The upsurge in second-round Covid-19 infections has put the US economic recovery on hold for now. But government, businesses and consumers have got better at coping with Covid, and in contrast to the first round, the economy is not going backwards.
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Gavekal Research
August 3, 2020
Strategy Monthly: From Bullish To Neutral On The US
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Gavekal Research
August 3, 2020
Europe Stares Down A Second Wave
Europe beat back the Covid-19 outbreak in March and April with decisive responses and reaped the benefit by reopening its economy in the early summer. Now, however, the price of fun in the sun has come due, with a rising case count that has led Britain’s prime minister, Boris Johnson, to label it Europe’s “second wave”.
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Gavekal Research
July 31, 2020
Not All Tech Markets Are Created Equal
Aided by lockdown effects, Big Tech has rolled out some stellar results. Self-isolating consumers have replaced devices and devoured cloud computing services, spurring a new upgrade cycle. Such demand has boosted Asia’s tech supply chain, but surging hardware demand is about to become more specific, with some segments facing excess supply and others sustained tightness.
Hong Kong
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Gavekal Research
July 7, 2020
Is This What Capital Flight Looks Like?
The bearish scenario for Hong Kong was that a combination of protests and Beijing’s heavy hand would trigger the flight of capital—financial and human—jeopardizing the peg and the financial system.
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Gavekal Dragonomics
June 18, 2020
The Range Of US Sanctions
US President Donald Trump has pledged a response to Beijing’s decision to impose national-security legislation on Hong Kong, and has now signed legislation to sanction officials involved in the crackdown on Uighurs in Xinjiang. In this piece, Dan outlines the various legal tools that the US can bring to bear and their possible effects.
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Gavekal Research
May 26, 2020
Hong Kong Q&A (Part III)
China has responded to prolonged political dissent in Hong Kong by proposing a tough anti-subversion law that threatens the city’s role as an international financial center. It remains unclear how this will be imposed on a common law-based legal system with a polar opposite jurisprudence to that on the Mainland.
Covid-19: Markets
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Gavekal Research
July 23, 2020
Do Bubbles Predict Or Project?
With the second quarter data season now in full swing, the rebound in equity prices that followed the Covid-19 panic seems to have stalled. So, what happens now? In this piece, Anatole follows up on Louis’s recent efforts to define reasons for the surge in equity values and proposes a fresh explanation centered on the nature of bubbles.
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Gavekal Research
July 21, 2020
The Consequences Of ‘Worthless Cash’
In the second quarter of this year, global equity markets registered their best quarterly performance in two decades. In this, the third paper of a series about the record-breaking rebound, I will consider the possibility that the present growth in monetary aggregates is leading investors to conclude that they have no alternative.
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Gavekal Research
June 16, 2020
Five Features Of Market Madness
Examining the frothy market action of last week, Anatole argues that crowd psychology is now driving moves in the US stock market. Five important lessons from the dotcom boom and bust of 1998-2000 indicate that if the Nasdaq composite breaks decisively through its recent high, there may be pots of money still to be made from the current bubble.
Covid-19: Global impact
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Gavekal Research
July 17, 2020
A Long Autumn For Covid In The US
Covid-19 has largely gone into the rear-view mirror in East Asia, and has been tamped down in Europe, but keeps dominating the headlines in the US. Infections in the current US wave are likely to peak in the first half of August, while deaths will peak in late August or early September.
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Gavekal Research
June 10, 2020
US Reopening Tested By Regional Covid Outbreaks
Many US states begun to re-open their economies without getting their Covid-19 outbreaks firmly under control. They initially did this without experiencing a spike in infection levels, but the situation has now changed, writes Arthur.
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Gavekal Research
April 22, 2020
Some Details On The Shape Of Things To Come
On Monday, Arthur laid out the core scenario for the exit from social lockdowns in both Europe and the US: a gradual relaxation of the most severe restrictions between now and mid-June, followed by several months or more of significant, but less onerous, restrictions.
Covid-19: China
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Gavekal Dragonomics
July 28, 2020
How To Contain A Lingering Virus
China is seeing its highest number of daily new locally transmitted Covid-19 cases since March, and government officials are rushing to contain the outbreak. In this Quick Take, Gilliam explains how China has developed a standard containment strategy to handle this and future outbreaks while minimizing economic damage.
