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Trump May Yet Influence Monetary Policy

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Trump May Yet Influence Monetary Policy

Will Denyer
23 Apr 2025
Having spurred frenzied selling of the US dollar and treasury bonds with his threat to fire Jay Powell, Donald Trump did another U-turn on Tuesday. The US president now says he has “no intention” of firing the Federal Reserve chair over his unwillingness to ease monetary policy. Powell and his Fed colleagues may, or may not, keep their jobs—depending on Trump’s whim and court rulings on the matter.
How China Would Fight A Trade War

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How China Would Fight A Trade War

Arthur Kroeber, Laila Khawaja, Tilly Zhang
23 Apr 2025
Why did China decide to fight back against US President Donald Trump’s tariff barrage, and what is in its arsenal that made it so confident it could wage a war of economic attrition against one of its biggest trade partners? In this piece, Arthur, Laila and Tilly unpack both China’s motives and the economic weapons the government could deploy.

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On The Cusp Of Asia’s Bull Market

Charles Gave
23 Apr 2025
Charles has for many years argued that Chinese authorities were in the process of developing a new Asian monetary system centered on the renminbi, setting Asia up for a "triple merit" scenario that would ignite a domestic asset boom. With the yen now back to a normal trading range against the renminbi, all lights are green to invest in Asia ex-Japan.

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Trump Risks More Liz Truss Moments

Will Denyer
22 Apr 2025
The “liberation day” announcement of US “reciprocal” tariffs led to Donald Trump’s own Liz Truss moment, triggering a simultaneous sell-off in US treasuries and the US dollar, which prompted a rapid policy reversal. But unchastened, the US president may be on course for a second, third and even fourth Liz Truss episode warns Will Denyer.

Gavekal Dragonomics

How Long Can Subsidies Fuel Auto Sales?
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Ernan Cui
Housing Inventories Diverge
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Xiaoxi Zhang
The Calm Before The Trade Storm
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Wei He, Dragonomics Team
The World’s Biggest Black Market
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Thomas Gatley
It’s All About Domestic Demand Now
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Andrew Batson
Next Up: Monetary Policy
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Wei He
The Worst-Case Tariff Scenario
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Thomas Gatley, Wei He
A Backdoor Bailout For State Developers
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Xiaoxi Zhang
Multinationals Caught In The Trade Conflict
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Christopher Beddor
The Market Liquidity Drain Reverses
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Thomas Gatley

More research

A Tipping Point For The EU Labor Market
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Cedric Gemehl, August Gudmundsson
The Real Driver Of Dollar Weakness
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Louis-Vincent Gave
Where Will The Excess US Dollars Go?
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Louis-Vincent Gave
Trump’s Other Reindustrialization Tools
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Tan Kai Xian
Thoughts On The Upcoming Canadian Election
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Louis-Vincent Gave
Are US Treasuries Still Antifragile?
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Charles Gave
Webinar: Understanding The US-China Trade War
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Arthur Kroeber, Andrew Batson, Thomas Gatley
Fort Monroe And LatAm Assets
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Louis-Vincent Gave
The US Funding Problem
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Tan Kai Xian
The Silver Linings For Europe
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Cedric Gemehl, August Gudmundsson

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A US Recession Need Not Harm Europe And China

Anatole Kaletsky
15 Apr 2025
In the US, tariff hikes make a recession all but certain over the coming quarters. But in much of the rest of the world, the impact will be manageable, writes Anatole, with the European Union and China set to support domestic demand with simultaneous monetary and fiscal easing. As a result, US equities and the US dollar will underperform.

Checking The Boxes

Our short take on the latest news

Fact
Surprise
Takeaway

US Richmond Fed manufacturing index fell to -13 in Apr, from -4 in Mar

Below expected -7

Broad deterioration in components plus jump in prices paid point to stagflation

Eurozone EC flash  consumer confidence index fell to -16.7 in Apr, from-14.5 in Mar

