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E.g., 26-01-2022
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    Gavekal Dragonomics

    Making The Implicit Guarantee Explicit

    To keep access to bond markets amid rising defaults, many of China’s financially stressed local governments are offering stronger support for their companies’ debts—making the implicit guarantee more explicit. This won’t stop all local government financing vehicles from defaulting, but it means the defaults may come from less obvious places.

    0
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    Gavekal Research

    Will Manic Depression Move From Bonds To Equities?

    The retreat of US bond yields over the past quarter was no surprise for Anatole, as he has argued for much of this year that both US policymakers and investors would ultimately look through the "inflation scare". A lower cost of money could cushion the inevitable decline in growth that will occur in 2H21, and the bubble in US growth stocks can keep inflating.

    7
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    Gavekal Research

    Is The Chinese Growth Sector Still Investable?

    First China’s regulators came for the fintech companies. Next, it was antitrust investigations into successful internet companies. Then it was a crackdown on private education. Now regulators’ ire has focused on ride-hailing platform Didi Chuxing. Has the specter of harsh and unpredictable regulation made China’s internet and other high-growth companies uninvestable?

    2
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    Gavekal Research

    Bye-Bye Buba

    The European Central Bank on Thursday jettisoned its longstanding inflation target of “below, but close to 2%” in favor of a symmetrical target centered around the 2% mark. The formal adoption of a symmetrical target is significant, because it acknowledges just how far the ECB has traveled from its origins as the institutional offspring of the Deutsche Bundesbank.

    1
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    Gavekal Research

    Webinar: China's Conflicting Pressures In The Second Half

    China is entering the second half of 2021 with its strong post-Covid economic momentum still intact, despite policymakers staying consistently hawkish on debt and property. In this webinar Wei He, Rosealea Yao and Thomas Gatley outlined how these conflicting pressures will play out over the rest of the year, and discussed the potential for an easing of the policy stance.

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    Gavekal Research

    Not Quite A Wage-Price Spiral

    European companies are hiring again—or at least they would be if they could get the staff. The rebound in eurozone economic activity has fueled employers’ demand for labor. Having languished at about one standard deviation below its long term average through 4Q20 and 1Q21, the European Commission’s index of eurozone businesses’ hiring intentions has risen to over one standard deviation above its long-term average, as of end-June. The number of...

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    Gavekal Dragonomics

    A Surprise Easing Signal

    China’s State Council issued a statement calling for “using monetary policy tools, including cuts in the reserve requirement ratio” to reduce financing costs for enterprises. In this Quick Take, Wei explains why policymakers are trying to lower corporate borrowing costs without pushing down interbank rates.

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    Gavekal Research

    Video: How Brexit Britain Shapes Up

    Six months after the UK properly left the European Union, the shape of the emerging post-Brexit economy is becoming a little clearer. Despite distorting effects from the pandemic, the impact on trade from being outside the EU’s single market can be seen, arguments about the UK’s position as a manufacturing hub can be tested and the future shape of Britain’s once super-charged financial services sector is coming into focus. Nick Andrews reviews...

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    Gavekal Research

    Demographics And Prices

    Starting in the early 1980s, the world became increasingly flush with people in their prime working and saving years. That trend, however, has largely run its course and may now be going into reverse. As a result, investors should consider what economic trends have demographic drivers, making them vulnerable to a structural shift occurring.

    9
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    Gavekal Research

    The Year Of Policy Divergence

    A year into its recovery from the Covid-induced collapse of 2020, the world’s largest economy is stimulating final demand to an extent rarely seen before. Meanwhile, on the other side of the Pacific, the picture in the world’s second largest economy is starkly different. As a result, for the first time, broad money growth in the US is rapidly outpacing that occurring in China.

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    Gavekal Research

    The Inflation Quandary

    Markets seem to be comforting themselves that incipient inflation is, as the Federal Reserve has argued, a transitory phenomenon. Louis is skeptical that this is the case. He sees no evidence of any deflationary shocks that could squeeze price pressure, while at the same time, Western policymakers are doing all in their power to pump up demand.

    1
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    Gavekal Research

    Opec Frays

    Last year, when Opec+ talks broke up without an agreement on setting production quotas, the oil price collapsed. On Monday, when Opec+ talks broke up without an agreement on setting production quotas, the oil price surged. The majority of market watchers see no inconsistency, but they are making some large assumptions, which deserve close scrutiny.

