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Gavekal Research
Will Denyer, Yanmei Xie
Mar 24th 2020
The Importance Of The Fed’s Big Guns
On Monday, the US Federal Reserve rolled out some of its heaviest artillery. In a move reminiscent of the moves in March 2009 which finally succeeded in stabilizing markets, it both relaxed accounting rules for banks and launched a whole suite of programs designed to take risk off private sector balance sheets, including by buying corporate bonds.
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Gavekal Research
Tan Kai Xian
Mar 23rd 2020
High Frequency Data For Tracking Covid-19
As national lockdowns upend normal economic activity, conventional economic indicators are being rendered useless to investors. High frequency indicators may be helpful in spotting future turning points and gauging the strength of any eventual recovery. In this short chartbook, KX suggests a range of indicators for monitoring the US economy.
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Gavekal Research
Arthur Kroeber
Mar 23rd 2020
Lockdowns Loom; What’s The Exit Strategy?
We are heading into another difficult week. Covid-19 case numbers and fatalities outside China continue to grow rapidly. Social lockdowns are spreading to more US states and European countries. In the short run, fiscal support is on the way. Longer term, governments will have to start asking the uncomfortable question of when the economic pain outweighs the public health gain.
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Gavekal Dragonomics
Xiaoxi Zhang
Mar 23rd 2020
Rural Banks On The Brink
The economic stress of the Covid-19 outbreak is all but certain to cause a rise in nonperforming loans. Even before the outbreak, China’s rural commercial banks—its smallest and most troubled lenders—were already short of capital and performing poorly. As Xiaoxi shows in this piece, another jump in bad loans will push more of them into distress.
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Gavekal Research
Arthur Kroeber, Anatole Kaletsky, Louis Gave, Andrew Batson
Mar 20th 2020
Webinar: Covid-19, Markets And The Economy
At Thursday’s webinar, Arthur Kroeber, Louis-Vincent Gave, Anatole Kaletsky and Andrew Batson discussed the Covid-19 outbreak and the consequences for financial markets and the economy.
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Gavekal Research
Louis Gave
Mar 20th 2020
After The Perfect Storm
While most media attention is focused on the Covid-19 outbreak, the energy industry simultaneously faces a solvency crisis and a liquidity seizure of epic proportions is unfolding before us. In short, these events have created a perfect storm. What comes next depends on how this three factors driving markets play out
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Gavekal Dragonomics
Rosealea Yao
Mar 20th 2020
Local Governments Will Lead On Property
Even as China’s property market has experienced an unprecedented decline, central government policymakers have kept a tight leash on official support. However, given growing signs of a lasting disruption to the sector, Rosealea believes that Beijing will tolerate more ambitious municipal efforts to keep local markets afloat.
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Gavekal Research
Charles Gave
Mar 20th 2020
Money, Value And The Markets
Above all, economics is the study of why goods and services have value and why these values are constantly changing. This study is greatly complicated by the fact that there are two different sources of value. In Gavekal-speak, we call these “scarcity” value (think jewels) and “efficiency” value (think tools). So the key question becomes not only “why do things have value?” but also “why do the relative values of scarcity and efficiency change...
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Gavekal Research
Udith Sikand, Will Denyer
Mar 19th 2020
The Dollar Squeeze Intensifies
Policymakers in the world’s biggest economic blocks are responding to the current crisis with fiscal and monetary “shock and awe”. Yet even as the much maligned European Central Bank joined the asset purchase party, markets have continued to crater. For all the coordinated economic responses to the coronavirus pandemic, there has been no serious effort to free up the offshore market for US dollars.
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Gavekal Research
Arthur Kroeber
Mar 19th 2020
A Bad Prognosis
The US and Europe are moving towards Hubei-style societal lockdowns. Arthur sifts through the latest epidemiological research, and concludes that while the worst case public health scenarios will be avoided, the coming lockdowns will be severe and last long enough to have an economic impact possibly more damaging than in China.