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Gavekal Dragonomics
July 24, 2020
Macro Update: The Supply-Side Recovery
China has rapidly bounced back from its Covid-19 lockdown, but the recovery has been an unbalanced one with supply outpacing demand. Economic policy has also turned more cautious amid exuberance in property and financial markets. In this regular chartbook, the Dragonomics team outlines how the next stage of China’s recovery will proceed.
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Gavekal Dragonomics
June 15, 2020
The Beginnings Of A Plateau
China’s economic data for May continued April’s wider recovery; however, Thomas, Rosealea and Xiaoxi argue that this upward momentum is losing steam. Weak external demand, tapering industrial production and Beijing’s aversion to further monetary easing all support the idea that China’s post-Covid bounceback is starting to plateau.
Oil
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Gavekal Research
July 14, 2020
Oil’s Unintended Consequences
On Wednesday, ministers from the Opec+ oil exporting cartel will meet to decide whether to begin scaling back their production cuts, but with the prospect of a renewed increase in infection rates, it's safe to say they will adopt a cautious approach.
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Gavekal Research
April 23, 2020
Whale Watching In The Gulf
Gavekal’s dynamite fishing analogy maintains that the biggest impact of a market shock only shows up after a delay, much like the effects of an underwater explosion. First the small fry float to the top, then the mid-size fish. Only much later does the dead whale break surface.
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Gavekal Research
April 21, 2020
Of Cows And Negative Oil
A friend has a sizable dairy farm in France. He usually sells his cows’ milk to local makers of yogurt and cheese for anywhere between €250 and €350 per 1,000 liters. Today, with most local cheesemakers shut down, buyers are offering just €1 per 1,000 liters for his milk. It could be worse, though. He could be in oil.
Global Strategy
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Gavekal Research
July 24, 2020
Edging Toward A New Cold War
The US decision to close China’s consulate in Houston is a big deal. The precise motivations are obscure but the story is not: the Trump Administration is turning up the heat on China before the US presidential election. In the next few months Washington is likely to make new moves pushing the US closer to a Cold War posture against China.
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Gavekal Research
July 15, 2020
Pick Your Side
The British government’s decision to block Huawei from the UK’s 5G mobile network, confirmed yesterday, is further evidence that the post-Covid world is splitting into two opposing security blocs. International distrust of China is hardening along ideological lines, spurring liberal nations to prioritize national security over economic growth.
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Gavekal Research
June 11, 2020
The Derating Of The Dollar
In the last four weeks as market participants have reassessed relative risk premiums, they have found it increasingly easy to identify currencies which at the margin are looking more attractive than the US dollar. As a result, the dollar has weakened both against developed world and emerging market currencies.
The US economy and markets
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Gavekal Research
July 28, 2020
Not Cheap, But Not Expensive Either
I don’t propose to wade into the debate over whether US equities are in are in a bubble or not. I'd only point out that by one key metric—relative valuation—equities do not look excessively expensive today, at least when compared with the relative valuations seen at the height of the dot-com boom at the turn of the century.
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Gavekal Research
July 27, 2020
Playing Volatility Convergence
When the initial Covid-19 panic gripped US financial markets in March, the near term volatility priced in by both equity and bond markets leapt steeply. But the volatility priced in by the equity market rose far more in relative terms, and has been much slower to recede.
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Gavekal Research
July 23, 2020
Living With Hard Times
Even as the Covid-19 outbreak materially worsens in the US, the pricing of financial assets remains benign. Is this equanimity justified or are we just waiting for the next shoe to drop?
China Tech
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Gavekal Dragonomics
July 21, 2020
The Next Steps In US-China Decoupling
As the US election approaches, the Trump Administration is intensifying pressure on China on all fronts. In this report, Dan outlines the executive-branch agencies tasked with implementing sanctions and restrictions, what they have accomplished so far, and what tools are at their disposal should Trump decide to further escalate the situation.
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Gavekal Dragonomics
June 18, 2020
The Range Of US Sanctions
US President Donald Trump has pledged a response to Beijing’s decision to impose national-security legislation on Hong Kong, and has now signed legislation to sanction officials involved in the crackdown on Uighurs in Xinjiang. In this piece, Dan outlines the various legal tools that the US can bring to bear and their possible effects.
