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Gavekal Research
Oct 19th 2016
London Seminar — October 2016
Charles Gave, Joyce Poon, Tom Miller and Anatole Kaletsky outlined their views on issues ranging from the end of the Pax Americana, global asset allocation in the face of increasingly ineffectual monetary policy, India's growth potential, and the imminent uncertainty for markets in the face of political risk.
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Gavekal Research
Cedric Gemehl
Oct 19th 2016
No Change In Frankfurt
Despite multiple European Central Bank officials protesting a steady-as-she-goes approach to monetary policy, the recent rise in eurozone bond yields reflects market concern about a potential tapering of its bond buying. After all, inflation has ticked higher, European banks continue to grumble about a profit-sapping yield curve and the ECB’s dealing desk in Frankfurt will soon run out of eligible bunds to buy. Despite all that, tomorrow will...
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Gavekal Dragonomics
Andrew Batson
Oct 19th 2016
The Three Pillars Of Stability
China has now delivered real GDP growth of 6.7% three quarters in a row—a stability that is uncanny even by its standards. Such stability is even more prized than usual by the government, now preoccupied with next year’s Communist Party Congress. In this piece Andrew assesses how much longer the three pillars supporting this stability can hold up.
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Gavekal Research
Will Denyer
Oct 18th 2016
What Next For Libor Rates?
The Federal Reserve has not hiked rates this year, but that has not stopped funding cost for US companies and foreign banks from rising. While risk-free rates have barely budged, 3-month LIBOR is up 30bp YTD from 0.6% to 0.9%. This widening of short-term credit spread stems from (i) stress in Europe’s banking sector, and (ii) fund flows ahead of a regulatory overhaul of US “prime” money market funds, which took effect on Friday (see Ripples In...
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Gavekal Research
Louis Gave
Oct 17th 2016
Is Perfidious Albion Undermining The 'Shanghai Agreement'?
Back in the early 1980s, foreign exchange volatility wreaked havoc on business spending plans and countries’ ability to repay foreign currency debt. To remedy this situation, the world’s key financial policymakers got together to agree on a plan for coordinating monetary policies; the idea was to reduce currency volatility and so limit the scope for financial shocks.
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Gavekal Research
Udith Sikand, Simon Pritchard
Oct 14th 2016
Thailand’s Transition
Perhaps the one thing that Thailand’s polarized political tribes have agreed on in recent times is that the passing of their (generally) popular king would mark a pivotal moment of transition. King Bhumibol Adulyadej, 88, who died yesterday was a steady presence who stopped violent political struggles from morphing into a general civil conflict. The concern is that this restraint now goes out of the window, as opponents to the royalist...
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Gavekal Research
Tan Kai Xian, Leonor du Jeu
Oct 14th 2016
The Strange Case Of The US Trade Deficit
The last three years saw the US dollar move from being an undervalued currency to an overvalued one, and yet the US trade balance has barely budged. This contrasts sharply with past periods of dollar strength which produced huge US trade deficits that were a boon to global exporters, and also to financial markets which got a liquidity boost. The fear for emerging economies in particular is that this relationship has broken down and a reliable...
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Gavekal Research
Louis Gave
Oct 13th 2016
What Does The Italian Elite Want?
Should we care about the Italian referendum? Without wanting to sound smug toward what remains Europe’s second prettiest country, I can’t remember ever witnessing an Italian election with consequences beyond its own borders. But the December 4th referendum could be such a first: an Italian election that matters.
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Gavekal Dragonomics
Andrew Batson
Oct 13th 2016
The Equality Engine Is Stalling
For all its leaders’ talk of a “new normal,” China has not weaned itself off the “old normal” of housing and investment-led growth. That model was in fact a powerful engine for reducing regional inequality, so it has much political support. The engine has now stalled—but rather than swap in a new one, the government keeps revving the old one.
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Gavekal Research
Tan Kai Xian, Will Denyer
Oct 12th 2016
The Rising Odds Of A US Recession
We are on recession watch after yesterday’s release of September’s NFIB small business optimism survey. It was not the headline number which got us worried—that ticked down from 94.4 to 94.1. Rather, it was the significant drop in the job openings component—from 30 to 24, or from a cyclical high to the lowest level in 15 months. This suggests that demand for US labor may be rolling over, which is concerning indeed.
