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Gavekal Research
Tom Holland
Apr 15th 2016
Oil’s Busted Flush
Buoyant expectations that the world’s major oil producers could agree a production freeze when they meet in Doha on Sunday have helped push the price of crude to a four-month high this week. The international Brent blend benchmark reached just shy of US$45/bbl, up 66% from its late January low of US$27, with at least some brokerage houses predicting the price could breach US$50 in the event of a deal. Maybe—but forecasts that the crude price...
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Gavekal Research
Will Denyer, Tan Kai Xian
Apr 15th 2016
Is US Manufacturing A Leading Indicator?
There is a commonly held belief that US manufacturing leads the rest of the economy, so it is surely a worry that factory output has been flat since late 2014. And yet the broad economy kept growing—with GDP up 2% YoY in 4Q15, consumption up 2.7% YoY, and home construction by almost 10%. One explanation for this apparent decoupling is the US’s shift to a more service-intensive “knowledge economy” which has rendered metal bashing and more...
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Gavekal Dragonomics
Thomas Gatley
Apr 14th 2016
The End Of Deflation Is Nigh
China’s growth slowdown has been much worse in nominal terms than in real terms—and often, nominal matters more. So it is good news that both consumer and producer price indexes are picking up in early 2016. And even if commodity prices do no rally further, China’s GDP deflator is likely to turn positive by the second half of this year.
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Gavekal Research
Neil Newman
Apr 14th 2016
The Bright Spot Amid Japan’s Gloom
The new narrative about Japan is straightforward: Japanese government bond yields will fall even further, the yen will strengthen, corporate earnings will collapse, stock prices will sink, and Mrs Watanabe will withdraw all her savings from the bank and stash them under her tatami. Over the last couple of months, international investors have positioned themselves accordingly. Yet anything more than a cursory visit to Japan quickly emphasizes...
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Gavekal Research
Andrew Batson
Apr 13th 2016
From Black Hole To Muddling-Through
Over the past few months, sentiment towards China has shifted dramatically. Fears that China was a black hole at the heart of the global financial system have morphed into mild optimism, as growth indicators have stabilized. There remain plenty of longer-term problems, but muddling through rather than collapse is the likely scenario for 2016.
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Gavekal Research
Apr 13th 2016
Hong Kong Seminar Multimedia
We are pleased to present recordings and slides from our Hong Kong seminar with Louis-Vincent Gave, Will Denyer and Andrew Batson. Louis examines an important recent development: the US dollar has stopped rising. Will diagnoses the health of the US economy in one chart. And Andrew discusses three scenarios for China: doom, boom and muddle-through.
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Gavekal Research
Nick Andrews
Apr 12th 2016
No Relief For European Banks
Yesterday a consortium of Italy’s healthier banks and financial institutions agreed to put up €5.7bn to finance a private sector bailout fund for the country’s weaker banks. The deal, which was cobbled together by Italy’s Finance Ministry, is clearly intended to circumvent European Union rules limiting state aid to the banking sector. Details remain sketchy, however it is difficult to see how the agreement can restore confidence in Italy’s banks...
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Gavekal Research
Tom Miller
Apr 12th 2016
Why India Can Move Faster
India’s lack of efficient roads and railways lowers productivity, depresses aggregate demand, raises costs and stymies trade—all impediments to economic growth. The good news is that India’s latest infrastructure push, financed initially by public investment, is showing signs of traction. The latest government budget committed a hefty US$32bn to roads, rail and other infrastructure, a big increase within a broader environment of fiscal...
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Gavekal Research
Apr 12th 2016
Paris Seminar—April 2016
On April 12 Louis-Vincent Gave, Charles Gave and Jean-Jacques Netter held a seminar in Paris where they presented their latest macroeconomic and investment outlooks.
