European equities during Monday’s trading session, it was probably because they were focused on the -7% fall in ASML, the -9.5% drop in Schneider Electric and the -20% slump in Siemens Energy, as the DeepSeek rout of US AI plays infected European markets. Yet notwithstanding Monday’s falls, European equities could well offer an enticing opportunity for 2025, argues Cedric.
The Potential Upside Surprise In Eurozone Household Savings
In both the US and eurozone, household savings rates soared during the Covid pandemic. While the US rate has since declined, in the eurozone it remains elevated, hindering Europe’s consumer recovery and weighing on growth. If household savings rates fall towards more normal levels, their reversion will provide a welcome shot in the arm for eurozone growth.
Strategy Chartbook
Gavekal Research
US Strategy: Towards A Tighter Labor Market
Tan Kai Xian
21 Jan 2025
On day one of Donald Trump’s administration, executive orders flowed to constrain immigration into the US. Follow-up measures may further limit the supply of workers. The US labor market has cooled off from its red-hot level seen after the pandemic. The result has been an easing-up of wage growth that has allowed US inflation to fall toward the Federal Reserve’s target. This somewhat stable equilibrium is, however, unlikely to last long.
Equities
The Interregnum Ends
As January Goes, So Goes The Year?
Four Known Unknowns In The Year Ahead
Navigating The New Year Volatility
Building Narratives Around Obvious Outliers
And The 2024 Awards Go To…
Oil & commodities
The Trouble With Energy Dominance
Video: Why Now For Russian Oil Sanctions?
Building Narratives Around Obvious Outliers
The Syrian Revolution
Conversation: What Could Derail The Inflationary Boom
Hedging The Inflationary Bust
China tech
What DeepSeek Means For China’s AI
Video: The DeepSeek Leap
Another Sputnik Moment
Biden’s Last Salvo Of Tech Protectionism
China’s Export Controls Send A Serious Signal
Xi Goes All In On Tech
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.
