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Gavekal Research
Geoeconomic Monitor: Not So Fast On Ukraine
Arthur Kroeber, Tom Miller, Yanmei Xie, Tom Holland
14 Feb 2025
Donald Trump has moved to end the war in Ukraine through an opening gambit that seems to throw Ukraine under the bus. Arthur is not convinced this is the case. What's clear is that the US is prioritizing the Indo-Pacific. Tom Miller and Yanmei explore how the Quad will hold up in a US-led trade war. Lastly, Tom Holland asks if the US has the capacity to export all the liquefied natural gas that its trading partners want to buy.
Gavekal Research
Germany’s Choice
Cedric Gemehl
14 Feb 2025
On February 23, German voters will elect a new parliament. The resulting government is almost certain to be led by the Christian Democratic Union, but the makeup of that administration is uncertain. With Germany facing radical change, economically, fiscally, politically and strategically, Cedric maps a likely path for how the election aftermath will unfold.
Gavekal Research
The Changing Mood Towards China
Louis-Vincent Gave
14 Feb 2025
It seems that that US investor perceptions around China are evolving for the better, says Louis. On his this latest US tour, the “vibe” surrounding China felt very different. The simplest explanation for this mood shift is the release of DeepSeek’s new AI models, which blew holes in many market narratives. But investors may also finally be waking up to the unfolding bull market in Chinese equities.
Gavekal Dragonomics
Internet Platforms Are On Job-Creation Duty
Tilly Zhang
14 Feb 2025
Just a few years after China’s internet platforms were the chief villains in a regulatory crackdown, their political position has changed enormously. Tilly argues that the long economic slowdown means the government increasingly values them because they create millions of flexible jobs—but that stance also requires the companies to do more to favor the interests of workers.
Gavekal Dragonomics
The Signals From Travel And Leisure
Ernan Cui
Anti-Corruption In Overdrive
Xiaoxi Zhang, Christopher Beddor
Exercising Currency Restraint
Wei He
Firing The Tariff Artillery
Thomas Gatley
Macro Update: Tending The Green Shoots
Andrew Batson, Dragonomics Team
Vanke’s State Takeover Arrives
Xiaoxi Zhang
Protectionism Puts The Brakes On Auto Exports
Ernan Cui
Trump’s Trade Surprise
Wei He
A Precarious Acceleration
Wei He, Dragonomics Team
Taxis Prepare For Takeoff
Tilly Zhang
More research
Video: AI Makers And AI Users
Will Denyer
The Upside Surprise In Commodity Demand
Louis-Vincent Gave
The Return Of Inflation, And The End Of War
Will Denyer
DOGE Versus Reality
Will Denyer
Stirrings From US Manufacturing
Tan Kai Xian
Gold’s Strong Start To 2025
Louis-Vincent Gave
The Narrative Shifts So Far In 2025
Louis-Vincent Gave
The New Spanish Growth Story
Cedric Gemehl
A Defense Reformation
Yanmei Xie
Video: Rubio Wields The Big Stick
Tom Miller
Gavekal Research
Another Sputnik Moment
Louis-Vincent Gave
27 Jan 2025
China’s launch of its new DeepSeek large language model at a fraction of the cost of comparable US AI solutions calls into question a whole raft of the beliefs that have underpinned the bull market in US growth stocks over the last couple of years, writes Louis, potentially leaving the AI bubble facing its dot-com moment.
The global view
Conversation: The Trump Doctrine Emerges
It’s early days, but the outline of President Donald Trump’s vision for US foreign policy in his second term is taking shape. Rather than the isolationist agenda some expected, the animating idea so far seems to be a neo-imperialist revival of the Monroe Doctrine and the policies of President William McKinley at the end of the 19th century. Gavekal’s geopolitics team sat down to discuss what this would mean for trade and international relations for the next four years.
