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The Politburo Holds Fire

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The Politburo Holds Fire

Wei He
25 Apr 2025
On Friday, China’s ruling Politburo provided the most authoritative pronouncement on economic policy since US President Donald Trump imposed sweeping new tariffs earlier this month. Wei argues the meeting reaffirmed that policymakers will dial up stimulus in the coming months—but with a major fiscal expansion already in train, they are holding fire to some extent on further policies in order to assess the damage from tariffs.
Geoeconomic Monitor: Waiting For Capitulation

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Geoeconomic Monitor: Waiting For Capitulation

Arthur Kroeber, Tom Miller
25 Apr 2025
Washington is finally waking up to the fact that Donald Trump overestimated his leverage with China and is now stuck in a trade war that he cannot win. The question is how long it will take to organize a retreat that could pave the way for negotiations with Beijing, and what form this retreat will take, writes Arthur Kroeber. Meanwhile, Tom Miller examines the US proposal to impose port fees on Chinese-owned ships and looks at the hurdles still facing the sale of CK Hutchison’s global ports business.

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Yen Strength Is Here To Stay

Udith Sikand
25 Apr 2025
It is often said that in trade wars there are no winners. In recent weeks, however, the Japanese yen has emerged as a clear winner from the current tariff war. Its strengthening has been driven partly by repatriation flows, but that is only half the story. There is also evidence that the yen is benefiting from a strong upward impetus because foreign investors are bidding up undervalued and under-owned yen-denominated assets.

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Video: Milei's Peso Gamble

Tom Miller
24 Apr 2025
Argentina recently loosened capital controls and floated its currency in a bid to rejoin global capital markets. Under Javier Milei, the country has been engaged in a radical free market experiment for the last 16 months, as it seeks to conquer inflation and stabilize the economy. Tom recently returned from a research trip to Argentina, and in this interview discusses how the Milei project is going and whether it is replicable elsewhere in Latin America.

Gavekal Dragonomics

Taking Stock Of Fiscal Progress
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Wei He
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

More research

KISS: The New Trends Of 2025 Reshaping Financial Markets
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Louis-Vincent Gave
The Implications Of Euro Strength
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Cedric Gemehl
Trump May Yet Influence Monetary Policy
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Will Denyer
How China Would Fight A Trade War
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Arthur Kroeber, Laila Khawaja, Tilly Zhang
On The Cusp Of Asia’s Bull Market
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Charles Gave
Trump Risks More Liz Truss Moments
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Will Denyer
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

Gavekal Research

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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 durable goods orders rose 9.2% MoM in Mar, versus 0.9% in Feb

Growth stronger than 2% expected; core orders rose 0.1% MoM in Mar, verus 0.3% in Feb

Soft core orders (ex-transport)reflect impact of policy uncertainty on business capex

Germany Ifo business climate index rose to 86.9 in Apr, up from 86.7 in Mar

Above 85.2 expected; expectations sub-index fell to 87.4 in Apr, from 87.7 in Mar

Mfg backlog stabilizing; trade war likely to weigh in near term before cyclical improvement

French INSEE consumer confidence index  92 in Apr, unchanged from Mar

Above 91expected

Cyclical recovery to boost sentiment, causing savings to fall and boosting consumption

UK CBI industrial new orders indicator rose to -26 in Apr,  from -29 in Mar

NA

Expect subdued industrial activity amid trade uncertainties and domestic pessimism

Test Your Knowledge
Sweden is to relax its laws on alcohol sales, allowing small breweries to sell booze for consumption off the premises. But there’s a catch. What is it?
  1. Sales will be restricted to just two hours a day on weekday mornings
  2. Customers will be required to attend a lecture about the danger of alcohol abuse
  3. Brewery off-sales will carry a 50% tax rate, compared with 25% at government-run Systembolaget shops
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

Geoeconomic Monitor: Waiting For Capitulation
Washington is finally waking up to the fact that Donald Trump overestimated his leverage with China and is now stuck in a trade war that he cannot win. The question is how long it will take to organize a retreat that could pave the way for negotiations with Beijing, and what form this retreat will take, writes Arthur Kroeber. Meanwhile, Tom Miller examines the US proposal to impose port fees on Chinese-owned ships and looks at the hurdles still facing the sale of CK Hutchison’s global ports business.
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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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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

Gavekal Research

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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: Milei's Peso Gamble

Tom Miller
24 Apr 2025
Argentina recently loosened capital controls and floated its currency in a bid to rejoin global capital markets. Under Javier Milei, the country has been engaged in a radical free market experiment for the last 16 months, as it seeks to conquer inflation and stabilize the economy. Tom recently returned from a research trip to Argentina, and in this interview discusses how the Milei project is going and whether it is replicable elsewhere in Latin America.

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 Implications Of Euro Strength
Exchange rates are relative prices. As one currency falls, another—or others—must rise. So far in 2025, one of these other currencies has been the euro. As the US dollar has weakened, the euro has strengthened, gaining 9.1% against the US currency since the beginning of January. If this trend continues, it will not be long before Europeans and foreign investors in Europe begin to worry about the eurozone economy’s ability to prosper in the face of currency strength.
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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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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

Taking Stock Of Fiscal Progress
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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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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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