Gavekal Research
October 14, 2019
The pound surged after Boris Johnson and Irish Prime Minister Leo Varadkar achieved a negotiating breakthrough on Thursday over arrangements for the Irish border. The question is: What next? Anatole argues that while these moves still point to a multi-pronged set of outcomes, at least there is now a measurable set of permutations.
Gavekal Research
October 14, 2019
On Friday, US President Donald Trump announced “Phase One” of a long-awaited trade deal with China. The top Chinese negotiator did not go that far, saying only that “we have made substantial progress in many fields.” In essence, what happened was a cease-fire, with the US agreeing to cancel its planned October 15 tariff hike in exchange for China resuming purchases of US agricultural goods.
Gavekal Research
October 11, 2019
Vincent outlined EM Asia's "great moderation", as inflation is diverging from other emerging markets, creating opportunities in bonds. Udith argued that Indian growth may be bottoming out but a bad banking picture means that equities may have more downside. Tom addressed the remaking of Asian supply chains in light of the US-China trade war.
Gavekal Research
September 12, 2019
Three great forces drive capitalism and markets: the Schumpeterian, the Ricardian, and the Malthusian. Usually only one dominates at any one time. The flood of capital into tech indicates investors believe that Schumpeterian creative destruction will continue to drive returns over the coming years.
Gavekal Research
September 10, 2019
Both bond and equity markets are signaling investors' belief that monetary policy will not only stay easy for as far as the eye can see, but actually get easier in the coming weeks and months.
Gavekal Research
August 27, 2019
Since the beginning of the month, the yen has been one of the few major currencies to strengthen against the US dollar. At the same time, Japanese government bonds have not escaped the global bond rally.
Gavekal Dragonomics
August 29, 2019
Whatever happens next in the US-China trade conflict, it’s clear that ties between the two nations have undergone a fundamental reset. Some “decoupling” will definitely occur as a result, and indeed has already begun. In this chartbook, Andrew and Lance explore how US-China decoupling could play out in flows of goods, money, people and ideas.
Gavekal Research
August 28, 2019
After a month of further escalation in the US-China trade war, China’s strategy for the next stage of the dispute is becoming clear. Its leadership now looks committed to a strategy of toughing out trade tensions. This means the prospect of a US-China trade deal is receding, and therefore that global growth will face further headwinds.
Gavekal Research
August 27, 2019
After a sluggish 2018, global shipping lines are again facing choppy seas thanks to Donald Trump's tariffs and slumping trans-Pacific trade. There is, however, a silver lining for carriers with a strong Asian presence; the US-China trade war is spurring a fragmentation of regional supply chains, and that seems set to boost intra-Asian trade.
Gavekal Research
September 20, 2019
As August’s panic has receded, bond yields have risen from their lows. Even so, with the 10-year US treasury yield at 1.77%, the only way bonds can deliver significant upside from here is if the US economy slides into a disinflationary recession. That may yet happen. But it is by no means the most probable course for the US economy.
Gavekal Research
September 19, 2019
Despite this week’s violent US money market judders, the Federal Reserve looks to have a clear plan for managing monetary policy and liquidity conditions. There are many reasons to worry about risk asset pricing, but a shock from the bowels of the US financial system is not among them.
Gavekal Research
September 12, 2019
Ahead of next week’s Federal Reserve meeting, US bank stocks look set to break out of their 21-month underperformance trend. Investors are betting on a 25bp rate cut, with at least one more to come before December. They are also cheering the rise in long rates globally over the last week or so, which has acted to steepen yield curves.
Gavekal Research
September 4, 2019
On Tuesday, members of Italy’s left wing populist 5-Star Movement lent their support to the formation of a new coalition government with the Democratic Party. The new government, to be led by Giuseppe Conte, technocrat prime minister in the previous coalition, still has to secure a confidence vote in Parliament.
Gavekal Research
July 3, 2019
After three days of intense maneuver and counter-maneuver, on Tuesday the European Union’s heads of government announced their choice of names to lead the EU’s central institutions for the coming years. The result is a remarkable clean sweep for the favored candidates of French president Emmanuel Macron.
Gavekal Research
June 18, 2019
At the ECB's annual shindig in Portugal this week, two questions matter. Given negative interest rates and capital key constraints over asset purchases, how does the ECB fight the next downturn? And who will replace Mario Draghi?
