Since the depths of the pandemic, the US labor market has recovered remarkably quickly. A key question for investors is how long strong job creation can be sustained before upward wage pressure returns. Ahead of Fridays’ payrolls report, Kai Xian outlines the key drivers of the US labor market.
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Gavekal Research
August 5, 2021
Video: A Healing US Labor Market
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Gavekal Dragonomics
August 5, 2021
Another Squeeze For Steelmakers
Steel futures are on the rise again after several provinces announced plans to cut production. This might sound familiar: prices spiked in April and May following similar announcements. Rosealea writes that this time is different, as slowing construction activity in 2H21 should lower steel demand, making production easier to control.
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Gavekal Research
August 5, 2021
The Sobering Signal In Lumber
Back in May, an internet meme suggested that if you wanted to impress your date by taking them somewhere really expensive, you should go to a lumber yard. No longer, as the price of US two-by-four has since cratered by two-thirds. KX examines what commodity-price moves such as this can tell us about the broader economy.
The US economy and markets
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Gavekal Research
July 27, 2021
Strange Times And The Return Of TINA
Fresh Covid-19 outbreaks, stunning Chinese regulatory actions and worries over global growth are causing US real bond yields to plumb new depths. So what is the humble investor to do?
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Gavekal Research
July 23, 2021
Did The Equity Rotation And Bond Sell-Off End In May?
The arrival of Covid-19 vaccines in November sparked a selloff in bonds and significant outperformance of value stocks, at least until mid-May. Having advised a bias to value stocks and keeping duration short in bond portfolios since last November Will was wrong-footed by the market moves of the past two months. Will the new trend last?
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Gavekal Research
July 21, 2021
A High-Pressure Business Cycle
The US economy may have suffered one of its biggest ever contractions last year, but at just two months, it was one of the shortest due to aggressive policy reactions that spurred an unlikely economic boom. A worry for investors is that late-cycle stresses now emerging cause this expansion to fade as quickly as it started.
Covid-19
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Gavekal Research
June 9, 2021
The One For All Problem
Now that a deal has been done on corporate taxation, this weekend’s Group of Seven summit will focus on helping low-income countries roll out Covid-19 vaccination programs. Given inevitable production and distribution problems, the world is unlikely to be fully vaccinated before the end of 2022.
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Gavekal Dragonomics
May 25, 2021
After The Vaccine
China’s Covid-19 vaccination program has significantly accelerated in May, bringing it on track to reach its target of administering at least one dose to 40% of the population by end-June. In this report, Ernan explains why this achievement does not mean the country will be opening its borders or removing domestic precautions this year.
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Gavekal Research
May 7, 2021
India Is Running Out Of Road
After Mumbai and Delhi, Bengaluru is the latest big Indian city to face a second wave of Covid infections. India’s underfunded health system is collapsing, as we feared it could a year ago. Yet markets are shrugging off the crisis: equities are flat, the rupee resilient. Tom and Udith investigate whether this disconnect is likely to persist.
Oil
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Gavekal Research
July 6, 2021
Opec Frays
Last year, when Opec+ talks broke up without an agreement on setting production quotas, the oil price collapsed. On Monday, when Opec+ talks broke up without an agreement on setting production quotas, the oil price surged. The majority of market watchers see no inconsistency, but they are making some large assumptions, which deserve close scrutiny.
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Gavekal Research
June 16, 2021
What’s Your Linchpin Made Of?
Writing here on Tuesday, Louis argued cogently that energy prices will be the “linchpin” that decides the future direction of inflation. But, in asking whether governments can successfully engineer a green energy transition, it’s fair to say he was thinking in terms of years ahead.
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Gavekal Research
June 15, 2021
The Energy Question
Over the last 20 years, China has been the biggest buyer of most commodities. For investors, this meant that when China was tightening, easing up on commodity exposure made sense. That has not been the case in 2021, and in this piece, Louis seeks to explain why.
Global Strategy
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Gavekal Research
July 27, 2021
Behind China’s Corporate Clampdown
Private education is the latest sector to draw fire from the Chinese authorities. Their action has precipitated an abrupt slide in Hong Kong’s equity indexes as international investors bale out, alarmed at what they see as official caprice.
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Gavekal Research
July 20, 2021
The World Becomes More Fragile
In a July 2 paper, Didier Darcet explained how after seven months of being positive, the market reading from our Paris-run quant system had turned negative. The takeaway was that equity market volatility had “more than ever” become the indicator signaling a downturn.
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Gavekal Research
July 12, 2021
Will Manic Depression Move From Bonds To Equities?
The retreat of US bond yields over the past quarter was no surprise for Anatole, as he has argued for much of this year that both US policymakers and investors would ultimately look through the "inflation scare".
