Most Recent
Gavekal Research
Europe And China Face Off
Yanmei Xie, Cedric Gemehl
14 Oct 2024
So what next for the trade war between the European Union and China? The October 4 vote by EU members to duly slap new tariffs on electric vehicles imported from China is not the end of the story. It is possible that a revised deal is reached over EVs which averts an escalatory spiral of measures, but fresh trade frictions are sure to open up in the coming months.
Gavekal Dragonomics
The Fiscal Strategy Emerges
Wei He
14 Oct 2024
At a press conference on Saturday, Ministry of Finance officials declined to give specific figures for the size of a planned stimulus package but described the structure in some detail. Wei argues that it implies a substantial increase in government debt, probably of around RMB3trn —a sum that, if confirmed, should be large enough to reassure investors of the government’s seriousness of intent.
Gavekal Research
Towards A More Circumspect Fed
Will Denyer
11 Oct 2024
After September’s US CPI release on Thursday, the futures market is still pricing in -50bp of Federal Reserve interest rate cuts by the end of 2024. Maybe. But although September’s headline CPI inflation figure of 2.4% year-on-year was down a touch from August’s 2.5%, the more finely-grained data is less favorable.
Gavekal Research
Video: The ECB Reaction To A New Era
Cedric Gemehl
10 Oct 2024
Ahead of next Thursday’s policy meeting of the European Central Bank, the market is betting heavily on an interest rate cut. In this video interview, Cedric argues that the market is probably right in its view but cautions that risks are titled towards hawkish surprises as this economic backdrop does not presage a return to the disinflationary environment seen in the pre-pandemic years.
Gavekal Dragonomics
The Case For Monetary Policy
Andrew Batson
Officials Decline To Fuel The Market Fire
Wei He, Thomas Gatley
A Reset For The Big Banks
Xiaoxi Zhang
The Start Of A Stimulus Rally
Thomas Gatley
What’s Behind The Fiscal Shortfall
Wei He, Andrew Batson
Catching Up To Expectations
Andrew Batson, Dragonomics Team
The Returns From Reallocation
Andrew Batson
A Missing Rate Cut Sows Uncertainty
Wei He
Growth Risks Build As Policy Stays Cautious
Wei He, Dragonomics Team
Raising The Retirement Bar
Ernan Cui
More Research
Scenarios For The US Yield Curve
Tan Kai Xian
Four Quadrants And The Monetary Illusion
Charles Gave
Stormy Weather
Louis-Vincent Gave
Participating In China’s Bull Market
Louis-Vincent Gave
Chinese Stocks Are For Living In
Louis-Vincent Gave
So Long, Soft Patch
Will Denyer
Who Is Right About Germany?
Cedric Gemehl
Conversation: What Could Derail The Inflationary Boom
Louis-Vincent Gave, Anatole Kaletsky
Risky Bets On More Yen Weakening
Udith Sikand
A Rallying China Will Not Kill Indian Equities
Tom Miller, Udith Sikand
Gavekal Research
India Macro Update: On An Even Keel
Udith Sikand, Tom Miller
5 Sep 2024
A slowdown in India’s headline GDP masks an improvement in the underlying drivers of growth, argue Udith and Tom. Now that election-related uncertainty is over, government spending should pick up and aid the incipient recovery in private consumption and investment. Indian bonds and equities should continue to fare well, with monetary easing likely to get underway soon.
The global view
Conversation: What Could Derail The Inflationary Boom
Looking across the macro landscape, Louis and Anatole observe a number of strongly reflationary factors and booming markets. Yet complacency never pays off for investors. So amid the escalating war in the Middle East and the prospect of further trade friction between China and the West, two of Gavekal’s many wise men discuss how investors can protect their portfolios from the risks to the current upbeat sentiment.
Changing Narratives Around The World
John Maynard Keynes famously observed that price discovery in financial markets was akin to a beauty contest. However, the real challenge was not to pick the prettiest lady, but to instead identify which lady the judges would choose as the prettiest. These were not always the same outcome. With this in mind, it seems that the past few weeks have witnessed a number of important “narrative changes” across different economies and markets.
London Conference, September 2024
At our latest conference in London, Gavekal’s senior partners and analysts discussed the most relevant themes for investors in a series of panels and fireside chats.
The Asset Allocator’s Dilemma (II)
After five years of positive correlations, over the summer US treasuries went back to hedging US equities once again. But if US equities and the US dollar were to fall simultaneously—which is hardly improbable—US treasuries would be an inadequate hedge. Louis considers some alternatives.
Test Your Knowledge
Which has the most cities trialing or operating self-driving taxis?
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Chart of the Week
The Bank of Japan has already taken tentative steps towards exiting the easy monetary policy settings of the past decade, but there are lingering questions about how it will manage its balance sheet including its large equity holdings. The BoJ holds just under ¥40trn of ETFs on its books, but the market value of these holdings is likely around ¥70trn. Realizing those gains and transferring the resultant profits to the government could well be considered by the new government led by Shigeru Ishiba, a known fiscal conservative.