Below expected -15.1

Trade war weighing on sentiment in near term, despite ongoing cyclical recovery

Sweden's unemployment rate fell to 8.1% Mar, from 8.9% in Feb

Below expected 8.7%

Nascent cyclical recovery reflected in improving labor market conditions

Taiwan's export orders rose 12.5% YoY in Mar, versus 31.1% in Feb

Weaker than  16.1% expected

Impact of tariff front-running set   to fade; exports likely to weaken

Test Your Knowledge
According to the International Monetary Fund, which G7 economy will grow most quickly this year?
  1. Italy
  2. Japan
  3. France
  4. The UK
  5. The US
  6. Canada
  7. Germany
Post Your Answer

Chart of the Week

Week 17, 2025
The US consumer has benefited in recent years from a combination of low unemployment, strong wage growth and a positive wealth effect stemming from rising asset prices. Trump has liberated US consumers from at least this last support, as his tariff hikes have crashed US equity prices and thus removed much of the previously-positive wealth effect.
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.

Gavekal Dragonomics

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Webinar: Understanding The US-China Trade War

Arthur Kroeber, Andrew Batson, Thomas Gatley
18 Apr 2025
A week of tariff chaos has left the US and China locked in an all-out trade war, with tariffs in both directions now over 100%. The two sides have dug in to maximalist positions, which spells bad news for both economies, and for global trade. Arthur Kroeber, Andrew Batson and Thomas Gatley discuss the economic, political and financial dimensions of this unprecedented crisis.

Tariff Troubles

How China Would Fight A Trade War
Why did China decide to fight back against US President Donald Trump’s tariff barrage, and what is in its arsenal that made it so confident it could wage a war of economic attrition against one of its biggest trade partners? In this piece, Arthur, Laila and Tilly unpack both China’s motives and the economic weapons the government could deploy.
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Webinar: Understanding The US-China Trade War
A week of tariff chaos has left the US and China locked in an all-out trade war, with tariffs in both directions now over 100%. The two sides have dug in to maximalist positions, which spells bad news for both economies, and for global trade. Arthur Kroeber, Andrew Batson and Thomas Gatley discuss the economic, political and financial dimensions of this unprecedented crisis.
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Video: The Anatomy Of A Bond Sell-Off
It seems clear that last week’s bond market sell-off was the trigger for the Trump administration backing off its maximalist stance on tariffs. But what was the key factor driving that sell-off? In this interview, Will explores whether it was triggered by a change in the US growth outlook, inflation fears, a looming bond supply shock or capital flight from the US.
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Video: The Trade War And China’s Home Front
As the US-China trade conflict has escalated uncontrollably, Christopher Beddor looks at the impact on China’s domestic economy, examines the steps that Beijing can take to support growth in the face of the export-sector shock, and assesses the probability of their success.
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US economy & markets

Trump May Yet Influence Monetary Policy
Having spurred frenzied selling of the US dollar and treasury bonds with his threat to fire Jay Powell, Donald Trump did another U-turn on Tuesday. The US president now says he has “no intention” of firing the Federal Reserve chair over his unwillingness to ease monetary policy. Powell and his Fed colleagues may, or may not, keep their jobs—depending on Trump’s whim and court rulings on the matter.
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Trump Risks More Liz Truss Moments
The “liberation day” announcement of US “reciprocal” tariffs led to Donald Trump’s own Liz Truss moment, triggering a simultaneous sell-off in US treasuries and the US dollar, which prompted a rapid policy reversal. But unchastened, the US president may be on course for a second, third and even fourth Liz Truss episode warns Will Denyer.
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Trump’s Other Reindustrialization Tools
One of the main objectives of Donald Trump’s “reciprocal” tariffs on the rest of the world was to encourage the reindustrialization of the US economy. If those tariffs are now back in their box following early April’s US bond market panic, what other tools does the US administration have at its disposal to promote investment in onshore manufacturing?
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The US Funding Problem
Last week’s simultaneous sell-off in US equities, treasuries and the US dollar pointed to global investors taking flight from US assets. This matters since the share of US national income that is saved by households, businesses and the government has fallen to lows only seen in acute crisis periods during the post-WWII era, says Kai Xian. It makes the US reliant on the kindness of foreign investors at a moment when it is not being very nice to them.
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China chartbook

Gavekal Dragonomics

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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.

India chartbook

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India Macro Update: The Road To Recovery

Udith Sikand, Tom Miller
7 Mar 2025
After slowing for four consecutive quarters, India’s economy is showing signs of perking up. GDP growth is back above 6%, buoyed by a monetary policy easing and healthy household consumption. Tax cuts will also help at the margin. But a dramatic acceleration in growth is unlikely, as the public infrastructure boom fades and private investment continues to disappoint.

