Most Recent
Gavekal Research
Video: France's Olympics Scale Challenges
Cedric Gemehl
26 Jul 2024
On the eve of the Paris Olympics, France’s political class has taken a welcome break from trying to resolve the parliamentary dilemma thrown by a deeply divided electorate. In this video, Cedric discusses the state of France and whether its economy can expect to benefit from an Olympic bounce to chase away the summer blues.
Gavekal Research
The Messy Politics Of Electricity
Tan Kai Xian
26 Jul 2024
In Thursday’s Daily, Louis addressed the breakdown of a number of crowded trades. One such trade involved US electrification due to the adoption of electric vehicles, and demand from renewable energy and data centers. Since late 2022, this investing theme has spurred a tight correlation between US utility stocks and industrial metals. Yet in recent weeks, the relationship has dissolved. Kai Xian discusses recent developments that led to this split.
Gavekal Dragonomics
Tech Policy Won’t Fix The Job Market
Ernan Cui
26 Jul 2024
China’s policymakers are pursuing a profound transformation of the economy through a technology-focused development strategy. But Ernan argues that channeling more investment into high-tech manufacturing industries is highly unlikely to create many new jobs. It’s difficult to see how the current policy strategy could tighten the job market, and in turn boost household consumption.
Gavekal Research
Two Dates And Market Behavior
Louis-Vincent Gave
25 Jul 2024
Starting around May 21, the momentum in a number of markets started to break down, with copper, soft commodities and Chinese equities rolling over. Then, on July 10, the yen started to rally, and semiconductor companies' market caps fell. Of course, one could dismiss all the above moves as the short-term market noises that tend to occur in the middle of summer. Still, Louis finds it hard not to link some of the above with recent important developments.
Gavekal Dragonomics
Xi Goes All In On Tech
Tilly Zhang
Priorities At The Third Plenum
Andrew Batson
Another Warning To Bond Markets
Wei He
Growth Decelerates
Wei He, Dragonomics Team
The Localization Drive Steps Up
Tilly Zhang
Dealing With The Next Wave Of Bad Loans
Xiaoxi Zhang
Food Security Is Back
Ernan Cui
The PBOC’s New Yield Floor
Wei He
The Missing Consumer Stimulus
Andrew Batson
How To Get Households Back Into The Stock Market
Xiaoxi Zhang, Thomas Gatley, Wei He
More Research
Politics, Geopolitics And Markets
Louis-Vincent Gave
A Budget For Modi 3.0
Tom Miller, Udith Sikand
The US Dollar Mystery
Charles Gave
The Risk Of Procyclicality
Tan Kai Xian
Biden And The Trump Trades
Anatole Kaletsky
The Promise Of Loose Fiscal, Tight Monetary Policy In EMs
Udith Sikand
Trump And The Dollar
Charles Gave
Video: Towards A Trade War On All Fronts
Yanmei Xie
The Trump Trade Around The World
Tan Kai Xian, Cedric Gemehl, Thomas Gatley, Udith Sikand
Conversation: Where Trump 2.0 Might Surprise Markets
Louis-Vincent Gave, Anatole Kaletsky
Gavekal Research
Where Will US Inflation Settle?
Will Denyer, Tan Kai Xian
9 Jul 2024
In recent months, Will and Kai Xian have spilled much ink opining about the US’s near-term inflation outlook. In this report, they instead focus on where US inflation is likely to settle in the medium term. They continue to see the Federal Reserve as the dominant actor in this great game, but explore other factors that could upset the apple cart.
The global view
Two Dates And Market Behavior
Starting around May 21, the momentum in a number of markets started to break down, with copper, soft commodities and Chinese equities rolling over. Then, on July 10, the yen started to rally, and semiconductor companies' market caps fell. Of course, one could dismiss all the above moves as the short-term market noises that tend to occur in the middle of summer. Still, Louis finds it hard not to link some of the above with recent important developments.
Politics, Geopolitics And Markets
The spring and summer of 2024 have been rich in political and geopolitical upheavals. Yet, Wednesday’s sell-off in US tech stocks notwithstanding, most financial markets have remained calm. Louis attributes this placidity to the relative stability of oil prices, which often act as the link between geopolitics and broader financial markets. In this paper, he looks at the reasons for this stability, and considers what could disrupt it.
The Underperformance Of Energy Names
Over the last three months, the S&P energy index has underperformed the S&P technology index by -25pp. A share price is a stream of earnings, discounted by an interest rate, onto which investors tack a risk premium. There are few reasons to think energy companies will face an earnings collapse, or be affected by interest rates. So as energy stocks derate, the most likely culprit seems to be the risk premium linked to global investors’ outlook.
