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Gavekal Dragonomics
Rosealea Yao
Dec 15th 2015
The Year Of Peak Everything
2015 should go down as a turning point in China's economic history: coal demand is having its biggest drop for 15 years, steel for 20, cement for 25. The previous declines in materials use were one-offs that were quickly forgotten in the ensuing boom; this time, they will be longer lasting.
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Gavekal Research
Will Denyer, Tan Kai Xian
Dec 15th 2015
The Shudder In US Credit
As oil prices tumble and the first US interest rate hike for eight years comes into view, bond investors in the high-yield segment are taking flight. The market was given a foretaste of what a disorderly unwinding of an over-bought US corporate bond market may look like late last week, when two high-yield bond funds suspended redemptions. The worry is that these tremors become an earthquake, making it more costly for all companies to refinance...
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Gavekal Research
Arthur Kroeber
Dec 14th 2015
The Clash Over Fossil Fuels
Over the weekend in Paris, the leaders of 195 nations announced a landmark deal to address climate change that its more optimistic supporters say heralds “the end of the fossil fuel era.” But both market action and many government policies point in the opposite direction. Crude oil prices continue to tumble towards the US$30 mark, and coal prices have also collapsed—both moves that reflect abundant global supplies of fossil fuels. The Paris...
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Gavekal Research
Tom Holland
Dec 11th 2015
Hong Kong Finally Rolls Over
One of the world’s great bull markets may finally be rolling over. In the 12 years to August 2015, Hong Kong’s residential property prices climbed 557%, with most of the increase occurring since the 2008 financial crisis as prices surged on the back of plentiful liquidity and ultra-low mortgage rates. Now evidence is mounting that the market has peaked. Over the last three months, secondary market prices have slipped by -5%. With the US Federal...
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Gavekal Research
Research Team
Dec 11th 2015
Our 2015 Holiday Reading List
As the long winter evenings draw in (at least in the northern hemisphere), what could be more pleasant than snuggling down with a good book? This year’s selection of works enjoyed by Gavekal staffers over the last 12 months is the usual eclectic mix. Louis sets the ball rolling with his review of Bill Browder’ gripping story of doing business in Vladimir Putin’s Russia. Happy reading!
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Gavekal Research
Andrew Batson
Dec 10th 2015
The Cure For Low Prices Is Low Prices
What is the latest rout in commodity prices telling us? Certainly, China’s demand for many commodities is weak—but everyone knows this. The most important signal is rather on the supply side: low prices are finally pushing commodity producers to cut output. It is this restructuring that will eventually bring stability to commodity prices.
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Gavekal Dragonomics
Shelley Rigger
Dec 10th 2015
Taiwan And China: Can The Uneasy Truce Last?
After seven years of relative quiet, Taiwan is back in the spotlight. Next month’s elections are all but certain to bring the opposition DPP, which China dislikes, back to power. So could one of Asia’s oldest frozen conflicts start to heat up? In fact there are reasons to think that ties between Taipei and Beijing will not break down completely.
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Gavekal Research
Nick Andrews
Dec 10th 2015
What A Brexit Means For Markets
This week David Cameron has been on the road in Eastern Europe arguing that British voters will vote for “Brexit” unless it gets a new deal with the European Union. As polls suggest that Britons are pretty much split down the middle on the issue, the prospect of the UK bidding adieu to Brussels is getting more real by the day. Indeed, with the negotiation expected to reach a head early next year, the question of a British exit is likely to...
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Gavekal Research
Dec 09th 2015
QSCB: The State Of The US Economy
The US economy displays some worrying signs. Corporate profits have contracted, credit spreads have jumped and inventories are piling up. By the same token, the consumer looks in decent shape as wages rise, oil prices continue to fall and moderate household leverage provides a clear tail wind. So what gives?
