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E.g., 28-10-2021
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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.

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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.

    0
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    Gavekal Research

    India Macro Update: Down But Not Out

    India’s economic recovery was hit by the April-May surge in Covid-19 infections, with the only silver lining being that the second wave was less economically damaging than the first one. With cases now declining and many states opening up, the worst of the economic disruption should be over. However, the outlook for investors in the key asset classes is challenging.

    0
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    Gavekal Research

    A Different Kind Of Inflation

    China’s producer price gauge is surging, stoking fears that the country is both succumbing to global inflationary pressures and stirring them up. However, such fears are misplaced, writes Thomas, since China does not face the kind of bottleneck problems blighting the supply-side of the US economy.

    0
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    Gavekal Research

    The One For All Problem

    Now that a deal has been done on corporate taxation, this weekend’s Group of Seven summit will focus on helping low-income countries roll out Covid-19 vaccination programs. Given inevitable production and distribution problems, the world is unlikely to be fully vaccinated before the end of 2022.

    0
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    Gavekal Research

    Video: Weighing The Fed’s Unconventional Options

    The Federal Reserve’s next move is likely to be verbal guidance over a tapering of asset purchases, argues Will. That is increasingly a consensus market position, so in this interview he explores other policy options that the Fed could choose to pursue.

    0
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    Gavekal Research

    When To Fade The Chinese Equity Rally

    After officials moved against crypto-currency and commodity speculation a few weeks ago, investors jumped back into equities, perking up a market that had been moribund since March. However, on balance, this looks like a counter-trend rally that should ultimately be faded, as the corporate profit cycle is starting to roll over.

    1
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    Gavekal Research

    Why Am I Hearing This Now?

    Two big storylines have recently emerged in Western media and Louis is not convinced this is down to editors stumbling on new information. In the case of the Wuhan “lab leak” theory and China’s suddenly challenged demography, he thinks that both the US and Chinese governments have an interest in spinning new narratives.

    21
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    Gavekal Research

    Thin End Of The Corporate Tax Wedge

    Counterintuitively, the agreement on a global minimum corporate tax rate struck at the weekend by G7 finance ministers may in the near term prove positive at the margin for global equities in general. In the longer term, however, the weekend’s agreement is likely to prove the thin end of the corporate taxation wedge.

    0
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    Gavekal Dragonomics

    The Urbanization Surprise

    China’s 2020 census revealed that urbanization has been faster over the past decade than official statistics showed. That means the fundamentals for housing demand are stronger than most had realized. As Rosealea argues in this piece, the census should drive an upward reassessment of long-term trends in China’s urbanization and commodity demand.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, June 2021

    The big question is still about how durable the current burst of inflation will prove to be. Anatole and Louis joined Arthur to debate this—and everything else going on in the world economy—at our monthly global investment roundtable.

    0
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    Gavekal Dragonomics

    Video: Fixing China’s Population Crunch

    China’s latest census revealed a low fertility rate, pointing to the population soon topping out. In response, the government has said that couples can now have up to three children but, as things stand, there is no reason to think that they will. In this video interview, Gilliam assesses the various policy levers that the authorities can pull to stop the Chinese nation getting smaller.

    0
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    Gavekal Research

    Supply Squeezes ≠ Consumer Inflation

    As the eurozone’s economy reopens, supply squeezes are intensifying at the same time that producer price inflation is rising rapidly, sparking fears that pandemic-induced supply chain disruptions at a time of booming demand will soon feed through into a sustained rise in the consumer inflation rate. These fears are overstated.

    0
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    Gavekal Dragonomics

    The Xinjiang Pressure Test

    The US government’s criticism of China’s treatment of the Uyghur minority in Xinjiang, and China’s government’s tough response, is a very public test case for multinationals with China operations. They don’t want to take sides. But as Dan explains in this piece, foreign companies will, if forced to choose, move closer to the US position.

    0
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    Gavekal Research

    Strategy Monthly: Tapering Without The Tantrum?

    The US Federal Reserve’s April minutes revealed that some policymakers are keen to begin talking about tapering the Fed’s assets purchases. In 2013, talk of Fed tapering triggered a traumatic sell-off in emerging market assets and currencies. So how great is the risk of a similar emerging market rout this time around?

    0
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    Gavekal Research

    Here Comes The US Capex Boom

    Amazing as it sounds given all that has happened in the last 15 months, the US economy is already entering a “mid-cycle” phase that should change the drivers of growth. Sectors like housing and durable goods have enjoyed double-digit growth over the last year, but now face head winds. In contrast, firms across the US seem set to go on a capital spending binge.