The Two Types Of Asset
There are two types of asset in the world: real assets and monetary assets. In the past, both have had their places in investors’ portfolios—in proportions determined by Gavekal’s Four Quadrants framework. But today, Charles worries that monetary assets in major developed economies will fail to ensure the return of investors’ capital, let alone a return on their capital.
Test Your Knowledge
Why are the athletes’ beds at the Paris Olympics made of cardboard?
Post Your Answer
Chart of the Week
Across the emerging markets, political leaders with populist leanings are calling for looser fiscal policy. Many are also berating local central banks for failing to do more to support growth, and leaning on them to loosen monetary policy. For the most part, central bankers, jealous of their independence, are pushing back and keeping monetary conditions relatively tight to counter inflation.
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 Messy Politics Of Electricity
In Thursday’s Daily, Louis addressed the breakdown of a number of crowded trades. One such trade involved US electrification due to the adoption of electric vehicles, and demand from renewable energy and data centers. Since late 2022, this investing theme has spurred a tight correlation between US utility stocks and industrial metals. Yet in recent weeks, the relationship has dissolved. Kai Xian discusses recent developments that led to this split.
The Risk Of Procyclicality
As Democrats move to anoint a new presidential candidate, the US general election is in a state of radical uncertainty. Perhaps the one sure thing created by President Joe Biden’s withdrawal from the race is, as Anatole argued on Monday, a contest that sees “more extravagant promises of faster economic growth, higher government spending, lower interest rates and no tax hikes”. It all points to US fiscal policy staying on an expansionary procyclical path.
The Trump Trade Around The World
Since Joe Biden’s dismal debate performance and last weekend’s attempted shooting of Donald Trump, investors have had to price in a greater probability of a Trump victory come November’s election. While this is generally seen as bullish for US equities, the implications for other markets around the world are less positive.
US Infrastructure Is Still Worth A Bet
Given the euphoria surrounding AI, it can be hard to recall a time when the US equity market was not fired up by tech dreams. Yet go back a couple of years and the hottest story in town after Biden’s Infrastructure Investment and Jobs Act became law was reinvigorated old-world
engineering plays. It could be that this most grounded of sectors in the resource-constrained real world gets another shot to shine.
Gavekal Dragonomics
Webinar: Setting The Agenda For China's Plenum
Andrew Batson, Thomas Gatley, Tilly Zhang
12 Jul 2024
China's Communist Party is gearing up to hold its Third Plenum later this month, an event where top leader Xi Jinping will have a platform to articulate and possibly revise his vision for the economy. With domestic consumers in the doldrums, and trade tensions escalating, is a course correction for China coming? In this webinar our team of China experts explained what to expect, and not to expect, from this high-level conclave.
Emerging markets
A Budget For Modi 3.0
Concerns that Indian Prime Minister Narendra Modi would take a populist lurch were alleviated on Tuesday, as finance minister Nirmala Sitharaman pledged to reduce the deficit in the new budget, while maintaining healthy levels of infrastructure spending. But three new schemes to boost jobs, largely borrowed from opposition party policies, suggest that the government has heeded the lessons of the election.
Webinar: Into The Upswing
In this webinar Gavekal’s analysts review the themes driving growth across the world’s major economic regions, and discuss how macro developments are likely to drive financial markets over the remainder of 2024.
Webinar: Animal Spirits In The Emerging Markets
While US tech stocks have been getting all the publicity, capital has quietly been flowing into emerging market investments over recent months. To gauge market prospects over the rest of 2024, Udith Sikand examined the macroeconomic outlook for the major emerging markets ex-China, while Thomas Gatley assessed the chances of a revival of animal spirits in the Middle Kingdom.
EM Debt Market Issuance Cranks Up
Heightened US bond market volatility has often coincided with emerging-market assets incurring higher risk premiums. That was then. This cycle has differed since emerging markets have survived the most aggressive Fed tightening cycle in a generation with minimal fuss. So what accounts for EMs’ apparent new-found resilience?
Latest video
Gavekal Research
Video: France's Olympics Scale Challenges
Cedric Gemehl
26 Jul 2024
On the eve of the Paris Olympics, France’s political class has taken a welcome break from trying to resolve the parliamentary dilemma thrown by a deeply divided electorate. In this video, Cedric discusses the state of France and whether its economy can expect to benefit from an Olympic bounce to chase away the summer blues.
