Most Recent
Gavekal Research
Embrace China’s Reopening Rally
Thomas Gatley
5 Dec 2022
Investor sentiment on China has turned around rapidly in recent weeks, with the MSCI China up 28% in November and the CSI 300 up 11%. Now investors face the question whether to fade the rally, on the view that most of the good news is already in the price, or to embrace it, on the view that there is more upside than downside.
Gavekal Research
Themes For 2023: Consequences Of The US Bubble Implosion
Louis-Vincent Gave
2 Dec 2022
As Louis has had multiple discussions with clients about the investibility of China and Europe over recent months, he has continually run into the view that the US is the "cleanest dirty shirt". Here, he explores whether the US’s best-of-a-bad-bunch status can survive the rupture of its easy money-induced asset bubble.
Gavekal Dragonomics
Video: Unpicking China's Covid Exit
Christopher Beddor
2 Dec 2022
China took the first steps towards a de facto reopening this week, as the country’s strict Covid containment regime broke down following protests last weekend. In this interview, Christopher looks at why the breakdown happened and how reopening is likely to unfold in the coming weeks and months, including its implications for the economy.
Gavekal Research
Europe’s Coming Mortgage Shock
Cedric Gemehl
2 Dec 2022
Wednesday’s news that eurozone consumer inflation dipped to 10.0% year-on-year in November, from 10.6% the previous month, will have come as small comfort to households in Europe facing higher debt service costs over the next 12 months, especially on their mortgages, as a result of central bank interest rate hikes.
Gavekal Dragonomics
Property Policy Gets More Direct
Xiaoxi Zhang
Optimization Failure
Ernan Cui
Covid Policy Descends Into Chaos
Ernan Cui
A Respite In The Strategic Rivalry
Dan Wang
Housing & Construction Review 2022
Rosealea Yao
Growth Wanes As Covid Waxes
Dragonomics Team
Playing The Policy Changes
Andrew Batson
The Renminbi Needs A Growth Boost
Wei He
Developers’ Bad Debts Threaten Banks
Xiaoxi Zhang
Macro Update: Caution After The Congress
Dragonomics Team
More Research
Webinar: Fiscal And Monetary Policy After The Midterms
Will Denyer, Tan Kai Xian
Strategy Monthly: US Policy In The Recession Of 2023
Will Denyer, Tan Kai Xian
Another Equity Rally To Fade
Tan Kai Xian
The Bank Of Japan Edges Toward Change
Udith Sikand
One Step Closer To A Fed Pause
Will Denyer
The Message In The Bund Curve
Nick Andrews
Covid And China’s Political Choices
Louis-Vincent Gave
Beginning Of The End For Zero-Covid
Christopher Beddor
Europe’s Consumers Run Out Of Road
Cedric Gemehl
The End Of China’s Bond Bull Run
Wei He
Gavekal Research
Beginning Of The End For Zero-Covid
Christopher Beddor
28 Nov 2022
Over the weekend, protests against strict Covid containment rules erupted across multiple cities in China’s biggest expression of political discontent for more than three decades. The demonstrations do not imminently threaten the existing political order, but they do mean the current Covid policy mix is no longer politically sustainable. The question now is exactly how messy and gradual China’s de facto reopening will be.
The global view
Themes For 2023: Consequences Of The US Bubble Implosion
As Louis has had multiple discussions with clients about the investibility of China and Europe over recent months, he has continually run into the view that the US is the "cleanest dirty shirt". Here, he explores whether the US’s best-of-a-bad-bunch status can survive the rupture of its easy money-induced asset bubble.
Where Will The Deflation Come From?
Capitalism is a profoundly deflationary system since company bosses wake up every day focused on doing “more with less” within their organizations. And yet inflation looks to have emerged as a long-term threat that will not quickly recede, so what gives?
An Ugly Week For Energy
Energy prices have been in retreat since June despite the ongoing Ukraine war, the blow-up of the Nord Stream pipelines, continued fears of an energy supply crunch in Europe and Opec+ supply cuts. In short, oil is failing to rally on news that should be “good” for energy. Why could this be?
Webinar: Looking For A Hiding Place
As the global economy shifts down a gear and the Federal Reserve continues to turn the screws on inflation, Louis Gave and Anatole Kaletsky assessed the outlook for investors in a run-in to the year-end which looks like it may not be pretty.