Webinar: The Trump Agenda
All eyes were on the White House after Donald Trump’s inauguration on Monday to see the initial flurry of executive orders that may indicate his governing priorities. Would he pursuse a maximalist trade-protection agenda, or invite allies and rivals alike to the bargaining table? Would he move quickly towards mass deportations of Illegal immigrants or be more surgical in his approach? Our team sat down to unpack the flurry of news from Trump's first days in office.
The Interregnum Ends
The US's 11-week period between the presidential election and the transfer of power allows for the formation of a cabinet and, inevitably, gives time for the incoming administration to signal where its priorities will lie; messages that the market takes on board and discounts. Louis looks at how markets have behaved since Trump's reelection, and considers which trends may fade.
Geoeconomic Monitor: Bracing For Tariff Man
Donald Trump will take office on Monday, vowing to use massive tariffs—and other forms of coercion—to remake the world on America-first lines. We are launching a biweekly Geoeconomics Monitor which will offer short takes on key developments. In today’s first edition, we assess the impacts of Trump’s tariff-based foreign policy, the impact on oil of prospective peace deals, and how emerging economies will hedge their bets.
Test Your Knowledge
It’s St Valentine’s day. Over the last 12 months, the price of which St Valentine’s day essential has increased the most?
Post Your Answer
Chart of the Week
Germany usually stands out as the most vulnerable to US tariffs among European economies. This makes sense because it accounts for nearly half of the EU’s trade surplus in goods with the US alone. But smaller countries could also be in Trump’s crosshairs. Ireland, for example, also has a sizable trade surplus with the US, reflecting tax optimization by US multinational firms. Denmark also stands out due to Novo Nordisk’s large sales in the US. Outside the EU, Switzerland looks to be at risk and had already been labeled a currency manipulator by the US Treasury Department between December 2020 and April 2021.
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.
US economy & markets
The Return Of Inflation, And The End Of War
US inflation and inflation expectations are on the rebound, threatening to push both US interest rates and the US dollar higher. Will argues that policy actions from the US government, the Fed and whether a peace deal can be reached on Ukraine will be crucial to determine inflation's course.
DOGE Versus Reality
Donald Trump, Scott Bessent and Elon Musk want to cut wasteful US government spending and shrink the fiscal deficit. There is a precedent. In the 1990s under Bill Clinton, government spending fell relative to GDP, while revenues rose, balancing the budget. But, argues Will, back then powerful structural forces assisted the exercise—forces which have long since reversed.
Stirrings From US Manufacturing
Something is stirring in the US capital goods sector. January’s manufacturing reading from the Institute of Supply Management nudged into expansion territory for the first time in 26 months. This is noteworthy as the normal seasonal pattern is for manufacturing equipment orders to be slow early in the year. Kai Xian examines the developments and what to make of this manufacturing equipment boom in the US.
What The Market Gets Wrong About Tariffs
What tariffs the United States ends up levying on which of its trading partners remains to be seen. However, the market has already concluded that tariffs on imports into the US are bad news for US equities but positive for the US dollar. While it is likely right about equities, the market could well turn out to be wrong about the effect of tariffs on the US dollar.
Gavekal Research
Webinar: The Future Of AI After DeepSeek
Louis-Vincent Gave, Will Denyer, Tilly Zhang
7 Feb 2025
DeepSeek stunned the world with the release of two new AI models with performance comparable to models from the US market leaders, but which the Chinese company developed at a fraction of the cost and with less powerful chips. Tilly Zhang, Gavekal’s technology analyst, founding partner Louis-Vincent Gave and US economist Will Denyer assessed the extent of DeepSeek’s achievement and examined what it means for China’s AI development, US export controls, and the future of the US tech stock bull market.
Emerging markets
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.
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.
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.
Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
Latest video
Gavekal Research
Video: AI Makers And AI Users
Will Denyer
13 Feb 2025
The US equity market, and the Magnificent Seven in particular, have benefited from AI excitement and a perception that the US is the unambiguous leader in this technological race. Then came the DeepSeek release which has challenged those basic assumptions. In order to think through the sector’s competitive dynamics, Will says it is useful to break the market down into the makers of AI applications and users of them.