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
Towards A More Circumspect Fed
After September’s US CPI release on Thursday, the futures market is still pricing in -50bp of Federal Reserve interest rate cuts by the end of 2024. Maybe. But although September’s headline CPI inflation figure of 2.4% year-on-year was down a touch from August’s 2.5%, the more finely-grained data is less favorable.
Scenarios For The US Yield Curve
Following the US Federal Reserve’s -50bp interest rate cut in September, the median projection in the Fed’s dot plot is signaling a further -150bp of cuts through 2025. This means rates at the very short end of the treasury curve are set to fall over the next 15 months along with the Fed funds rate. But beyond the very short end, how will the rest of the US yield curve evolve?
So Long, Soft Patch
The picture painted by recent US data releases is one of a robust labor market and continued solid growth, assuaging the summer’s fears of an approaching soft patch in the US economy. In broad terms, this is favorable for US equities. On a finer-grained view, however, the outlook for different asset prices and for the US dollar depends largely on the trajectory of inflation.
The Direction Of The US Dollar
As the US dollar threatens to test key medium-term support levels against other major currencies, Will Denyer argues there are good reasons to expect the US currency to break out to the downside.
Gavekal Research
Webinar: What Chinese Stimulus Means For China And The World
Arthur Kroeber, Andrew Batson, Louis-Vincent Gave
3 Oct 2024
Chinese authorities have rolled out a raft of measures aimed at supporting the beaten-down domestic property and equity markets. This support package won’t miraculously revive China’s depressed consumer confidence overnight, but it does mean that China is set to adopt a reflationary policy stance. Our panel discussed what this shift means for growth, currencies, financial assets and commodities.
Emerging markets
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.
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.
Latest video
Gavekal Research
Video: The ECB Reaction To A New Era
Cedric Gemehl
10 Oct 2024
Ahead of next Thursday’s policy meeting of the European Central Bank, the market is betting heavily on an interest rate cut. In this video interview, Cedric argues that the market is probably right in its view but cautions that risks are titled towards hawkish surprises as this economic backdrop does not presage a return to the disinflationary environment seen in the pre-pandemic years.
India chartbook
Gavekal Research
India Macro Update: On An Even Keel
Udith Sikand, Tom Miller
5 Sep 2024
A slowdown in India’s headline GDP masks an improvement in the underlying drivers of growth, argue Udith and Tom. Now that election-related uncertainty is over, government spending should pick up and aid the incipient recovery in private consumption and investment. Indian bonds and equities should continue to fare well, with monetary easing likely to get underway soon.
China chartbook
Gavekal Dragonomics
The Promise And Peril Of Industrial Policy
Thomas Gatley
21 Aug 2024
Many wonder why China’s government is not doing more to stimulate growth. One reason may be that from Beijing’s perspective, industrial policy is working. In this chartbook, Thomas examines the data: corporate earnings improved in 2023, new funding is going mainly to tech-intensive manufacturing and capital is increasingly flowing to the highest-return firms, who also do most new capex and R&D. But this apparently successful industrial policy comes with significant costs.
Europe's economy
Europe And China Face Off
So what next for the trade war between the European Union and China? The October 4 vote by EU members to duly slap new tariffs on electric vehicles imported from China is not the end of the story. It is possible that a revised deal is reached over EVs which averts an escalatory spiral of measures, but fresh trade frictions are sure to open up in the coming months.
Who Is Right About Germany?
Investors looking at Europe always ask “just how bad is Germany?” The answer depends on where you look. Business sentiment is signalling a nasty contraction, GDP is flatlining, and the stock market is verging on euphoric. Cedric reads between the lines to work out which indicator is the most accurate.
The Eurozone Demand Question
Weak demand is becoming a worry for eurozone businesses, according to recent surveys. Cedric weighs the factors affecting eurozone growth, and argues that although slow external demand and tight government finances are unlikely to ride to the rescue, which will lead to slower growth in the coming quarters, more supportive monetary policy and resilient wage growth should brighten the outlook going into 2025.
Equities And Currencies After The Fed
After last Wednesday’s jumbo -50bp US rate cut, Anatole considered what the Federal Reserve’s move would mean for bond markets and offered a clear-cut answer: nothing good. But what about other assets?
Strategy Chartbook
Gavekal Research
US Strategy: Trading Politics
Will Denyer, Tan Kai Xian
27 Aug 2024
In November, US voters will decide who controls the White House, Senate and House of Representatives. The two parties differ significantly on key policy positions that will heavily impact the economy and markets. In this Strategy Chartbook, Will and KX compare the parties’ major policy stances and assess what they mean for markets—especially US equities, US bonds and the US dollar.
Equities
So Long, Soft Patch
Conversation: What Could Derail The Inflationary Boom
London Conference, September 2024
Video: The Market Story Of Modi 3.0
If The Music Stops
Equities And Currencies After The Fed
Oil & commodities
Conversation: What Could Derail The Inflationary Boom
Hedging The Inflationary Bust
The Energy Faceplant
Who Is Going Bust?
Video: Beyond The Slide In Energy Prices
Will Recent Trends Last?
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
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.