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Chart of the Week
Week 48, 2022
Mass protests in China over the weekend mean the harshest Covid containment policies are no longer politically sustainable. Without them, cases are likely to rise much further. Even before the protests, the containment system faced a make-or-break moment. Measures announced earlier this month to “optimize” Covid policies only led to chaos among local officials, and the system has broken down. That doesn’t mean restrictions will abruptly lift; in fact, they will probably tighten in the next few weeks. Economic disruptions may also get worse.
US economy & markets
Another Equity Rally To Fade
In suggesting that the Federal Reserve could “moderate” interest rate rises as early as this month, Jay Powell on Wednesday told equity investors what they wanted to hear. Yet while investors might be cheerily imagining a new cycle, the US economy will be feeling the effects of tight money for a while yet.
One Step Closer To A Fed Pause
The US CPI was developed to help the settle labor disputes during WWI. It remains a vital indicator for public and private bodies, including the US Federal Reserve. The problem is that CPI tends to run “hotter” than the PCE the Fed officially targets. Adjusting for this, a precondition for the Fed to pause monetary tightening appears satisfied.
Fed In The Red
The Federal Reserve is now run operating losses. It would be tempting to see an equivalence between this development and the US dollar’s recent retreat. Yet far from signaling a death knell, the Fed’s move into the red could create effects that end up strengthening the dollar.
Losing Velocity
Irving Fisher neatly simplified monetary theory to MV = PQ. If money supply and velocity rose, the price of goods and services and/or quantity of goods and services must also rise. Looking ahead, in the US velocity is set to track money supply growth lower. If so, the deterioration in nominal GDP growth will worsen.
Ukraine Fallout
Investing For A New Cold War
Russia, Do Your Worst
Who Is Copying Who? Part II
The Microsoft-ification Of Warfare
The End Of The Unipolar Era
World Enters New Liquidity Crisis
Gavekal Research
Webinar: Fiscal And Monetary Policy After The Midterms
Will Denyer, Tan Kai Xian
2 Dec 2022
With a change of political control looming in the US House of Representatives, fiscal policy could be increasingly important in dictating the remainder of this economic cycle. On top of that, the Federal Reserve may soon pivot. Will and KX unpick what this all means.
India chartbook
Gavekal Research
India Macro Update: A Glimmer Of Hope
Udith Sikand, Tom Miller
15 Sep 2022
India’s economy is recovering nicely, even if the latest quarterly growth data showing a 13.5% year-on-year expansion was flattered by favorable base effects. Looking forward, the problem is an adverse external backdrop that is hurting exports and leaving India’s capital markets vulnerable to another risk-off move as global liquidity tightens.
China chartbook
Gavekal Dragonomics
Macro Update: Caution After The Congress
Dragonomics Team
3 Nov 2022
China’s economy enjoyed a bounce after reopening from lockdowns, but the property downturn continues and Covid restrictions linger, while external demand is on the wane. Although growth prospects look poor, October’s Communist Party Congress delivered signals of continuity rather than a hoped-for change of course. In our latest quarterly chartbook, the Dragonomics team explores the outlook for policy, markets and the economy.
Europe's economy
Europe’s Coming Mortgage Shock
Wednesday’s news that eurozone consumer inflation dipped to 10.0% year-on-year in November, from 10.6% the previous month, will have come as small comfort to households in Europe facing higher debt service costs over the next 12 months, especially on their mortgages, as a result of central bank interest rate hikes.
The Message In The Bund Curve
On October 21, the 10-year bund yield hit an 11-year high at 2.5%. Since then it has retreated to 2.0%, with the result that the bund curve is now inverted from one year out. Historically, this has been a rare occurrence, and each time it has happened a recession has ensued in Germany and bund yields have fallen over the following 12 months. So, is this time any different?
Europe’s Consumers Run Out Of Road
According to the surveys, European consumers have never been so gloomy as they have been this autumn. But this collapse in confidence has yet to be reflected in actual spending. Cedric sets out to explain this divergence between consumers’ sentiment and their actual behavior.