Latest video

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Video: The Anatomy Of A Bond Sell-Off

Will Denyer
14 Apr 2025
It seems clear that last week’s bond market sell-off was the trigger for the Trump administration backing off its maximalist stance on tariffs. But what was the key factor driving that sell-off? In this interview, Will explores whether it was triggered by a change in the US growth outlook, inflation fears, a looming bond supply shock or capital flight from the US.

Strategy Chartbook

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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.

Emerging markets

Video: Are EMs Back?
It’s been a good quarter for the broad emerging markets complex. The MSCI EM index has returned almost 7% in US dollar terms, while US equities are down by some -3.5%. So should investors jump on the EM train? Udith points out that there is a wide divergence in the performance of individual emerging markets, and the threat of tariffs hangs heavy over EM corporate earnings. Investors need to be selective.
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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.
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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.
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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.
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Europe's economy

The Silver Linings For Europe
Although the European Union has escaped the worst-case scenario of a rapidly escalating tit-for-tat trade war with the United States, the eurozone’s economy will still take a hit from higher US tariff rates, increased uncertainty and slower global trade. As a result, a “technical recession” is probable, with GDP contracting over the next two quarters.
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A US Recession Need Not Harm Europe And China
In the US, tariff hikes make a recession all but certain over the coming quarters. But in much of the rest of the world, the impact will be manageable, writes Anatole, with the European Union and China set to support domestic demand with simultaneous monetary and fiscal easing. As a result, US equities and the US dollar will underperform.
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US Exceptionalism Versus European Pessimism
Few global investors saw this year’s sell-off in US equities and the concomitant rally in European equities coming. This shift is mostly explained by a narrowing valuation gap rather than any great change in earnings. Kai Xian and Cedric ask what explains the reversal and whether it will prove more than a flash in the pan.
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Germany’s Inflationary Dynamic
Investors worried that German fiscal stimulus may tip Europe into an inflationary spiral can take comfort from a benign starting point. Eurozone headline inflation dipped to 2.2% year-on-year in March, while the core reading came in lower than expected. Reduced pricing pressures stem from a cyclically weak German economy, and since it will take a while for its hotly anticipated stimulus to take effect, Europe is looking at a disinflationary interregnum.
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Equities

Where Will The Excess US Dollars Go?
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Is The Dust Settling?
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What Could Save US Equities?
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Three Reasons For Fear, Three For Hope
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Tariffs And The Platform Company Model
US Exceptionalism Versus European Pessimism
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Fixed income

The US Funding Problem
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Video: The Anatomy Of A Bond Sell-Off
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Asia’s Coming Deflationary Boom
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Regime Change In The Eurozone Bond Market
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The BoJ’s Dangerous Confidence
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Four Known Unknowns In The Year Ahead
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From the archives: oldies but goodies

Deficit Deniers Of The World Unite
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Deficit Deniers Of The World Unite

Anatole Kaletsky
In our politically correct age the pressure to bow down before certain popularly accepted and apparently proven “truths” can be overwhelming. In the aftermath of the US elections, two such nostrums are unnecessarily vexing investors—the urgency of deficit reduction and fear of higher taxes. I believe that both of these obsessions will soon be forgotten.
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Are We Entering into Revolutionary Times?
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Are We Entering into Revolutionary Times?

Louis-Vincent Gave
The role of a society’s elite is to rise to the challenges of the times, and find solutions fitting to those times, even if this involves a radical break with the past. But the modus operandi for most leaders is to try and maintain the status quo. But if the problems are large enough, this does not work, and the same challenges reappear until either a solution is found, the elite is replaced by a new elite, or the country, system or civilization disappears.
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The High Cost Of Free Money
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The High Cost Of Free Money

Charles Gave
Perhaps the most famous economic law is the one that there is no such thing as a free lunch. By keeping US short rates at abnormally low levels beyond the financial crisis and as growth bounces back beyond the dreams of the wildest optimists, the Fed increasingly seems to be trying to ‘feed the US economy for nothing’. This is worrying, for extended periods of cheap money typically come back with a hefty price tag.
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