India chartbook
Gavekal Research
India Strategy: Resetting Expectations
Udith Sikand, Tom Miller
13 Jun 2024
Indian prime minister Narendra Modi has been sworn in for a third consecutive term in office, but his policy agenda will be constrained by the pressures of running a coalition government. The worry is that a hitherto pro-business government will become more captive to labor interests, and hence Indian assets may now be derated.
China chartbook
Gavekal Dragonomics
The Financial Risk Report 2024
Xiaoxi Zhang
10 Jun 2024
China's property-market downturn exacerbated debt strains last year among the two biggest financial weak points: local-government financing vehicles and real-estate developers. But the fortunes of the two groups of borrowers have since diverged substantially. This chartbook assesses that divergence, and explores the implications for the government, commercial banks, bond markets and other creditors.
Europe's economy
The Trump Trade Around The World
Since Joe Biden’s dismal debate performance and last weekend’s attempted shooting of Donald Trump, investors have had to price in a greater probability of a Trump victory come November’s election. While this is generally seen as bullish for US equities, the implications for other markets around the world are less positive.
Assessing France’s Indecisive Election
Sunday’s vote showed a growing French fondness for a political ménage à trois. The result of the election affirmed a three-way split, with all parties being well short of the 289 deputies needed for a majority. So what next? It is the president’s prerogative to choose the prime minister and in the coming days—and possibly weeks—Macron will consult with political leaders to see if one of three options can fly.
‘Change Election’ Changes Nothing
The Labour Party has achieved the biggest swing in British parliamentary history, while the Conservatives have suffered a near-extinction event. This electoral revolution was propelled by the one-word title on Labour’s manifesto cover page: “Change”. But the main result of Labour’s triumph will be to keep everything that matters in Britain pretty much the same as before.
Outcomes From France’s Second Round
On Sunday, July 7, French voters will go to the polls again in the second and final round of a snap election. Although the results of the first round came in much as the pollsters had projected, subsequent political realignments have significantly affected the probabilities of various possible outcomes. Markets are already pricing in these changes.
Gavekal Research
Strategy Monthly: India’s Juggernaut Gathers Momentum
Udith Sikand, Tom Miller
4 Dec 2023
In a world desperately short of good growth stories, India stands out as the world’s fastest-growing major economy, with favorable demographics and geopolitical tailwinds. Thursday’s GDP release showing growth at a scorching 7.6% YoY will only reinforce the excitement among investors.
Equities
Was That Unusual Day The Start Of Something Different?
Inflation Complacence Is Misguided—Again
Positioning For The French Election
Japan’s Military-Industrial Restoration
How To Get Households Back Into The Stock Market
Conversation: Between Tech And A Hard Place
Oil & commodities
Video: Aramco, Oil And Saudi's Economic Transition
The Relationship Between Energy And Financial Markets
A Barrel Half Empty
The Metals Boom And Electrification
Got Commodities?
The Energetic Danse Macabre
China tech
Xi Goes All In On Tech
Webinar: Setting The Agenda For China's Plenum
The Localization Drive Steps Up
After The Melt-Up In Semiconductors
Vietnam’s Bamboo Diplomacy
Big Tech’s Rearguard Action
The Inflation Question
Where Will US Inflation Settle?
In recent months, Will and Kai Xian have spilled much ink opining about the US’s near-term inflation outlook. In this report, they instead focus on where US inflation is likely to settle in the medium term. They continue to see the Federal Reserve as the dominant actor in this great game, but explore other factors that could upset the apple cart.
Inflation Complacence Is Misguided—Again
Even though Friday’s PCE print showed US inflation dipped further in May, Anatole warns that markets continue to underprice inflation risks. Beyond base effects which mean inflation is highly likely to tick higher in the short run, powerful structural forces will continue to exert upward pressure on global prices for at least the medium term.
Consequences Of A US Slowdown
The US economy faces what looks like a soft patch. After booming in 2023, GDP expanded at an annualized rate of just 1.3% in the first quarter of this year, the slowest rate since the second quarter of 2022. More timely data have been mixed but overall, measures of growth have ebbed in the last month. So what does this mean for monetary policy?
Webinar: The Return Of Goldilocks? Or Trump?
After a worrying rebound in the first quarter, US inflation cooled off a little in April, rekindling hopes of interest rate cuts later this year. Are those hopes well placed? And what does it mean for markets? Meanwhile, the opinion polls suggest that Donald Trump may prevail in November’s election. Chief US Economist Will Denyer and US Analyst Tan Kai Xian address all these issues and more.