Nearing A Peak
It is too soon to declare with any confidence that the 10.6% year-on-year rate of consumer price rises touched in October is the peak of inflation in the eurozone. Nevertheless, there are growing signs that European price pressures are losing some of their steam.
Gavekal Dragonomics
Securing The Western Frontier
Tom Miller
China looks like a winner from the US withdrawal from Afghanistan, now free to tighten its grip on Central Asia. In this DeepChina report, Tom explains the complex reality of the latest round of the "great game." China is getting closer to Russia, skeptical of Afghanistan and Pakistan, and consolidating its economic hold on Turkmenistan.
Emerging markets
A Constrained Brazilian
Luiz Inácio Lula da Silva has snuck a tight win in Brazil’s presidential election race, while defeated incumbent Jair Bolsonaro looks not to be contesting the result as feared before the second-round run-off. Assuming that an orderly transition of power duly unfolds, the effect should be to lower the political risk premium on deeply undervalued Brazilian assets.
Asia’s New Interventionists
Asian central banks are spooked by the US dollar’s apparent one-way ascent and are resorting to direct intervention. Is there method to their apparent scramble for control?
Fire On The Frontiers
After the US Federal Reserve raised interest rates Wednesday, a spate of central banks have followed suit. This mass tightening threw an unwelcome spotlight on the central banks that have not joined the general trend, and all this has detracted attention from the mounting stresses in the world’s frontier economies.
The Cost Of Being A Fed Follower
It has been a tough few weeks for emerging East Asia’s currencies. Yet, even as some regional currencies have tracked the yen lower, the headwinds that have battered others have abated. In short, some Asian currencies are more attractive than others.
Latest video
Gavekal Dragonomics
Video: Unpicking China's Covid Exit
Christopher Beddor
2 Dec 2022
China took the first steps towards a de facto reopening this week, as the country’s strict Covid containment regime broke down following protests last weekend. In this interview, Christopher looks at why the breakdown happened and how reopening is likely to unfold in the coming weeks and months, including its implications for the economy.
Gavekal Research
Strategy Monthly: US Policy In The Recession Of 2023
Will Denyer, Tan Kai Xian
1 Dec 2022
There are signs that the US Federal Reserve’s aggressive tightening is successfully reining in inflation, but the cost is likely to be a near-term US recession, with a weakening of demand in key sectors of the economy already visible.
Equities
Embrace China’s Reopening Rally
Themes For 2023: Consequences Of The US Bubble Implosion
Webinar: Fiscal And Monetary Policy After The Midterms
Strategy Monthly: US Policy In The Recession Of 2023
Another Equity Rally To Fade
To Hedge Or Not In The New Age?
Oil & commodities
An Ugly Week For Energy
The Demise Of Imperial Privilege
Can An Oil Price Cap Work?
Behind The Rebound In Markets
Video: Brazil After The Election
When Cartels Clash
China tech
A Respite In The Strategic Rivalry
The Enforcement Challenge For US Chip Controls
US Chip Sanctions And China’s Options
The US Runs Faster In The Chips Race
Chip Investors Are Too Pessimistic
Plenty Of Friction But No Flames Over Taiwan
Covid-19
Video: Unpicking China's Covid Exit
China took the first steps towards a de facto reopening this week, as the country’s strict Covid containment regime broke down following protests last weekend. In this interview, Christopher looks at why the breakdown happened and how reopening is likely to unfold in the coming weeks and months, including its implications for the economy.
Covid And China’s Political Choices
Whether the weekend’s anti-lockdown protests in China prove bearish or bullish depends whether the Communist Party is an increasingly out-of-touch dictatorship or an organization that does try to respond to popular concerns because it prizes social stability. Louis examines the leadership’s options and the market implications.
Beginning Of The End For Zero-Covid
Over the weekend, protests against strict Covid containment rules erupted across multiple cities in China’s biggest expression of political discontent for more than three decades. The demonstrations do not imminently threaten the existing political order, but they do mean the current Covid policy mix is no longer politically sustainable. The question now is exactly how messy and gradual China’s de facto reopening will be.
Playing The Policy Changes
In recent days, officials have announced important revisions to Covid containment measures and rolled out new policies to support the property sector. The Dragonomics team argues these moves are positive but not major reversals: policymakers are trying harder to make current approaches to Covid and property work, rather than shift to something new.