Europe's economy
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Gavekal Research
July 26, 2021
A Glass Less Full
The eurozone’s economy has continued to pick up in July, with the flash composite PMI released on Friday beating expectations to hit a 21-year high.
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Gavekal Research
July 23, 2021
Low For Even Longer
On Thursday, the European Central Bank’s decisionmakers sat down for their first monetary policy meeting since they ditched their longstanding inflation target of “below, but close to 2%” in favor of a new symmetrical target centered on 2%.
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Gavekal Research
July 9, 2021
Bye-Bye Buba
The European Central Bank on Thursday jettisoned its longstanding inflation target of “below, but close to 2%” in favor of a symmetrical target centered around the 2% mark.
China Tech
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Gavekal Research
June 17, 2021
Irresistible Force Vs. Immovable Object, Round Two
US policy on China is now defined by an acute tension between national security and business interests. In this report, Arthur and Dan explain how the Biden administration is navigating this tension, one which will be a permanent feature of the global landscape over the next decade.
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Gavekal Research
May 13, 2021
The Future Of Chips Is Overcapacity
Semiconductors are tough to come by these days, and the shortage will be deep and long-lasting. Yet chips are about to turn into more of a commoditized product, just as companies make huge investments in production capacity and governments spend big to achieve self-sufficiency on national security grounds.
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Gavekal Dragonomics
May 4, 2021
Biden's Tech War
The US has changed generals in its tech war against China, but that has not brought a respite in the campaign. President Joe Biden is deploying many of the same sanctions used by the Trump administration, while also looking to invest in extending the US technological lead. In this piece, Dan surveys the state of play in the US-China tech war.
China's economic cycle
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Gavekal Research
July 29, 2021
When Will The Regulatory Rout End?
Investors in China’s offshore-listed stocks have suffered multiple regulatory shocks. But with both onshore and Hong Kong equities now suffering, the crackdown is hitting domestic investors. Thomas explains why this will likely change the calculus for China’s policymakers, and why regulators are now likely to adopt a more constructive tone.
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Gavekal Research
July 28, 2021
The Evergrande Drama Plays Out
Investor confidence in Evergrande Group, China’s second-largest property developer, has been pummeled in recent weeks. While Evergrande has managed to put out the latest round of fires, and a collapse is unlikely, Rosealea argues in this piece that market volatility for developers will probably continue as financial regulators keep on squeezing.
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Gavekal Dragonomics
July 27, 2021
The WMP Countdown
The clock is ticking for China’s banks to restructure the wealth-management products they have long used to evade financial regulations. Progress has been slow, but regulators have signaled they will not extend the end-2021 deadline again. However, as Xiaoxi argues in this piece, regulators will end up having to grant banks plenty of exceptions.
Hong Kong
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Gavekal Research
January 27, 2021
The Sinification Of The Hong Kong Market
Even though the Hang Seng index fell -2.55% on Tuesday, Hong Kong is still the world’s best performing major stock market year-to-date. In Hong Kong’s media the run-up is attributed to waves of mainland Chinese money flowing into the city’s equities.
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Gavekal Dragonomics
January 19, 2021
Small Borrowers Still Struggling
Even after a dramatic economic recovery, many of China’s smallest businesses are still struggling. In this piece, Xiaoxi shows how the government’s financial-support measures did little to improve small businesses’ access to financing, which is already tightening. But the policies are helping banks avoid a potential spike in bad loans.
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Gavekal Dragonomics
January 18, 2021
A Two-Speed Recovery
China’s Q4 GDP growth surpassed pre-Covid rates, with housing and manufacturing leading while services lagged and infrastructure investment slowed. In early 2021, this divergence is likely to continue as consumers stay home for the Chinese New Year and poor credit growth drags on infrastructure investment.
India
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Gavekal Research
July 14, 2021
Distributional Effects Of A Pandemic
While business activity in India has rebounded to above 90% of its pre-pandemic level, the economic suffering caused by lockdowns remains acute. Small firms are struggling to survive, millions of households have fallen into poverty, inequality has worsened and employment levels have structurally declined.
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Gavekal Research
June 10, 2021
India Macro Update: Down But Not Out
India’s economic recovery was hit by the April-May surge in Covid-19 infections, with the only silver lining being that the second wave was less economically damaging than the first one. With cases now declining and many states opening up, the worst of the economic disruption should be over.
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Gavekal Research
May 7, 2021
India Is Running Out Of Road
After Mumbai and Delhi, Bengaluru is the latest big Indian city to face a second wave of Covid infections. India’s underfunded health system is collapsing, as we feared it could a year ago. Yet markets are shrugging off the crisis: equities are flat, the rupee resilient. Tom and Udith investigate whether this disconnect is likely to persist.