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Gavekal Research
Charles Gave
Mar 19th 2020
Capitalism And The Coronavirus
There is an inevitability to the economic responses being adopted by governments around the world to the current crisis. The real problem is that they follow years of cosseting the financial system through policies intended to deny economic reality. The cumulative effect, Charles argues, is that by the time this crisis is fully digested we may be left with an economic system that is a pale shadow of a market economy.
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Gavekal Dragonomics
Wei He
Mar 18th 2020
Deposit Rates Are Back On The Agenda
The People’s Bank of China has failed to join other central banks in the recent wave of rate cuts. But with the coronavirus now threatening a substantial hit to global demand, the PBOC is going to need to do more. In this piece, Wei argues that a cut in the benchmark deposit rate—a tool that has not been used in four years—is on the way soon.
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Gavekal Research
Udith Sikand, Vincent Tsui
Mar 18th 2020
The Problem For Emerging Markets
Despite aggressive policy moves in recent days, emerging market asset values have continued to crater. These moves are the result of lost demand and supply chain disruption but also the fear of a financing shock from a squeeze in US dollar funding. Despite many emerging economies having solid fundamentals, there are reasons to think things will get worse for investors before they improve.
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Gavekal Research
Tom Holland
Mar 18th 2020
Fiscal Intubation
“This is not a time for ideology or orthodoxy,” said UK chancellor Rishi Sunak on Tuesday. Policymakers across Europe and in the US agree. They have now thrown orthodoxy out of the window in an all-out attempt to support economies hammered by Covid-19 countermeasures. In the US, the administration announced fiscal support worth as much as US$1.2trn, or 6% of GDP, complete with the immediate mail-out of a US$1,000 check to each and every member...
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Gavekal Research
Louis Gave
Mar 17th 2020
Solvency Crisis Or Liquidity Crisis?
Collapsing equity markets, rising bond yields, widening spreads, falling gold—in recent days, there have been few places to hide. When markets act so sick, it usually pays to take a deep breath (in a socially distant manner) and ponder whether we are facing a solvency crisis, or a liquidity crisis.
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Gavekal Dragonomics
Thomas Gatley, Andrew Batson
Mar 17th 2020
Terrible But True
Given the extent of China’s coronavirus lockdown, it’s not surprising to see double-digit declines in economic indicators. The real surprise is that the statistics bureau did not fudge the data, as analysts expected it would, and printed numbers bad enough to be plausible. This suggests authorities will be pragmatic about the growth impact for 2020.
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Gavekal Research
Nick Andrews
Mar 17th 2020
Video: Time For A Fiscal Union?
The coronavirus pandemic, with its calls for a coordinated European Union-wide fiscal stimulus to counter the inevitable economic ill-effects, would appear to be the ideal opportunity to press forward with the next big step towards European integration by forging a eurozone fiscal union. But things are not so simple.
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Gavekal Dragonomics
Andrew Batson
Mar 16th 2020
From The Supply Side To The Demand Side
As China gets back to work, the biggest problem facing the economy is no longer restrictions imposed on the supply side, but the near-certain prospect of a major shock in global demand. Andrew argues that this shift will cajole Chinese policymakers, who have so far kept a conservative approach, into stepping up their growth support measures.
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Gavekal Research
Anatole Kaletsky
Mar 16th 2020
A Modest Proposal To Avert Economic Catastrophe
Contrary to initial expectations, the spread of the coronavirus around the world is not following the relatively benign trajectories experienced in China outside of Hubei, and in Korea, Singapore and the rest of Asia. Instead, across Europe—and likely in the US—the spread increasingly resembles the path it took in Hubei. This threatens both medical and economic disasters.
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Gavekal Research
Will Denyer
Mar 16th 2020
The Fed’s ‘Whatever It Takes’ Moment
While other US government agencies tackle the coronavirus crisis, the Federal Reserve has promised ample liquidity and functioning credit markets. Its “whatever it takes” plan is to ensure that US dollars are available at home and abroad, US credit markets remain liquid and solvent companies and individuals are not stopped out.
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