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E.g., 28-10-2020
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    Gavekal Research

    US Reopening Tested By Regional Covid Outbreaks

    Many US states begun to re-open their economies without getting their Covid-19 outbreaks firmly under control. They initially did this without experiencing a spike in infection levels, but the situation has now changed, writes Arthur. The question is whether this new wave of the epidemic proves severe enough to compel states to roll back economic reopening.

    4
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    Gavekal Research

    Accelerating Into Inflation

    Long-time readers will be familiar with Gavekal’s Four Quadrants framework, which describes how the economy alternates between periods of inflation and deflation, and cycles from boom and bust and back again, and which we use to illustrate which asset classes investors should favor and when. Although this is one of Gavekal’s oldest frameworks, it provides an extremely useful way to think about how the macroeconomic environment is set to evolve...

    6
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    Gavekal Research

    A Fed Reality Check

    Ahead of the FOMC meeting that concludes Wednesday, there has been a growing volume of chatter that the Federal Reserve is moving to scale back its easing measures. The talk has been further amplified by May’s surprisingly strong employment report, with some commentators even warning of an imminent taper tantrum in the markets.

    0
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    Gavekal Dragonomics

    US Politics Versus Chinese Stocks

    Financial markets are the latest field in which US-China political tensions are playing out. Thomas describes two lines of attack US hawks are pursuing against China: blocking Chinese firms from US equity markets and pressuring US asset managers to avoid Chinese equities. The risk associated with Chinese stocks has therefore materially increased.

    2
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    Gavekal Research

    What US Payrolls Do And Do Not Mean

    May’s US payrolls report clearly came as a shock to many. Non-farm jobs climbed 2.51mn month-on-month, and the unemployment rate fell to 13.3%. Wrong-footed by the stronger-than-expected figures, investors rushed to bid up US equities. But while the payrolls are good news at the margin, it should not be taken as a reason to rush into equities.

    0
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    Gavekal Dragonomics

    A Charm Offensive For Supply Chains

    As multinationals in China face growing pressure to shift their supply chains elsewhere, China’s government is doing everything it can to hold on to them. As Dan explains in this piece, China’s ability to get businesses back on their feet after the Covid-19 lockdown is a great advertisement for its attractiveness as a place to do businesses.

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    Gavekal Research

    Europe’s Big Guns

    If the worry was that European Central Bank activism was threatened by German judicial chastisement, Christine Lagarde yesterday showed no sign of being cowed. The Pandemic Emergency Purchase Program was topped up to an almost bazooka-qualifying €1.35trn from €750bn and extended a further six months to June 2021. The move added fuel to the rally in euro assets. Rightly so.

    0
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    Gavekal Research

    Picking Winners In Asian Currencies

    A terms of trade improvement and the relative resilience of electronics demand have helped support Asian currencies through the coronavirus crisis despite the deep contraction in world trade. Now as the world emerges from lockdown, any recovery in external demand, coupled with any revival of risk appetite that sees capital flow out of the safe haven US dollar, will be positive for Asian currencies.

    5
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    Gavekal Research

    Video: The Upsurge In Oil

    The price of Brent crude oil has doubled in the past six weeks, supported by the beginning of a recovery in demand as economies come out of lockdown and by expectations that the Opec+ cartel will extend the deep production cuts it agreed in April. Tom weighs the forces likely to drive the oil market over the coming months.

    0
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    Gavekal Research

    Europe Flexes Its Fiscal Muscles

    Another day, another big fiscal expansion from Germany. Yesterday, Berlin outlined a €130bn stimulus package, representing 3.8% of GDP. If there was any doubt, Europe has clearly ditched its decade-long infatuation with austerity and is back in the Keynesian camp. This situation is bullish for eurozone stocks and in time could yet spur a long-forgotten problem—inflation.

    0
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    Gavekal Research

    To Rotate, Or Not To Rotate?

    This week readers have heard a variety of views from Gavekal partners on the outlook for equity markets. What is not in doubt is that since hitting a peak on February 20, US growth stocks have outperformed value plays by a whopping 17%. Wherever one stands on the macro situation, there certainly seems to be an argument for rotating.

    4
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    Gavekal Research

    India Macro Update: End Of The Growth Story

    India has experienced a draconian lockdown that could result in output shrinking by -25-45% in the second quarter of the year. The result will be a sharp worsening in the fiscal deficit and a low structural growth rate that leaves India as just another emerging market rather than a growth story to rival China’s. Udith and Tom consider what it means for asset markets.

    0
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    Gavekal Dragonomics

    Webinar: China's Economic Outlook After The NPC

    China research director Andrew Batson was joined by China macroeconomist Wei He and Asia analyst Vincent Tsui to discuss the news from the National People's Congress and what it means for China's economic recovery, the likely direction of fiscal and monetary policy, and the consequences of Hong Kong's national security law.

    0
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    Gavekal Dragonomics

    A Property Rebound In May

    Property sales are quickly recovering from their Covid-19 crash, with upward momentum that should continue for several months to come. However, Rosealea argues there are growing risks that China’s property market will start overheating, forcing policymakers to step in and leading to a downwards drift by July/August at the earliest.

    0
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    Gavekal Research

    The Case For Commodities

    For most of the last decade, we have been in a period of low investment in the commodity sector. Yet, over the next 20 years the global population will grow by almost 2bn—a 25% increase. Migration into cities will continue, with the world’s urban population growing by almost 50%, creating enormous demand for infrastructure.

    2
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    Gavekal Research

    Strategy Monthly: Recovery And Its Risks

    As economies have begun to emerge from their coronavirus lockdowns, there remain two big near-term macro risks that could derail a recovery. On one hand, solid demand on top of massive central bank monetary expansion could fuel rising inflation. On the other, a big round of permanent job losses could dent demand and slow the economic recovery.

    0
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    Gavekal Research

    Four Reasons To Fade The Rebound

    After advising readers not to buy into the March market rebound, Anatole has reviewed the case he made for doubting that a perfectly executed Keynesian recovery was likely—and he did this as Gavekal’s fully avowed Keynesian economist. After a dark night of the soul, he remains skeptical that economic activity will quickly return to anything resembling pre-Covid-19 normality.

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    Gavekal Dragonomics

    The Chill On Corporate Capex

    The Covid-19 lockdown led to a historic collapse in corporate capital expenditure in early 2020, but what comes next? In this piece, Thomas introduces a new model for understanding China’s investment cycle. Private-sector capex should stay weak in the second half of 2020, lagging public-sector infrastructure spending, but rebound in 2021.

    0
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    Gavekal Research

    As The World Reopens

    A few weeks ago, I outlined three scenarios that could unfold as the world reopened for business. Since then, it looks like the market is starting to tentatively position scenario #3 in which the world economy rips and inflation rises due to pent-up demand, budget deficits, low oil prices and money printing. This makes sense, but the rotation may soon face a number of challenges.

    0
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    Gavekal Research

    The Renminbi As Collateral Damage

    The rise in US-China tensions over the past week is taking a toll on China’s currency, which has weakened to CNY7.15 to the dollar from around CNY7.10, approaching its lows of last September. This has raised a worrying question: is China about to use currency depreciation as a weapon in its widening dispute with the US?

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