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Gavekal Research
Charles Gave
Apr 11th 2016
Updating The US Recession Indicator
In January last year I penned a piece whose simple thesis was clear from the title (see Towards An OECD Recession In 2015). The idea was that each time the rentier owner of capital made more money than the entrepreneur (on a worldwide basis) in the previous 12 months, a recession in the OECD materialized some time in the next 12 months. Returns for the rentier were computed using the 12-month total return of 10-year treasuries and those for...
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Gavekal Research
Nick Andrews, Cedric Gemehl
Apr 11th 2016
European Disunion
The grand old men who conceived of a united states of Europe knew that a successful single currency demanded a modern federation with integrated monetary, fiscal and political institutions. Such a leap into the unknown was politically impossible in the 1990s, and their assumption (and perhaps hope) was that the less than optimal eurozone would suffer periodic crises, so creating the conditions for reform and a centralization of powers. Since the...
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Gavekal Research
Apr 11th 2016
London Seminar—April 2016
London Seminar—April 2016
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Gavekal Research
Joyce Poon
Apr 08th 2016
The Yen And Japanese Equities
It is hard not to feel a smidgen of sympathy for Haruhiko Kuroda. In the last 18 months, the Bank of Japan governor has deployed a whole battery of heavy artillery, stepping up his asset purchases to ¥80trn a year, extending them to cover exchange-traded funds and real estate investment trusts, and pushing short term interest rates into negative territory. As well as supporting asset markets, much of this effort was aimed at driving the yen...
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Gavekal Research
Long Chen
Apr 07th 2016
Debt Swaps Are No Panacea For China
To help troubled borrowers, China’s government is embracing debt-for-equity swaps. But while such swaps will reduce the burden on indebted companies and avoid an abrupt deleveraging, they will also load more stress onto bank balance sheets. Beijing will still eventually have to come up with a workable plan to recapitalize banks; this is not it.
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Gavekal Research
Tan Kai Xian
Apr 06th 2016
The Slowdown In Services
Both the main leading indicators of activity in the US services sector—the ISM services PMI and the Markit services PMI—staged modest rebounds in March. But on the face of it, the pick-up in the headline numbers offers little encouragement for investors. At 54.5 for the ISM and 51.3 for Markit, both measures remain substantially below their 2015 averages of 57.2 and 55.9 respectively. Considering that services make up 70% to 80% of the US...
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Gavekal Research
Will Denyer, Tan Kai Xian
Apr 06th 2016
Why US Imports Are Disappointing
Given the strength of the dollar, it is not surprising that 2015 generally saw US exports contracting, US imports growing, and the trade balance widening. What is more perplexing is that import growth has started to look shaky in the first part of this year. What gives?
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Gavekal Dragonomics
Arthur Kroeber
Apr 05th 2016
CEQ Q1 2016 - Powerhouse, Menace, Or The Next Japan?
Two popular narratives about China are that it will either reform its economy and become the next superpower, or fall victim to a dramatic financial crisis. There is a third and perhaps more likely scenario: gradual stagnation, along the lines of 1990s Japan.
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Gavekal Dragonomics
Jonathan Anderson
Apr 05th 2016
CEQ Q1 2016 - China's Impending Minsky Moment
The Chinese authorities have given up even trying to geta handle on the country’s spiralling debt problem.This means that a financial crisis and severe growth downturn are likely by 2020.
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Gavekal Dragonomics
Richard Herd
Apr 05th 2016
CEQ Q1 2016 - The Fall Of Productivity And The Rise Of Debt
Productivity of capital is falling, and debt is rising. Does this mean China is headed for low-growth, high-debt stagnation? Not necessarily. Economy-wide returns on capital remain solid; the biggest problems are an inefficient state enterprise sector, and excessive infrastructure debt. Strong state enterprise reforms could enable growth to stabilize at a high level.
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Gavekal Research
Joyce Poon
Apr 05th 2016
Fade The Emerging Market Rally
In defiance of conventional wisdom the oil price has tumbled -10% in the last two weeks despite a weak US dollar. For emerging markets investors, the breakdown of this correlation raises tricky questions.
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