    0
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    Gavekal Dragonomics

    Striking A Balance On Steel Restrictions

    China’s steel output restrictions are softening following a sharp downward price correction. Rosealea writes that while environmental targets prevent officials from abandoning production curbs altogether, they will need to introduce demand-side constraints to match these supply-side measures and to avoid a repeat of the recent price dislocations.

    0
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    Gavekal Research

    When Money Becomes Spending Coupons

    Something is changing in the way our capitalist systems create money. For at least 200 years, Charles argues, money-creation began with a request for credit by an economic agent. In the new system, we are seeing the issuance of what amount to “spending coupons”. These coupons will never be retired, and he worries that over time their numbers will rise exponentially.

    6
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    Gavekal Research

    Europe’s Savings Fuel

    Like their American cousins, Europeans are itching to cast off their pandemic shackles, have fun and go shopping. But when and how much? The first point will depend on the threat posed by new Covid variants, but the news there is cautiously encouraging. As for the quantum of the comeback, a useful gauge lies in eurozone household savings levels.

    0
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    Gavekal Research

    Asia’s Big Fiscal Shift

    The lesson Asian policymakers learnt from the 1997-98 financial crisis was the importance of self-reliance. In its aftermath, they deployed undervalued exchange rates to pursue export-led growth and secure big current account surpluses that gave central banks ample forex reserves. To cut their reliance on foreign capital for deficit financing, they limited both public spending and domestic demand. The effort ensured a stable macro environment...

    0
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    Gavekal Dragonomics

    Seriously, Cool It With Currency Appreciation

    China’s central bank responded to the renminbi’s continued appreciation by raising the foreign-currency reserve requirement ratio from 5% to 7% effective June 15, the first change since 2007. Wei explains why this policy shift makes it clear that officials are becoming increasingly uncomfortable with the renminbi’s trade-weighted exchange rate.

    0
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    Gavekal Research

    A Resounding “Nein” To European Inflation

    Inflation rates are popping higher all over the world. Even in the eurozone, consumer inflation is set to exceed the European Central Bank’s target in the coming months. Yet like previous spikes in European inflation over the last two decades, this one too is set to prove short-lived. In the eurozone’s largest economy, powerful disinflationary forces are at work.

    0
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    Gavekal Research

    Accomplishing The Fed’s Mission

    Another week, another discourse on US inflation, this time triggered by the personal consumption expenditures index rising 3.6% year-over-year in April, the fastest gain since 2008. Some of that is base effects, but not all: since the Federal Reserve refined its 2% inflation target to an “average” 2% last August, the PCE index has risen at an annualized 3.5%. The point of the Fed’s change was to “make up” for misses and better anchor long-term...

    1
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    Gavekal Research

    The Slow-Motion Reverse Asian Crisis

    With hindsight, the key event impacting the global investment environment in 2020-21 may not have been the Covid pandemic but the renminbi’s strengthening. This is the first global crisis of the modern era when China has reacted by allowing its currency to appreciate. In this report, Louis outlines likely reasons for this change of policy in Beijing and the investment implications.

    6
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    Gavekal Research

    The Odds Of Oil Breaking Out On The Upside

    Since January, most commodity prices have ripped higher, with materials and energy among this year’s best performing sectors. So where do we go from here? Obviously, the price of energy marks the spot where current supply meets current demand. And when looking at oil prices today, there are both bullish and bearish arguments to be made on either side.

    4
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    Gavekal Research

    Webinar: The Commodity Spiral

    Global commodity prices have been on a tear in recent weeks due to strong global growth prospects and constricted supply. The macro picture, however, is murky, with China simultaneously being the driver of soaring iron ore prices while moving to tighten controls over property and infrastructure spending. Rosealea and Louis explained the overall outlook for metals and energy.

    0
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    Gavekal Research

    Further Upside For Eurozone Equities

    Year-to-date, the MSCI EMU index has recorded a total return of 15% in US dollar terms. The MSCI US has managed only 12%. Go back to the beginning of November, when hopes for Covid vaccines began to boost markets, and the performance differential is even more pronounced. Eurozone equities have returned 44%, compared with 31% for US equities. The eurozone has outperformed even though it was late to start vaccinating and slow to bring vaccination...

    0
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    Gavekal Dragonomics

    The China Inc. Annual Report 2021

    China’s companies are enjoying a historic boom as domestic and global demand bounces back from the shock of Covid-19. But how long will it last, and what will the longer-term effects be? In this annual chartbook, Thomas lays out the fundamentals of China’s corporate sector through a detailed examination of income statements and balance sheets.

    0
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