    3
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    Gavekal Dragonomics

    Another Go At The Property Tax

    After two years of silence, the Chinese government has signaled it is making a new effort to implement a residential property tax by expanding local trials. In this report, Rosealea explains why, against a better economic backdrop and with less organized opposition, the property tax is likely to stick this time around.

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    Gavekal Research

    The Impact Of Didi’s Smackdown

    Just two days after raising US$4.4bn from US investors, China’s largest ride-hailing platform, Didi Chuxing, has been placed under investigation by Chinese authorities and told to stop registering new users due to alleged violations in the handling of users’ data. Ernan and Thomas assess what this signals for the uncoupling of US and Chinese equity capital markets.

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    Gavekal Research

    Webinar: Can Things Really Keep Getting Better?

    The US economy continues to break growth records as it reopens and other big regions may be set to go the same way, while Asia continues to prosper from a strong export outlook. The question is not whether the world economy slumps back into a funk, but whether growth expectations are now set too bullish.

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    Gavekal Research

    Strategy Monthly: Dialing Down Expectations For US Growth

    Growth in the US economy is set to go from great to good. The easy pickings of releasing pent-up demand and re-employing idle workers are almost used up. Growth should stay above trend, but by a smaller margin. Investors should prepare for growth to undershoot expectations that are now too high.

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    Gavekal Research

    Not Quite Vassal States

    "The best defense is a good offense" seems to be the mantra adopted by some emerging market central banks that have raised interest rates since the Federal Reserve began talking about a taper to its asset purchase program. This precautionary approach is at odds with the rhetoric from other EM central banks. So how to play this apparent bifurcation in responses?

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    Gavekal Research

    Video: Can Italy Recover?

    In response to the Covid economic shock, the European Union has vowed to adopt more expansive fiscal responses and limited mutualization of national debts. The country where this approach will fall, or rise is Italy. In this interview, Nick offers a view on whether it will be enough for Italy to mount a comeback.

    0
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    Gavekal Research

    A Killer Wave In The Nasdaq Bubble?

    It’s hardly surprising that stock markets are hitting new records. The inflation panic has subsided and bond yields have retreated Therefore, the immediate risk for investors is not a meltdown in bonds and equities that was predicted by perma-bears in the second quarter. The real risk may be a melt-up in equities, especially in growth stocks, as the first quarter’s growth-to-value rotation reverses.

    7
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    Gavekal Research

    Asia’s ‘Heads I Win, Tails I Don’t Lose’

    It was less of a taper tantrum, more of a taper tizzy. In response to the US Federal Reserve’s first talk of policy normalization in mid-June, the DXY US dollar index rose 1.9% and the S&P GSCI commodity index fell -2.7%. These are not huge moves, but they are big enough to prompt nervous emerging market investors to look for “heads I win, tails I don’t lose” plays.

    0
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    Gavekal Dragonomics

    A User's Guide To The Chinese Bond Market

    The expansion and opening of China’s onshore renminbi bond market is one of the biggest changes to the structure of global financial markets in recent years, one that investors are still grappling with. In this comprehensive 30-page DeepChina report, our analysts present a guide to the nature and functioning of this important market.

    1
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    Gavekal Research

    Cryptos’ Many Damocles’ Swords

    Since peaking in mid-April at US$63,500, bitcoin has almost halved in value, making a series of lower highs and lower lows . For such a high-beta asset, this roll-over is interesting given that risk assets like equities have powered on to new highs. So has the overall environment for cryptos materially changed?

    5
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    Gavekal Dragonomics

    Disciplining Deposit Rates

    China is changing the way bank deposit rate ceilings are calculated, the first such change in five years. In this piece, Xiaoxi explains how the change, which will flatten bank deposit yield curves, has some of the same effects as a deposit rate cut: it will reduce cost pressures on banks and widen their margins, although not dramatically.

    3
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    Gavekal Research

    The G7’s Rival To The Belt And Road

    With the launch of “Build Back Better World,” the world’s rich democracies want to take on China’s Belt and Road Initiative. The G7 sees the initiative as a chance to re-energize international development finance. The plan is worthy, but the nuts and bolts of providing such projects in poor countries suggests that China does not face serious competition.

    1
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    Gavekal Research

    The First To Normalize

    The Bank of Mexico last week joined a growing number of emerging-market central banks that have hiked policy rates this year. Developed markets, in contrast, have stayed dovish as they are not overly worried about inflation and fret about chocking off their recoveries. But there is a good chance that the BoE will be the first big Western central bank to normalize policy in 2022.