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Gavekal Research
Will Denyer, Tan Kai Xian
Dec 09th 2015
What To Make Of Wider Credit Spreads
US credit spreads are ticking up again, driving the Merrill Lynch US high yield index below its early October low yesterday and bringing total returns for the year to date to -3.4%. This renewed widening of spreads raises some important questions for asset allocators and economy watchers. Has the bond market got itself into an unwarranted flap, providing investors with a good opportunity to lock in some elevated yields? Or has the corporate debt...
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Gavekal Research
Will Denyer
Dec 09th 2015
Video: On The US Economy
For a deeper dive, read the Quarterly Strategy Chartbook: The State Of The US Economy here.
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Gavekal Research
Charles Gave
Dec 08th 2015
The Apex Of Market Stupidity
In some 40 years of watching financial markets, my dominant emotion has been a mixture of curiosity, amusement and despair. It seems the stock market must have been invented to make the maximum number of people miserable for the greatest possible amount of time. The bond market, meanwhile, has just one goal in life: to make economists’ forecasts for interest rates look even more silly than their other predictions.
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Gavekal Dragonomics
Thomas Gatley
Dec 08th 2015
Cash Hogs On The Loose
There are many privileges that come with being a state-owned enterprise in China. One of them, apparently, is the freedom to not pay your bills. We find that SOEs are delaying payments to their suppliers, in order to hoard the cash they need to pay their large debts. This does help SOEs avoid defaults, but at the expense of smaller private firms.
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Gavekal Research
Will Denyer
Dec 08th 2015
Inside The Fed’s Black Box
Regular readers will know that we at Gavekal have spent a considerable amount of time over the last few years exploring Knut Wicksell’s concept of the “natural rate of interest”. We are not the only ones. The Federal Reserve too has recently been mulling over the great 19th century Swedish economist’s theories. According to the minutes of October’s Federal Open Market Committee meeting, policymakers were given “several briefings on the concept...
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Gavekal Research
Anatole Kaletsky
Dec 07th 2015
A Year-Defining Week
Four hugely important events occurred last week which between them have largely determined the course of the world economy in the year ahead: the strong US payrolls, the Organization of the Petroleum Exporting Countries’ decision not to reduce production, the European Central Bank’s escalation of monetary stimulus and the inclusion of the renmimbi in the International Monetary Fund’s Special Drawing Rights basket. While all these events were...
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Gavekal Dragonomics
Ernan Cui
Dec 07th 2015
The Chinese Consumer: Outlook & Trends
As the downturn in China's investment-driven economy deepens, ever more hope is being placed on consumer spending. But the dynamics of Chinese household spending remain poorly understood. In this concise presentation, we outline the macro factors driving the growth of consumption, as well as the key structural changes.
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Gavekal Research
Nick Andrews
Dec 06th 2015
Video: On Brexit
Nick Andrews discusses the possibility of a "Brexit"
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Gavekal Research
Armando Castelar
Dec 04th 2015
Brazil’s Crisis: The Plot Thickens
Brazil is in the midst of its worst crisis in a quarter century. The crisis was expected, given the poor quality of economic policy and the end of the commodity boom, but its depth and length were not. The recession began in the second quarter of 2014 and will last at least until mid-2016. Economic recovery, when it comes, will be modest and gradual, more L- than V-shaped. The crisis has been aggravated by political paralysis and a rising level...
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Gavekal Research
François-Xavier Chauchat
Dec 04th 2015
On Course Through The Squall
The market reaction to the European Central Bank’s announcement yesterday of additional monetary easing—including a -10bp cut in the ECB’s deposit rate to -30bp and an extension of its €60bn a month program of bond purchases to at least March 2017—suggested that the central bank’s moves were a massive disappointment. Instead of letting off a firework, the ECB seems to have set fire to the house. In the immediate aftermath of the announcement,...
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Gavekal Dragonomics
Rosealea Yao
Dec 03rd 2015
Finding The Missing Coal
This year statisticians decided China has actually been using about 600mn more tons of coal than previously estimated. The news is a bit awkward for official pledges to cap coal consumption and carbon emissions. But actually these new figures only reinforce our conviction that China is already very close to its peak level of coal demand.
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