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Gavekal Dragonomics
June 5, 2020
A Charm Offensive For Supply Chains
As multinationals in China face growing pressure to shift their supply chains elsewhere, China’s government is doing everything it can to hold on to them. As Dan explains in this piece, China’s ability to get businesses back on their feet after the Covid-19 lockdown is a great advertisement for its attractiveness as a place to do businesses.
China's economic cycle
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Gavekal Dragonomics
June 16, 2020
Arbitrage Comes Out Of The Shadows
The Covid-19 pandemic has shocked China’s financial regulators into allowing a substantial rebound in total credit growth. But they are not worried enough to abandon their strict control of shadow finance. As Xiaoxi explains in this piece, a recent bounce in the shadow finance numbers is due to a popular arbitrage which is now being contained.
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Gavekal Dragonomics
June 12, 2020
Can Small-Business Lending Be Fixed?
As China tries to get the economy back to normal, it is focusing more on the plight of small businesses, who have lost weeks or months of revenue to the pandemic. Yet it has resisted offering the loan guarantees other countries have employed. In this piece, Xiaoxi assesses the other tools China is using to boost lending to the smallest firms.
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Gavekal Dragonomics
June 8, 2020
US Politics Versus Chinese Stocks
Financial markets are the latest field in which US-China political tensions are playing out. Thomas describes two lines of attack US hawks are pursuing against China: blocking Chinese firms from US equity markets and pressuring US asset managers to avoid Chinese equities. The risk associated with Chinese stocks has therefore materially increased.
Europe's economy
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Gavekal Research
July 27, 2020
The EU And The Bond Markets
The European Union’s decision last week to issue an additional €750bn of debt in its own name has profound implications for the euro-denominated bond markets. Firstly, the decision will mark the emergence of the EU (or more specifically the European Commission) as a major—and relatively attractive—issuer, on a par with sizable European sovereigns.
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Gavekal Research
July 22, 2020
Europe's Deal
Most of the attention paid to the European Union’s recovery fund deal, secured in the early hours of Tuesday morning, focused on how much of the agreed €750bn would be distributed as grants and how much as loans. That’s understandable. Haggling over this balance was one of the main reasons the talks dragged on into their fifth day.
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Gavekal Research
July 16, 2020
From Temporary To Permanent
“Nothing,” Milton Friedman famously declared, “is so permanent as a temporary government program.” He was right, which is one reason Wednesday saw the euro climb to its highest against the US dollar since the first days of the international Covid outbreak in early March, while 10-year Italian government bond yields fell to their lowest.
India
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Gavekal Research
July 14, 2020
India’s Pharma Problem
India, the world’s pharmacy, is in danger of running out of drugs. The source of the danger is India’s deteriorating relationship with China, which provides up to 70% of the bulk ingredients for India’s pharmaceutical industry.
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Gavekal Research
July 6, 2020
India Eyes Up Uncle Sam
After the border clash with Chinese troops on June 15, India is on the verge of a strategic reorientation towards the United States that will reshape security in Asia. A full formal military alliance with the US would be a red rag to the Chinese bull, and therefore remains unlikely.
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Gavekal Research
June 18, 2020
Sticks And Stones May Break A Trade Relationship
Monday night’s deadly face-off between Indian and Chinese soldiers in the Himalayan mountains threatens to rupture a burgeoning trading relationship between Asia’s two largest nations. Diplomats should be able to deescalate military tensions between the two nuclear-armed countries, but it may be harder to normalize economic ties.
Video
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Gavekal Research
July 23, 2020
Video: A Fiscal Cliff Approaches
With the Covid-19 outbreak in the US still worsening, special unemployment benefits that have provided a lifeline for 17mn Americans stand to expire at the end of next week. Yet unlike in March, there is scant appetite in Washington DC for a swift bipartisan deal to extend support for the jobless.
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Gavekal Research
July 16, 2020
Video: Singapore's Policy Path
Just days after securing another five years in power at the ballot box, Singapore’s government announced that the island republic’s gross domestic product contracted a worse-than-expected -12.6% year-on-year in the second quarter.
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Gavekal Research
July 9, 2020
Video: What To Make Of Britain’s £30bn Stimulus
This week UK Chancellor of the Exchequer “Dishy” Rishi Sunak lived up to his media nickname, dishing out an additional £30bn in fiscal support and stimulus measures. In this short video interview, Nick assesses their likely impact.