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Gavekal Research
Tan Kai Xian
Oct 12th 2016
Tan Kai Xian & Leonor du Jeu: The US Trade Deficit Conundrum
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Gavekal Dragonomics
Rosealea Yao
Oct 11th 2016
Housing & Construction Review 2016
In the latest edition of our annual overview of housing and construction in China, Rosealea summarizes the short- and long-term outlook for these key economic drivers. This concise chartbook provides 2017 forecasts for major indicators, and covers topics such as changes in housing policy, structural trends in demand, and the state of inventories.
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Gavekal Research
Udith Sikand
Oct 11th 2016
The World's New Tax Haven
In the aftermath of the 2008 financial crisis, there was a sense that the systemic failures it revealed would spark a radical overhaul of the global financial architecture. Eight years on, that has not happened: an exception is perhaps offshore finance. The US led the way with its Foreign Account Tax Compliance Act (FATCA), which targets US citizens with footloose money. A more ambitious initiative was launched in 2009 by the G20; it aimed for...
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Gavekal Research
Oct 10th 2016
Audio & Transcript — Gavekal Research October Call
Will Denyer presented a newly minted dynamic asset allocation tool which was developed from an ROIC-based framework that has helped us to better map and predict US economic cycles. He then answered listener questions on these themes.
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Gavekal Research
Charles Gave
Oct 10th 2016
The British Pound: A Two Year View
The British pound has been on a roller coaster ride to the point that on a purchasing power parity basis it is undervalued by about 10% against the euro and 17.5% versus the US dollar. As a result, sterling has been left 2% below its lower bound against the euro (in average standard deviation terms) and 9% versus the dollar on the same measure. Put another way, the pound is undervalued by more than one standard deviation against the euro and by...
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Gavekal Research
Tom Miller
Oct 10th 2016
India’s Race To The Top
What do Apache helicopters and one-fifth of the world’s vaccines have in common? They are manufactured in India’s Telangana state. How about Apple, Google and Uber? They are all opening their largest development bases outside the US in Hyderabad, the state capital, following in the footsteps of Facebook and Microsoft, which have their head India offices there. Amazon, too, is setting up its second-largest global delivery base in the city. And...
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Gavekal Research
Nick Andrews
Oct 07th 2016
As Goes The Pound, So Go Eurozone Exports
In European capitals this week schadenfreude will no doubt have been expressed at the diminished status of the UK economy and its currency. This morning’s “flash crash” in the pound most likely had technical causes, but the fact the exchange rate could fall so hard without generating automatic buying responses says much about confidence in the unit. Sterling has been under pressure since Prime Minister Theresa May earlier this week said she will...
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Gavekal Research
Will Denyer, Tan Kai Xian
Oct 06th 2016
Emerging From The Soft Patch
Three weeks ago we asked whether the uniform weakness in US data—across manufacturing, services and home construction—signaled the start of a recession or merely a summer soft patch. At the time we concluded that what we were seeing was yet another soft patch. Thankfully, the latest round of data releases appears to confirm that conclusion, with the US economy now emerging from its summer doldrums.
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Gavekal Research
Pierre Gave
Oct 06th 2016
Pierre Gave: Can Sweden Escape The Negative Rate Trap?
On the surface, Sweden’s two-year experiment with zero, and then negative, interest rates appears to have worked well. Growth is strong by developed world standards, and the economy has escaped deflation. But this success has come at the price of an asset price bubble that looks increasingly dangerous. Pierre Gave assesses the risk, and examines possible exit routes for the Riksbank.
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Gavekal Research
Louis Gave
Oct 05th 2016
Angela Merkel’s Catch 22
Back in April, we pondered whether, with their negative interest rate policies, central bankers were showing themselves to be particularly incompetent by condemning commercial banks to years of unprofitability, or whether their greater design was to drive weaker banks to the wall to advance a consolidation of banking industries around the world under the umbrella of nationalization (see NIRP: Machiavellian Design Or Policy Mistake?). In other...
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