Video
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Gavekal Research
July 29, 2021
Video: The Semiconductor Crunch And Asian Exports
Apple's Tim Cook warned investors that it would face microchip shortages in the second half of the year. Yet last week, Taiwan Manufacturing Semiconductor said that it saw an abatement of the great chip shortage. In this video interview, Vincent seeks to reconcile these two statements, and explain what it all means for Asian exports.
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Gavekal Research
July 22, 2021
Video: The Debt Ceiling Is Back
After a two-year suspension, the US debt ceiling will soon be reimposed at current levels. Official estimates suggest that the Treasury can delay defaulting on its debt for three to four months. That is shorter than the five months the Treasury was able to delay during a similar standoff over the debt ceiling in 2019.
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Gavekal Research
July 15, 2021
Video: The IMF Weighs In
Large emerging markets have managed through the pandemic decently well, yet the debilitating economic effects of Covid mean stresses are appearing among lower quality national borrowers. This is one reason that the International Monetary Fund is set to expand distribution of its "Special Drawing Rights" reserve-type asset by US$650bn.
Emerging markets
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Gavekal Research
July 22, 2021
The Fiscal Effect Of Zero Covid
As a resource-rich economy, Malaysia has been buoyed by strong commodity and energy prices, yet the effect of the pandemic has been to create an unstable political situation. The governing coalition fell apart on July 8 and a new one has not been formed.
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Gavekal Research
July 19, 2021
Rotate Back To Taiwan
Korea and Taiwan have lately been the twin star performers among East Asia’s equity markets. Over the 12 months to the end of June, MSCI Korea returned 70% in US dollar terms, and Taiwan 69%. Both markets were supercharged by the strongest local export growth in decades.
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Gavekal Research
June 30, 2021
Asia’s ‘Heads I Win, Tails I Don’t Lose’
It was less of a taper tantrum, more of a taper tizzy. In response to the US Federal Reserve’s first talk of policy normalization in mid-June, the DXY US dollar index rose 1.9% and the S&P GSCI commodity index fell -2.7%.
Brexit and the UK economy
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Gavekal Research
May 10, 2021
A Post-Brexit Britain
Some long-term investors do seem to be worried that a breakup of the United Kingdom could add another element of uncertainty to what I described last year as the “triple whammy” of Brexit, Covid and the British Treasury’s surprising flirtation with tax increases and premature fiscal tightening.
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Gavekal Research
February 22, 2021
Can Covid Vaccines Cure The Pound?
The British pound has been the strongest major currency so far this year, contrary to Anatole’s expectations at the end of 2020. In this piece he outlines three reasons for sterling’s outperformance, but maintains that in the long term the pound will be forced lower.
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Gavekal Research
February 2, 2021
The Real Effect Of The Vaccine Row
The fiasco of Europe’s vaccination plan and Brussels’ retreat from its standoff with the UK and AstraZeneca have has caused the euro to weaken.
Deep Dives
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Gavekal Research
June 3, 2021
Strategy Monthly: Tapering Without The Tantrum?
The US Federal Reserve’s April minutes revealed that some policymakers are keen to begin talking about tapering the Fed’s assets purchases. In 2013, talk of Fed tapering triggered a traumatic sell-off in emerging market assets and currencies. So how great is the risk of a similar emerging market rout this time around?
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Gavekal Research
May 28, 2021
Webinar: The Commodity Spiral
Global commodity prices have been on a tear in recent weeks due to strong global growth prospects and constricted supply. The macro picture, however, is murky, with China simultaneously being the driver of soaring iron ore prices while moving to tighten controls over property and infrastructure spending.
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Gavekal Dragonomics
May 27, 2021
The China Inc. Annual Report 2021
China’s companies are enjoying a historic boom as domestic and global demand bounces back from the shock of Covid-19. But how long will it last, and what will the longer-term effects be? In this annual chartbook, Thomas lays out the fundamentals of China’s corporate sector through a detailed examination of income statements and balance sheets.
Chinese property and commodities
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Gavekal Research
July 28, 2021
The Evergrande Drama Plays Out
Investor confidence in Evergrande Group, China’s second-largest property developer, has been pummeled in recent weeks. While Evergrande has managed to put out the latest round of fires, and a collapse is unlikely, Rosealea argues in this piece that market volatility for developers will probably continue as financial regulators keep on squeezing.
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Gavekal Dragonomics
July 6, 2021
Another Go At The Property Tax
After two years of silence, the Chinese government has signaled it is making a new effort to implement a residential property tax by expanding local trials. In this report, Rosealea explains why, against a better economic backdrop and with less organized opposition, the property tax is likely to stick this time around.
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Gavekal Dragonomics
June 2, 2021
Striking A Balance On Steel Restrictions
China’s steel output restrictions are softening following a sharp downward price correction. Rosealea writes that while environmental targets prevent officials from abandoning production curbs altogether, they will need to introduce demand-side constraints to match these supply-side measures and to avoid a repeat of the recent price dislocations.
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’.