Gavekal Dragonomics
September 12, 2019
The Trump administration has shown the world that it is willing and able to inflict severe pain on China’s top technology firms. But can the US really squeeze China hard enough to cut it off from global R&D, or stop all advances by Chinese companies?
Gavekal Dragonomics
September 4, 2019
Could Taiwan be a winner in the US-China trade war? As Dan reports in this piece, US tariffs have succeeded in getting major contract manufacturers of electronics to shift jobs out of China, some of which are going to Taiwan. But this trend is not enough to end Taiwan’s dependence on Chinese growth, or its vulnerability to Chinese competition.
Gavekal Dragonomics
August 13, 2019
The outcome of US-China trade talks is uncertain, but one thing is clear. Chinese companies, their customers and suppliers, faced increased risks of US American sanctions. Hardliners in the US national security establishment are pressing ahead with an “all-of-government” strategy to constrain China’s technological and financial clout.
Gavekal Dragonomics
September 10, 2019
The African swine fever crisis in China is reaching a new stage as prices for pigs and pork spiral upward at an unprecedented pace. The government is responding with a combination of subsidies for pork farms, as well as rationing and price caps. But this is a short-term strategy that will not contain the ASF epidemic and could even worsen it.
Gavekal Dragonomics
August 21, 2019
With exports and domestic investment both weakening, China’s government hopes that consumer spending will support growth. The bad news is that all indicators of consumer spending are still softening. With a deteriorating job market weighing on household income Chinese consumer spending is set to weaken further over the coming quarters.
Gavekal Dragonomics
August 20, 2019
After a brief respite earlier in the year, China’s private sector is once again facing a credit squeeze. The PBOC’s announcement over the weekend of a change in the calculation methodology for the loan prime rate is likely to lower the cost of corporate loans, but it does not make it any easier for private firms to get finance.
Gavekal Research
September 23, 2019
Investors and environmentalists alike got their hopes dashed on Friday. Their best-case scenario would have seen Berlin invoke a climatic emergency to override fiscal orthodoxy and roll out a stimulative program of green investment. In the event, the measures announced not only fell short of the green lobby’s expectations—they were budget-neutral.
Gavekal Research
September 11, 2019
German savers face “custody fees” when depositing big sums at the bank, or get clipped 50bp when buying a euro-denominated money market fund. Such outcomes explain why a growing number of economists oppose calls for the European Central Bank to cut rates further and restart quantitative easing when it meets tomorrow.
Gavekal Research
August 26, 2019
The biggest threat to world economic growth today is not the US-China trade war, but German exceptionalism. Even as Germany has suffered the greatest growth downgrades of any major economy, its politicians have obstinately rejected any Keynesian fiscal expansion. Now calls are mounting for a policy U-turn, but Anatole isn’t holding his breath.
Gavekal Research
September 9, 2019
Reports that China has signed a long term agreement to buy large quantities of Iranian oil in defiance of US sanctions will weigh on global crude prices and further complicate US-China talks, reducing the chances of a deal before the 2020 US election. In effect, the world is now facing a four-way tug of war over the oil price.
Gavekal Research
August 29, 2019
The world’s fixed income markets are priced for a severe bout of demand destruction and deflation. Yet, outside Europe at least, growth in the world’s major economies continues to tick over. However, could a sudden oil price rise spark an uptick in inflation pressure that triggers an abrupt repricing in which bond yields spike sharply higher?
Gavekal Dragonomics
August 5, 2019
China’s government is once again going after pollution from the steel industry, raising the risk of more policy-induced spikes in steel prices. While forced shutdowns to ensure blue skies are on the way, Rosealea argues that the bigger risk to steel prices is on the downside, due to weakening construction activity and cautious housing policy.
Gavekal Research
September 24, 2019
India’s decision to cut its corporate tax rate from 30% to 22% has spurred a 7% surge in equities as investors bet on new capital spending reigniting a stalled growth cycle. The problem is that even if this fiscal easing spurs more business investment, the consumer side of India’s economy remains stuck in a low gear due to knottier problems.
Gavekal Research
September 5, 2019
They say the first step to solving a problem is recognizing that you have one. With its recent moves to shore up sagging growth, Narendra Modi’s new government has finally acknowledged that India’s economy is in trouble. But unless it quickly finds a coherent reform strategy, Modi’s second term could fizzle out into economic failure.