Brexit and the UK economy
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Gavekal Research
June 16, 2020
A Dismal Best Case
The crowds that Monday swarmed British shops, allowed to open for the first time in 12 weeks, at first sight bodes well for a V-shaped recovery. Yet despite plentiful accumulated savings and considerable pent-up demand, the UK’s consumption-driven economy faces formidable post-lockdown headwinds, with consequences for equities and sterling.
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Gavekal Research
May 22, 2020
Boris Will Pile Pelion On Ossa
No country has matched Britain’s dismal combination of currency and equity losses so far this year. Making matters worse for Britain than other DMs is Boris Johnson's refusal to extend the post-Brexit transition period beyond December, precisely the time when the Covid-19 recession might otherwise be expected to start lifting.
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Gavekal Research
February 14, 2020
The Downing Street Putsch
Ever since turning negative on sterling and the UK economy when Boris Johnson dropped his post-election bombshell announcing a new “No Deal” deadline of December 2020, I have been waiting for a chance to double-down on this bearish position. On Thursday, Johnson provided such an opportunity to extend short positions in sterling.
Emerging markets
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Gavekal Research
June 19, 2020
The Next EM Policy Mistake
Since bottoming out in late March, emerging market equities and bond markets have risen significantly. This snap-back stemmed from massive liquidity injections by global central banks. Investors were also cheered by a new paradigm of fused monetary and fiscal policy in economies which rarely had such flexibility.
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Gavekal Research
June 5, 2020
Picking Winners In Asian Currencies
A terms of trade improvement and the relative resilience of electronics demand have helped support Asian currencies through the coronavirus crisis despite the deep contraction in world trade.
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Gavekal Research
May 19, 2020
Surviving A US$100bn Funding Gap
Developing economies are struggling from reduced trade and harder access to capital. They also face a US$109bn cut in remittance income this year as construction sites in the rich world close, ships stay in port and restaurants are shuttered.
Deep Dives
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Gavekal Research
May 15, 2020
Webinar: China And The US Race Toward The Precipice
The rivalry between the US and China has taken a turn for the worse during the Covid-19 pandemic. In yesterday’s webinar, Tom Miller talked about how China has attempted to use the pandemic in its global influence strategy. Dan Wang updated viewers on the technology rivalry.
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Gavekal Research
May 4, 2020
Strategy Monthly: Emerging Markets Under Pressure
Aside from China, emerging markets have not been hit as hard as rich countries by Covid-19, but their asset markets have been hammered. An optimistic view holds that undervalued EM assets can now bounce back.
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Gavekal Research
March 6, 2020
India Macro Update: A Fragile Stabilization
The Reserve Bank of India's rescue of troubled private sector lender Yes Bank highlights the feedback loop between India’s bad-loan-burdened financial system and its stuttering economy, which is now facing its lowest growth rate since the financial crisis.
Chinese property
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Gavekal Dragonomics
June 10, 2020
The Property Balancing Act
Local governments are balancing between encouraging housing construction and containing excess housing inventory. Although they have struck a balance so far, Rosealea argues that the growing vacancies in lower-tier cities coupled with depressed household consumption render current policies unsustainable in the long run.
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Gavekal Dragonomics
June 2, 2020
A Property Rebound In May
Property sales are quickly recovering from their Covid-19 crash, with upward momentum that should continue for several months to come. However, Rosealea argues there are growing risks that China’s property market will start overheating, forcing policymakers to step in and leading to a downwards drift by July/August at the earliest.
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Gavekal Dragonomics
March 20, 2020
Local Governments Will Lead On Property
Even as China’s property market has experienced an unprecedented decline, central government policymakers have kept a tight leash on official support. However, given growing signs of a lasting disruption to the sector, Rosealea believes that Beijing will tolerate more ambitious municipal efforts to keep local markets afloat.
From the archives: oldies but goodies
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Gavekal Research
November 23, 2012
Deficit Deniers Of The World Unite
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.
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Gavekal Research
July 20, 2011
Are We Entering Into Revolutionary Times?
In A Study of History, Toynbee explains that 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.
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Gavekal Research
February 28, 2011
The High Cost Of Free Money
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’.