    0
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    Gavekal Research

    Webinar: Can Europe Normalize?

    In yesterday's webinar, Cedric and Nick assessed the risks and opportunities associated with Europe's economic reopening, the effectiveness of the new Recovery Fund backed by mutualized debt, and the signs heading into a new political season in which Euroskeptic parties stand to do well.

    0
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    Gavekal Research

    Peak US Growth

    The US economy has been on a tear and it could be assumed that a bipartisan Congressional deal to spend US$1.2rn on roads, bridges and tunnels would spur even more growth. Yet, surprising as it may seem, we may have seen the top of the US growth cycle as activity goes from great to good in the second half of this year.

    0
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    Gavekal Research

    Video: The US Housing Sector Rolls Over

    The US housing market has been booming for the past year, with prices setting a record-high in data released this week. However, a decline in affordability, coupled with the potential for higher mortgage rates, is weighing on demand and has started to force a shift from a buyer-led market to a renter-led market.

    0
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    Gavekal Dragonomics

    No Need For Passports

    One of the most dramatic shifts within the global consumer market since Covid-19 has been the sudden termination of Chinese overseas tourism. In this report, Ernan explains why Chinese tourists will likely decide to remain grounded even as other countries open their doors, leaving households with extra money to deploy at home.

    3
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    Gavekal Research

    The Morphing Of European Political Risk

    On both sides of the Rhine, celebrations were afoot on Wednesday night after France and Germany managed to earn spots in the knockout phase of the Euro 2020 football tournament. But once a winner is finally decided on July 11, the citizens of both countries will be forced to focus some attention on politics. After a summer of fun, the specter is being raised of European political risk.

    0
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    Gavekal Dragonomics

    Decarbonization Is An Industrial Problem

    How achievable are China’s targets of reaching peak carbon emissions before 2030 and a fully carbon-neutral economy by 2060? Rosealea writes that the unusually large share of heavy industry in China’s CO2 emissions will make the 2030 target difficult to achieve, while carbon neutrality will require a massive reorientation of China’s economy.

    3
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    Gavekal Research

    The Peril Facing Northern Europe’s Savings Industry

    Between 1966 and 2012 investors did better in German bonds than US equities on a total return and common currency basis. That changed in 2012, and Germany’s managed savings institutions are now in peril, along with those in other parts of Northern Europe. In this piece, Charles shows how much trouble these institutions face and offers a view on how this exercise concludes.

    5
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    Gavekal Research

    The Dollar’s Temporary Fillip

    Currency markets must process information on many factors impacting an economy and then judge how it stack ups against another economy, yet from time to time the focus switches to just one thing. The Fed's hawkish statement last week sparked a monomaniacal focus on the timing of a taper to asset purchases. Yet there are already signs that this unitary focus is waning.

    0
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    Gavekal Research

    Europe’s Battery Boom

    A few years ago, European carmakers and auto parts firms raised white flags and ceded the market for electric vehicle batteries to mostly Asian competitors. Today, they are back in the fight. If European companies’ development plans come to fruition, writes Cedric, their share of the continent’s manufacturing capacity will rise from 5% in 2020 to 67% by the middle of the decade.

    9
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    Gavekal Research

    Flabbergasted

    When you write in a language that you didn’t learn from your mother, it is easy to fall in love with new words and then overuse them. In the 1970’s, I came across “flabbergasted” and, truth be told, I ended up being flabbergasted in that decade rather more than I actually was. Today, however, I am again flabbergasted, but am fairly confident that it is for good reason.

    6
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    Gavekal Research

    Reasons To Buy The Commodity Dip

    After rising nearly 60% from its March 2020 trough, the Bloomberg commodity index fell -4.2% over the past week. This has given a headache to investors who had prepared their portfolios for imagined inflationary times by buying real assets like commodities. Do they now “buy the dip” in expectation of another leg up?

    0
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    Gavekal Research

    Video: The New Normal For Antitrust

    Earlier this week, outspoken “Big Tech” critic Lina Khan was named chair of the Federal Trade Commission after a bipartisan vote. In this interview, Yanmei assesses to what degree this signals a harder line on antitrust issues by the Biden administration, and whether the US’s big tech firms have reason to be worried.

    0
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    Gavekal Research

    Webinar: The Market Impact Of US Policymakers

    In yesterday’s webinar, our team of US analysts considered what the Federal Reserve's tentative moves to normalize monetary policy means for growth and asset values. They also offered updates on US fiscal policy and anti-trust developments.

