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Gavekal Research
Simon Pritchard
Aug 16th 2019
Troops On The Border
Extreme nervousness in global markets can be attributed to a synchronous weakening of growth that has been reinforced by soft data out of Germany and China. This is also a juncture when commentators seem to have concluded that pent up stresses in the global trading and security system have reached a tipping point. On top of these secular worries is the terror that China is about to have a “Tiananmen moment” by violently crushing the two month...
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Gavekal Research
Charles Gave
Aug 15th 2019
Panic Stations
I always try to be a rules-driven investor. And when the US stock market is down -3% in a day, taking it to -6% from its peak in three weeks, when 10-year US treasury yields have halved in nine months to just 1.55%, and when gold is up 20% in three months, it is a good time to review those rules to see what they can tell me. The answer is: quite a lot.
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Gavekal Dragonomics
Thomas Gatley
Aug 14th 2019
The Slowdown Continues
After a end-of-quarter bounce in June, China’s economy resumed its gradual downward course in July, with industrial production, fixed investment, housing starts, retail sales and credit growth all slowing. The bright spots were exports, which registered a surprising pickup despite the trade war, and housing sales, which reversed three months of declines with a modest gain.
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Gavekal Research
Louis Gave
Aug 14th 2019
The Surge In Anti-Fragile Assets
The latest round of data releases appears to confirm fears that the world is facing another synchronous global downturn. If so, it will be different from other slowdowns, in that it will not have been caused by rising interest rates or higher energy prices. What’s more, it will be setting in when there is little prospect of a globally coordinated response, when monetary policy appears to have lost traction, and when asset prices are looking...
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Gavekal Research
Louis Gave
Aug 14th 2019
Lessons From The Argentine Shock
In US dollar terms, Argentina's equity benchmark on Monday fell -48% in a one-day move. The -24% drop in long-dated US dollar-denominated Argentine bonds, a -17% drop in the currency, or the -38% fall in the local equity index will cause pain for certain macro players and dedicated emerging market funds. It should also cause us to ponder a number of questions.
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Gavekal Research
Charles Gave
Aug 13th 2019
Joining The US Recession Camp
To listen to current commentary, you would think that US capitalism faced a Marxist end-of-times reckoning. Hence, it is noteworthy that the share of sales going to profits is now falling, while that going to labor is rising. Yet the latest US GDP report is still alarming for what it tells us about the state of the economy.
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Gavekal Dragonomics
Dan Wang
Aug 13th 2019
The Rising Risks For Chinese Firms
The outcome of US-China trade talks is uncertain, but one thing is clear. Chinese companies, their customers and suppliers, faced increased risks of US American sanctions. Hardliners in the US national security establishment are pressing ahead with an “all-of-government” strategy to constrain China’s technological and financial clout. This will continue regardless of the outcome of trade talks.
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Gavekal Research
Louis Gave
Aug 13th 2019
Hong Kong Q&A (Part II)
The success of Hong Kong’s protesters in shutting down the city’s airport on Monday, talk from Beijing of “terrorism”, and the apparent massing of mainland paramilitary forces across the border from Hong Kong have led to a deluge of questions from clients about what is likely to happen next, and the potential investment implications. In this paper, Louis attempts answers some of the most frequent questions.
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Gavekal Research
Vincent Tsui
Aug 12th 2019
Asian Currencies Remain A Shock Absorber
It has often been said that when the US sneezes the rest of the world catches a cold. In Asia, a similar link exists between the behemoth China and other regional economies. Hence when Beijing unexpectedly let the renminbi weaken through CNY7.00 to the US dollar last Monday regional currencies fell by 1.6% in the following five days. They could fall more, however there is unlikely to be a broader contagion to regional asset markets. Asia’s solid...
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Gavekal Research
Arthur Kroeber
Aug 09th 2019
A Trade Equilibrium Of Sorts
After a week of trade war scares, things have settled down into an equilibrium that is uneasy, but likely to last several weeks. The central question now is whether the new tariff on US$300bn of Chinese exports to the US will go into effect on September 1, or if Trump’s team will find some graceful way to back down from that threat.
