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E.g., 22-11-2019
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    Gavekal Research

    5C Overview: Three Regions, Three Strategies

    Fundamentally, there are three ways to make money in financial markets: Momentum trades: ideally buying high and selling higher. Return to the mean trades: ideally buying low and selling higher. Carry trades: borrowing short to lend long.

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    Gavekal Research

    5C North America: Northern Exposure

    The Canadian dollar is currently trading at CAD1.25 to the US dollar, some 20% weaker than in early 2013 and back at levels last seen in the darkest days of the global financial crisis. Following the collapse in energy prices, some believe the loonie is set to weaken even further, towards the CAD1.60 levels touched in the early 2000’s, when the currency was nicknamed by Americans “the northern peso”, and Canada itself dubbed “the banana...

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    Gavekal Research

    Much Ado About Sterling

    The budget delivered this week by George Osborne will not be enough to win the UK’s May 7 general election for the Chancellor of the Exchequer’s Conservative Party. Instead all signs point to a hung parliament, with no one party holding enough seats to command a majority. Heightened political uncertainty in the run-up to the poll—and quite possibly in its immediate aftermath, given the horse-trading needed to form what is likely to prove an...

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    Gavekal Research

    London Seminar March 2015 - Anatole, François, Andrew & Charles

    We held our main spring seminar in London on March 17 with Anatole, François, Andrew and Charles offering their views of the global economic pulse and recent market and central bank developments.

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    Gavekal Research

    Asia Is Not So Scary

    One reason we have received push-back on our call to overweight Asian equities has been the risks associated with a major US dollar spike. Asia has not racked up foreign currency debt at the rate seen in recent years since just before the region’s financial crisis in 1997. Still, we would argue that there are sufficient differences this time around to think that Asia can generate strong performance on lower volatility over the coming year.

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    Gavekal Research

    Who Gains When The Fed Hikes?

    The Fed has lost patience in words only, not in deeds. In its statement yesterday the Federal Open Market Committee dropped its linguistic backstop—the word “patient”—indicating that the first rate rise since 2006 could come as early as June (remember, Fed chair Janet Yellen defined “patience” as meaning there would be no rate hike for at least two meetings after the word’s use). But the underlying message the market took away yesterday is that...

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    Gavekal Research

    Don’t Bet On A Renminbi Depreciation

    A number of clients have asked recently when we think the renminbi will start to weaken against the US dollar, and how far we expect it to fall. With the euro and the yen having both recorded double digit percentage falls against the US currency over the last six months, and with the Taiwan dollar down -4% and the Korean won now down -7% after the Bank of Korea cut interest rates last week to a record low, the renminbi is a glaring exception....

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    Gavekal Research

    A Petty And Short-Sighted Hissy Fit

    The UK’s decision to join China’s new Asian Infrastructure Investment Bank is turning into a diplomatic triumph for Beijing and a disaster for Washington. France, Germany and Italy say they will follow the UK’s lead. South Korea and Australia, which the US urged not to sign up when the bank was established last October, are reconsidering. Even Japan, the most stalwart US ally in Asia, is rumored to be wavering.

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    Gavekal Research

    The US Corporate Profit Paradox

    The US equity market is richly valued and faces a buffeting headwind in the shape of the soaring dollar. Our recommendation in recent months has been to dial back exposure, but committed investors should stay concentrated in domestic plays rather than firms with a big reliance on international earnings (see Turning Cautious On US Equities). Such a portfolio orientation was borne out by generally weak 4Q14 corporate earnings. But a key part of...

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  • Gavekal Research

    Beware The Euro Consensus

    The US dollar is hitting new 12-year highs almost daily and the euro seems to be plunging inexorably to below parity. Recent events in the foreign exchange markets seem to have a fairly obvious explanation which most economists and policymakers accept and endorse. President Hollande, for one, has embraced the plunging euro: “It makes things nice and clear: one euro equals a dollar,” he told an audience of industrialists last week. But it is...

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    Gavekal Research

    The Euro’s Collapse And Consequences

    For years, euro-sceptics have argued that either the euro would have to be a structurally weak currency, or the likes of Italy, Portugal and even France would be unable to survive inside the financial strait-jacket. Clearly, the markets have now embraced this conclusion: notwithstanding yesterday’s counter-trend move, the euro has dropped -5.2% against the dollar this month with a YTD decline of -12.3%. Over the past 12 months the euro has shed...

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    Gavekal Research

    Quarterly Strategy Chartbook - Rapidly Shifting Sands

    With the US economic recovery maturing and China’s adjustment to a lower growth trajectory being a controlled affair, the global economy remains in decent shape. Rather than major growth disappointments, the big shocks over the last six to nine months have come from markets. Since the summer there have been huge moves in two of the world’s most important prices: both crude oil and the euro exchange rate have plummeted. Crude oil remains...

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    Gavekal Research

    Let's Watch That Movie Again

    The beginning of the year can be a sleepy time for China watchers, what with the short daylight hours, long holidays and a dearth of economic data releases. In this season, even the most earnest reader of tea leaves can be forgiven for dozing off for a bit. But if you fell asleep watching the China economy channel, you didn’t miss much: it was just playing reruns.

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    Gavekal Research

    Catching The Krona

    A few months back Sweden looked to be sliding into a crippling deflation. This fear has receded with February inflation data swinging positive for the first time in seven months, following a higher-than-expected reading in January. As a result, yields on 10-year government bonds have risen from a record low 0.48% to 0.68%. Most important for the Swedish currency, the interbank rate has swung positive even though the central bank last month...

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    Gavekal Research

    Strong Economy, Weak Markets

    The US has been dishing out report after report showing an improving labor market. And the equity market doesn’t like it one bit.

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    Gavekal Research

    Five Corners (11 March): Currency Wars

    Overview: Charles Gave wonders whether Japan might surprise by affecting an appreciation of the yen. United States: With the US dollar rampant, Will Denyer runs the numbers against the euro and yen and finds decisively in favor of the yen. Europe: Francois Chauchat argues that as a major trading currency, the euro was never going to be driven just by trade flows. However in the final analysis the strong external position of euroland will make...

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    Gavekal Research

    Aluminum: Coping With Excess Capacity

    The commodity super cycle is finished. After massive and sustained increases during the early part of this decade, prices for most metals are now thoroughly depressed. The one exception to this trend is aluminum—not because its price is not low, but because it never went up strongly during the heights of the commodity boom. In fact this exception only proves the rule that China and supply-side discipline were the key factors behind the boom in...

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    Gavekal Research

    The EM Challenge

    With the US dollar on a tear and expectations hardening that the Federal Reserve will raise interest rates this summer, emerging market currencies are again in the firing line. In recent days, the Turkish lira and Mexican peso have hit all-time lows against the dollar, while the Brazilian real, Indonesian rupiah, Malaysian ringgit and South African rand are also in the toilet. And yet while developing world crises have often followed US...

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    Gavekal Research

    Is The US Dollar Breaking Out? - Louis-Vincent Gave

    Our admittedly unscientific survey of clients across multiple conversations would suggest that the most popular trade of 2013 was to be underweight European equities. That did not work out. When 2014 rolled around, the most popular trade tended to be short long-dated bonds everywhere, but especially in the US. Again, the consensus was wrong-footed. In 2015, the overwhelming consensus trade has been to be long the US dollar; and for now, and...

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    Gavekal Research

    The Land Of Wishful Thinking

    How bad can Brazil get? Much, much worse. A visit last week for a round of discussions with investors, government officials and scholars confirmed an extraordinary deterioration in Latin America’s biggest economy in just the last six months, one that is nowhere close to playing out.

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