Gavekal Research
August 22, 2019
India’s economy is weak across the board, weighed down by lackluster investment, anemic consumption and soft external demand. Deep reforms are needed to unlock the country’s economic potential.
Gavekal Research
September 20, 2019
Washington views China as a strategic competitor, and the White House has promised a “whole of government” effort to constrain China’s development of key advanced technologies. Dan examines the three ways in which the US is making life difficult for Chinese tech companies, and explores other weapons the US could deploy should the tech war escalate.
Gavekal Research
September 13, 2019
This week’s sacking of John Bolton as White House national security advisor triggered a fall in the price of oil as traders concluded the notorious war hawk’s departure paved the way for a relaxation of US sanctions on Iranian oil exports. That may be unlikely; US officials insist their policy of “maximum” pressure on Iran remains in force.
Gavekal Research
September 6, 2019
Yesterday Italy’s new government took office, the 66th since 1946. Meanwhile, Italian bond yields have reached record lows. Nick attributes this to two factors. First the global bond rally. Second, the shifting winds of Italian politics away from the Euroskeptics to the Europhiles, which bodes well for Italian-European budget negotiations.
Gavekal Research
September 2, 2019
Considering the political chaos that will descend this week on the UK, it may seem surprising that the pound has bounced back to its trade-weighted level just before Boris Johnson became prime minister.
Gavekal Research
August 2, 2019
The sterling exchange rate is going down and the usual suspects say this is bad news. But the exchange rate is merely a price that helps allocate capital between the economy’s internal and external sectors, and so set the purchasing power of rentiers and entrepreneurs.
Gavekal Research
July 31, 2019
Since Boris Johnson became prime minister, the UK government’s promise of a “do or die” Brexit has caused sterling to slump -2.9% against the US dollar to about US$1.21. While the chances of Britain actually leaving the EU without a deal remain small, this outcome will remain unclear for some time.
Gavekal Research
September 11, 2019
Emerging market government bonds yield more than rich-world equivalents because investors worry about getting their money back. This higher return on capital can cause a feedback loop of rising foreign debt and diminished financial sovereignty.
Gavekal Research
August 29, 2019
As the external environment darkens, Asian governments are turning on the fiscal spigots—cautiously. Moves announced in recent weeks do not radically move the dial, but they should support growth.
Gavekal Research
August 14, 2019
In US dollar terms, Argentina's equity benchmark on Monday fell -48% in a one-day move. The -24% drop in long-dated US dollar-denominated Argentine bonds, a -17% drop in the currency, or the -38% fall in the local equity index will cause pain for certain macro players and dedicated emerging market funds.
Gavekal Research
September 5, 2019
In yesterday’s conference call, Anatole Kaletsky, Will Denyer and Louis-Vincent Gave outlined reasons for recent dramatic moves in bond markets and made arguments for what comes next. Anatole also addressed Brexit developments and Louis discussed the situation in Hong Kong.
Gavekal Research
September 3, 2019
Record low bond yields point to a deflationary catastrophe in the making. Yet growth data in the world’s two biggest economies remain decent. Could investors be reacting to a rupture in the international order? Gavekal analysts are not persuaded by such arguments and offer four alternative explanations for the “bond bubble”.
Gavekal Research
August 22, 2019
India’s economy is weak across the board, weighed down by lackluster investment, anemic consumption and soft external demand. Deep reforms are needed to unlock the country’s economic potential.
Gavekal Dragonomics
September 24, 2019
China’s government has launched a new program to renovate older residential compounds, which some are touting as a massive new investment stimulus. As Rosealea explains in this piece, such hopes are misplaced. But the new spending will help cushion the impact of the cutbacks of the subsidies delivered through the slum redevelopment program.
Gavekal Research
September 6, 2019
As prospects for a quick resolution of the US-China trade conflict fade, and the data continue to soften, expectations for Chinese growth are getting marked down. As if on cue, the government has sent signals of more decisive policy support for growth.
Gavekal Dragonomics
May 23, 2019
The rapid rise in China’s household debt has become a major concern for markets and policymakers. While most analysis looks at the household debt-to-GDP ratio, in this report Ernan calculates the household debt service ratio for a better angle on the problem. She finds that the debt burden on household budgets will keep increasing in 2019.
Gavekal Research
November 23, 2012
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.
Gavekal Research
July 20, 2011
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.
Gavekal Research
February 28, 2011
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’.