    0
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    Gavekal Research

    A Stealth Tightening In Japan?

    Japanese policymakers’ dirty little secret in recent years has been giving succor to a weak yen in order to keep the deflationary wolf from the door. With the currency down -6% against the US dollar this year, the plan is on track, so it is not surprising that the Bank of Japan made only minor changes to its monetary policy settings at today’s scheduled meeting. It would thus be tempting to think that the G10’s weakest currency in 2021 is a one-...

    0
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    Gavekal Research

    Fed Talks Of Tapering

    It should not be shocking but the Federal Reserve is getting set to return to a more normal monetary policy. To avert a 2013-style “taper tantrum”, Jay Powell wrapped cotton wool around his “tightening” message on Wednesday but the fact is that the Fed is talking about tapering its asset purchases.

    4
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    Gavekal Research

    Irresistible Force Vs. Immovable Object, Round Two

    US policy on China is now defined by an acute tension between national security and business interests. In this report, Arthur and Dan explain how the Biden administration is navigating this tension, one which will be a permanent feature of the global landscape over the next decade.

    0
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    Gavekal Research

    Markets Or Talking Heads: Which Should We Believe?

    What matters for investors is not whether US inflation is rising, but how fast and how far it will rise, argues Anatole. In this piece he argues that a long-term inflation rate that rises gradually from the pre-Covid average of 1.5% to 2.5% or even 3%, is no cause for alarm—and may represent a welcome regime-change to a more expansionary business environment.

    7
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    Gavekal Dragonomics

    The Consequences Of Slowing Credit

    China’s credit growth is slowing as officials take advantage of stable economic conditions to tackle excess financing. In this report, Wei explains why the downward credit pressure should have little impact on overall economic growth, but will affect liquidity conditions for property developers and local government financing vehicles.

    0
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    Gavekal Research

    What’s Your Linchpin Made Of?

    Writing here on Tuesday, Louis argued cogently that energy prices will be the “linchpin” that decides the future direction of inflation. But, in asking whether governments can successfully engineer a green energy transition, it’s fair to say he was thinking in terms of years ahead. Energy prices also have a major influence on inflation and inflation expectations on the scale of months.

    1
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    Gavekal Research

    The Energy Question

    Over the last 20 years, China has been the biggest buyer of most commodities. For investors, this meant that when China was tightening, easing up on commodity exposure made sense. That has not been the case in 2021, and in this piece, Louis seeks to explain why. He also raises the possibility that this cycle ends not with an inflationary blowout, but rather a whimper.

    7
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    Gavekal Research

    Living In A Dual Currency World

    Let’s begin with the basic principles underlying any currency, at least according to economics 101: it should be a medium of exchange, a standard of value and a store of value. I have long argued that central banks’ determination to pursue the “euthanasia of the rentier” rather than protecting money as a store of value would lead to big problems.

    0
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    Gavekal Research

    Peak Inflation Expectations

    Despite warning signs, it is now clear that investors were too relaxed about US pricing pressures at the start of this year. That much was clear from the consumer price index rising 5.0% year-on-year in May and at an annual rate of 5.9% over the last six months. Yet with the market measure of forward inflation expectations just below a 10-year high, the scope for these numbers to keep shocking has waned.

    8
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    Gavekal Dragonomics

    There Is No Capex Weakness

    China’s headline fixed-asset investment numbers missed expectations in Q1, but how trustworthy are they? In this report, Thomas cross-checks the headline FAI with bottom-up reporting from listed companies and concludes that the apparent weakness is a data issue, not reality. Positive conditions for corporate capex should persist through 2021.

    1
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    Gavekal Research

    Financial Stability Über Alles

    Even as headline consumer inflation pushes higher across the developed economies, hitting a 13-year high of 5.0% in the US over the 12 months to May, the European Central Bank served notice on Thursday that it has zero intention of scaling back its asset purchases in the near term. In the statement released following Thursday’s meeting, the ECB governing council declared that in the coming quarter, it will continue to buy assets under its...

    2
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    Gavekal Research

    Webinar: The Risk To Emerging Markets

    In yesterday's webinar, Udith Sikand, Vincent Tsui and Tom Miller weighed up the risks of capital flight from emerging markets as the Federal Reserve again starts talk of tapering. They focused on the different outlook for Asian exporting powerhouses and commodity producers, and discussed India, which is emerging from a severe second wave of Covid-19.

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