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Gavekal Research
Trump Risks More Liz Truss Moments
Will Denyer
22 Apr 2025
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.
Gavekal Research
A Tipping Point For The EU Labor Market
Cedric Gemehl, August Gudmundsson
22 Apr 2025
As the US pursues its trade war, Europe is perched awkwardly between the threat of export-busting tariffs and the promise of countervailing stimulus. The swing factor deciding Europe’s cyclical fate may be the performance of its labor market.
Gavekal Dragonomics
How Long Can Subsidies Fuel Auto Sales?
Ernan Cui
22 Apr 2025
As China’s government looks for ways to boost domestic demand to offset the blow from US tariffs, one straightforward option is to bolster the trade-in program to subsidize the purchase of consumer goods, most importantly autos. Ernan argues that such an expansion now seems likely, and policies to increase turnover of the passenger car stock may even be extended beyond 2025—potentially raising auto sales for years to come.
Gavekal Research
The Real Driver Of Dollar Weakness
Louis-Vincent Gave
22 Apr 2025
Today, the US finds itself in the unenviable position of running one of the largest budget deficits in the world. This is problematic for the Trump administration, which has never been shy about its goals of cutting taxes, yet still pushing long-dated government and corporate yields lower. The administration seems to believe the solution is simple: foreigners will pay.
Gavekal Dragonomics
Housing Inventories Diverge
Xiaoxi Zhang
The Calm Before The Trade Storm
Wei He, Dragonomics Team
The World’s Biggest Black Market
Thomas Gatley
It’s All About Domestic Demand Now
Andrew Batson
Next Up: Monetary Policy
Wei He
The Worst-Case Tariff Scenario
Thomas Gatley, Wei He
A Backdoor Bailout For State Developers
Xiaoxi Zhang
Multinationals Caught In The Trade Conflict
Christopher Beddor
The Market Liquidity Drain Reverses
Thomas Gatley
Fighting The Fertility Decline
Ernan Cui
More research
Where Will The Excess US Dollars Go?
Louis-Vincent Gave
Trump’s Other Reindustrialization Tools
Tan Kai Xian
Thoughts On The Upcoming Canadian Election
Louis-Vincent Gave
Are US Treasuries Still Antifragile?
Charles Gave
Webinar: Understanding The US-China Trade War
Arthur Kroeber, Andrew Batson, Thomas Gatley
Fort Monroe And LatAm Assets
Louis-Vincent Gave
The US Funding Problem
Tan Kai Xian
The Silver Linings For Europe
Cedric Gemehl, August Gudmundsson
A US Recession Need Not Harm Europe And China
Anatole Kaletsky
Can Trump Build An Anti-China Coalition?
Louis-Vincent Gave
Gavekal Research
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 Conference Board leading index fell -0.7% MoM in Mar, versus -0.2% in Feb
Fall greater than -0.5% expected
Economic uncertainty starting to weigh on business and consumer sentiment
Spanish construction starts rose to 12.5k in Dec, from 10.2k in Nov
NA; construction permits rose to 11.4k in Jan, from 9.2k in Dec
Housing demand set to recover as nascent credit cycle picks up pace
India's eight infrastructure industries index rose 3.8% YoY in Mar, versus 3.4% in Feb
NA
Indicates infrastructure capex cycle bottoming out; expect recovery to be slow
Indonesia's trade surplus widened to US$4.3bn in Mar, from US$3.1bn in Feb
Wider than expected US$2.9bbn; exports rose 3.2% YoY, imports rose 5.3% YoY
Tariffs likely to hit exports, causing trade surplus to narrow, weighing on IDR
Test Your Knowledge
In 2024, South Korea’s customs service detected KRW34.8bn (US$24.5bn) of exports marked “Made in Korea” that were not in fact made in Korea. What was the figure in the first quarter of 2025?
- KRW9.8bn
- KRW17.4bn
- KRW29.5bn
- KRW36.2bn
Chart of the Week
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
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
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.
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.
Video: The Trade War And China’s Home Front
As the US-China trade conflict has escalated uncontrollably, Christopher Beddor looks at the impact on China’s domestic economy, examines the steps that Beijing can take to support growth in the face of the export-sector shock, and assesses the probability of their success.
Is The Dust Settling?
Eight days after “liberation day,” seven days into an equity meltdown and three days into what risked becoming a bond crash, markets were given the opportunity to breathe a deep, deep sigh of relief Wednesday when Donald Trump announced a 90-day pause on tariffs for all countries except China. As the dust begins to settle, Louis offers his main takeaways.
US economy & markets
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.
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?
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.
Bessent’s Problem
US Treasury Secretary Scott Bessent needs to sell somewhere in the region of US$2trn in new debt this year, roll over some US$8trn in maturing treasury notes and bonds, and pay US$500bn in interest. To do this, Bessent needs to muster every buyer he can get. Yet patchy attendance at recent auctions, the 60bp rise in 10-year yields over the last week and the slide in the dollar signal that investors have become a lot more reluctant to hold US government debt.
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.
India chartbook
Gavekal Research
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
Gavekal Research
Video: The Anatomy Of A Bond Sell-Off
Will Denyer
14 Apr 2025
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.
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.
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.
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.
Europe's economy
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.
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.
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.
Germany’s Inflationary Dynamic
Investors worried that German fiscal stimulus may tip Europe into an inflationary spiral can take comfort from a benign starting point. Eurozone headline inflation dipped to 2.2% year-on-year in March, while the core reading came in lower than expected. Reduced pricing pressures stem from a cyclically weak German economy, and since it will take a while for its hotly anticipated stimulus to take effect, Europe is looking at a disinflationary interregnum.
Currencies
The Real Driver Of Dollar Weakness
Where Will The Excess US Dollars Go?
Is The Dust Settling?
The Rapidly Shifting Narrative Around Tariffs
The Meaning Of The Dollar Rout
Buy On Rumor, Sell On Tariffs
Oil & commodities
Geoeconomic Monitor: The Tariff Power-Play
What We Don’t Talk About When We Talk About Ukraine
The Upside Surprise In Commodity Demand
The Trouble With Energy Dominance
Video: Why Now For Russian Oil Sanctions?
Building Narratives Around Obvious Outliers