India chartbook
Gavekal Research
India Macro Update: A Normal Slowdown
Udith Sikand, Tom Miller
10 Dec 2024
Despite consternation over the sharp deceleration in GDP growth, India’s economic slowdown looks cyclical rather than structural, argue Udith and Tom. A continued pickup in private consumption together with a revival of government spending is expected to improve the growth outlook in the near term.
China chartbook
Gavekal Dragonomics
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.
Europe's economy
Germany’s Choice
On February 23, German voters will elect a new parliament. The resulting government is almost certain to be led by the Christian Democratic Union, but the makeup of that administration is uncertain. With Germany facing radical change, economically, fiscally, politically and strategically, Cedric maps a likely path for how the election aftermath will unfold.
The New Spanish Growth Story
Over the past two years, Spain’s economy has offered up a rare bright spot within an otherwise troubled eurozone economy. Spanish output has risen by a chunky 5.9% in real terms since the fourth quarter of 2022, contrasting with a meager 1% for the broader eurozone. Looking forward, Cedric argues that Spanish economic outperformance should continue in 2025, albeit with a likely changing set of growth drivers.
Trump Tariffs And A Europe Reflation
To date, Europe has ducked this week’s salvo of US tariffs but it seems only a matter of time before the world’s biggest trading bloc ends up in President Donald Trump’s firing line. Having sold off on Monday morning, European markets then rallied through Tuesday, as the US agreed to negotiate with Canada and Mexico over its threatened 25% import tariffs. That initial move lower in stocks, bond yields and the euro is a signal to take seriously. But there are also limits to this knee-jerk reaction.
Towards A More Hawkish ECB In 2Q
When the European Central Bank cuts its policy rate by -25bp on Thursday, it will surprise no one. The consensus for the ECB’s March meeting is almost as strong. Beyond March, however, things get a lot more questionable. In recent weeks, a flock of ECB policymakers have doubled down on the bank's dovish stance for 2025, but the market is less confident.
Strategy Chartbook
Gavekal Research
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.
Equities
The Interregnum Ends
As January Goes, So Goes The Year?
Four Known Unknowns In The Year Ahead
Navigating The New Year Volatility
Building Narratives Around Obvious Outliers
And The 2024 Awards Go To…
Oil & commodities
The Upside Surprise In Commodity Demand
The Trouble With Energy Dominance
Video: Why Now For Russian Oil Sanctions?
Building Narratives Around Obvious Outliers
The Syrian Revolution
Conversation: What Could Derail The Inflationary Boom
China tech
What DeepSeek Means For China’s AI
Video: The DeepSeek Leap
Another Sputnik Moment
Biden’s Last Salvo Of Tech Protectionism
China’s Export Controls Send A Serious Signal
Xi Goes All In On Tech
Then Yen Carry Trade Unwinds
Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
More Questions Than Answers
It’s a dedicated Frenchman who consents to work in August. But the financial market volatility of the last week has seen Louis hard at it, fielding client questions about the outlook for global markets and economies. In this paper, he sets out the most salient questions, and offers his answers.
The Root Cause Of Summer Ructions
Investors are no longer seeing virtue in a Goldilocks scenario of moderating demand and easing price pressures, but having a summer freak-out over faltering global growth. Udith and Kai Xian diagnose the market jitters and say that the sell-off in high-yield currencies and tech stocks likely stems from movements in Japan rather than disappointing US economic data.
The Yen And Deindustrialization
There is a theory out there which holds that the extreme undervaluation of the yen is a consequence of Japanese deindustrialization, as Japan Inc. has shipped its factories abroad, pushing Japan's economy into an irreversible trade deficit even while it continues to run a monster current account surplus. Not so fast, says Charles, whose analysis of Japan’s external balances throws up a different explanation—and suggests a compelling investment opportunity.