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Gavekal Research
Nick Andrews
Aug 08th 2019
What Germany Means For Europe
Even before the US-China trade war escalated last week, Europe stood on shaky ground. We learnt yesterday that German industrial production for June fell -1.5%. Europe’s largest economy faces cyclical and structural challenges, and the question is whether it takes its neighbors down with it.
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Gavekal Research
Charles Gave
Aug 07th 2019
The Death Spiral Of Eurozone Banks
For months Charles has told anyone who will listen that the real threat to global markets is the slow-motion implosion of the eurozone’s banking system. Each time the region's equity has hit a critical threshold an intervention has caused it to bounce off and delay the reckoning. The size of these rebounds has waned and this time there may be no respite.
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Gavekal Research
Arthur Kroeber
Aug 06th 2019
The Renminbi, Manipulation And The Trade War
Monday’s actions on the Chinese currency—Beijing’s decision to let the renminbi’s exchange rate weaken past CNY7.00 to the US dollar, and Washington’s decision to label China a currency manipulator—signal that the US and China are close to throwing in the towel on a trade deal. Trade war escalation should now be the base case.
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Gavekal Research
Tan Kai Xian
Aug 05th 2019
The Long Term Impact Of Trump’s Latest Tariffs
Aftershocks from Donald Trump’s August 1 tweets promising new tariffs on US imports from China continued to reverberate through Asian markets on Monday morning. Most notably, China’s yuan fell by some -1.3%, with the USD-CNY exchange rate breezing unimpeded by the Chinese authorities through the CNY7.00 to the US dollar mark for the first time since early 2008. Equity markets in the region were also hard hit, with Japan down -2% and Hong Kong...
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Gavekal Dragonomics
Rosealea Yao
Aug 05th 2019
The Risks To Steel Prices
China’s government is once again going after pollution from the steel industry, raising the risk of more policy-induced spikes in steel prices. While forced shutdowns to ensure blue skies are on the way, Rosealea argues that the bigger risk to steel prices is on the downside, due to weakening construction activity and cautious housing policy.
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Gavekal Research
Louis Gave
Aug 05th 2019
The Renminbi Devaluation’s Fork In The Road
Following the surprise renminbi devaluation of August 2015 policymakers in the world’s major financial powers acted to calm markets in what came to be known as the “Shanghai Agreement” of February 2016. Since then, currency markets have broadly been one big yawn, with little volatility and few opportunities for macro traders to make meaningful money. Is that situation now changing?
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Gavekal Research
Tan Kai Xian, Will Denyer
Aug 02nd 2019
Strategy Monthly: Focus On The Fed, Not On US Tariff Threats
Trade war fears are once again front and center of investors' minds. But the reduced magnitude of pledged US tariffs indicates that Trump is anxious to avoid damaging the US economy and financial markets. This leaves the focus on the Fed, and how much it is likely to cut interest rates.
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Gavekal Research
Charles Gave
Aug 02nd 2019
What Sterling’s Move Tells Us
The sterling exchange rate is going down and the usual suspects say this is bad news. But the exchange rate is merely a price that helps allocate capital between the economy’s internal and external sectors, and so set the purchasing power of rentiers and entrepreneurs. Entrepreneurs do best when the currency is undervalued, while rentiers and consumers win out when it is overvalued.
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Gavekal Research
Nick Andrews
Aug 01st 2019
Video: Enter Boris
In the last week or so, the pound has fallen sharply to a two-and-a-half-year low against the US dollar. That’s all down to the new British government, headed by Boris Johnson, and his "do or die" Brexit campaign. But when a deal is finally struck, Britain’s strong economic fundamentals mean it is well placed for a boost in growth, along with the pound.
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Gavekal Research
Will Denyer
Aug 01st 2019
What The Early End Of QT Means
As expected, the Federal Reserve cut short term interest rates by 25bp on Wednesday. Less expected the Fed also halted its program of quantitative tightening, effective immediately. The decision to end the program early cancels an expected additional US$70bn contraction in the supply of money. This represents a significant easing.
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