Gavekal Research

Nick Andrews, Cedric Gemehl

Jan 24th 2020

When a government agency announces a “strategic review”, the presumption is that some knotty issue is being kicked into the long grass. That was the vibe yesterday when Christine Lagarde kicked off the European Central Bank’s year-long navel gazing exercise. In this case, however, investors would do well not to check out entirely from ECB watching.

Gavekal Research

Cedric Gemehl

Jan 23rd 2020

After almost five months of calm, there is a quickening in Italian politics. Luigi Di Maio yesterday stepped down as head of the governing Five Star movement as it faces the prospect of a drubbing in a regional election this weekend. The man most likely to capitalize on his troubles is Matteo Salvini, whose Lega Party is the most popular in Italy, polling 30-35%. The result may be more volatility in Italian assets, but a return to crisis...

Gavekal Research

Louis Gave

Jan 22nd 2020

The investment zeitgeist can be thought of as a set of assumptions that investors hold about structural growth drivers, key prices and policy approaches. An investment manager should understand what makes up the zeitgeist and how it is changing. Louis outlines five foundational pillars that he considers integral to the current situation.

Gavekal Research

Tom Holland

Jan 21st 2020

Less than two weeks after the price of oil briefly spiked to a four-month high on fears of a war between the US and Iran, crude has again been looking bid on trouble in the Middle East. This time, the bulk of Libyan shipments have been cut off amid the country’s civil war, while in Iraq anti-government protests have reportedly caused two minor fields to curtail production.

Gavekal Research

Will Denyer

Jan 20th 2020

The US’s growth outlook has been bolstered by easy financial conditions and trade deals being reached with China and its near neighbors. Yet, those prospects are also hampered by a tight labor market that threatens corporate profits. What recent data releases highlight is both the enduring strength of the US economy and niggling late-cycle factors that could yet undo it.

Gavekal Research

Tan Kai Xian

Jan 17th 2020

A range of cyclical and structural factors have conspired to hit US auto sales in recent years. But with the US labor market remaining in rude health and US monetary policy being loosened, that may be about to change. The impact could be positive for US growth and for risk assets, argues KX in this interview.

Gavekal Research

Vincent Tsui

Jan 16th 2020

Contrary to investor fears, the victory of Chinaskeptic Tsai Ing-wen in last weekend’s Taiwanese presidential election is unlikely to lead to a marked further deterioration of cross-straits relations between Taipei and Beijing. With that risk off the table, explains Vincent, the coast is clear for an improving electronics cycle to support the local stock market.

Gavekal Research

Pierre Gave

Jan 15th 2020

After Sweden's Riskbank in October said it would end negative interest rates as the dangers from the policy outweighed the waning advantages, the krona rose 5.3% against the euro and 3.8% against the US dollar until the end of the year. Since then, however, the unit has slumped -1.2% on a trade-weighted basis. This looks to be a good chance to buy the dip.

Gavekal Research

Louis Gave

Jan 14th 2020

Last summer, as Hong Kong’s police seemed set to run out of tear gas, betting against the Hong Kong dollar peg seemed like a safe bet. It hasn’t exactly worked out that way, and in recent weeks the Hong Kong dollar has strengthened to the strong side of its limited trading band. In this piece, Louis explains why.

Gavekal Research

Cedric Gemehl, Nick Andrews

Jan 13th 2020

On the face of it, Germany’s industrial slump is still worsening. The worry has been that a cratering of Europe’s industrial economy proves bad enough to reverse the “internal” recovery spurred by super-easy monetary policy. In fact, such a contagion is unlikely in 2020 and the eurozone should see overall growth stabilize at around its potential level.

Gavekal Research

Tan Kai Xian

Jan 10th 2020

US corporate bonds had a great run in 2019, and have started 2020 on a strong note. Both investment grade and high yield indexes rose by around 14% last year, with credit spreads contracting substantially in the fourth quarter to approach their narrowest for this cycle. However, as US corporate leverage has risen, considerable latent risks have accumulated in the system.

Gavekal Research

Andrew Batson, Thomas Gatley

Jan 10th 2020

The past few weeks have seen Chinese policymakers signaling clearly that the campaign of selective easing begun last year will be carried on into 2020 even as growth continues to slow. With trade war risk lowered, and the electronics and auto sector cycles bottoming out, the outlook for equity and bond markets is fairly benign.

Gavekal Research

Anatole Kaletsky

Jan 09th 2020

With interest rates low, and growth that is neither too hot nor too cold, Anatole remains firmly in the “Goldilocks lives on” camp. But while a continued bull run is the most probable outcome for 2020, bears still lurk in the shadows. In this paper Anatole identifies the 10 main macroeconomic, political and sector risks that could derail markets in 2020.

Gavekal Research

Tom Holland

Jan 08th 2020

At very first glance, the Iranian missile attack on two US airbases in Iraq early Wednesday might appear to confirm worst case fears that the US and Iran are heading irreversibly towards all-out war. However, a preliminary examination of the information available suggests there are still solid reasons to believe that the tensions can be de-escalated, and that outright conflict can be avoided.

Gavekal Research

Tom Miller

Jan 07th 2020

Few major economies and markets are more exposed to a possible Middle Eastern conflict than heavily oil-import-dependent India. However that's not the only thing likely to trouble investors in India this year—with the economy misfiring, Narendra Modi spending political capital on his Hindu-nationalist agenda rather than structural reforms, and local equities looking uncomfortably expensive.

Gavekal Research

Tom Holland

Jan 06th 2020

To judge by the tone of the media coverage and much of the analysis since Friday, the world is teetering on the brink of an apocalyptic war in the Middle East between the US and Iran. But a dispassionate examination of the US-Iran confrontation indicates that the probability of an all-out shooting war between the two sides remains small. As a result, while markets are right to price in an elevated risk premium following Friday’s strike, the...

Gavekal Research

Andrew Batson

Jan 02nd 2020

President Trump has confirmed he will sign his trade deal with China on January 15, and the PBOC has reinforced its tilt to more dovish policies. This combination of events means the macro factors that drove December’s rally—a receding trade war and a global easing of monetary policy—are still in place for January, if increasingly priced in.

Gavekal Research

Charles Gave

Dec 20th 2019

Back in 2003, low interest rates were creating problems for pension funds and insurance companies which could not find enough high-quality bonds offering a decent interest rate. Not to worry, said Wall Street banks, which began to package up real estate-based bonds of varying quality; the best tranches got a triple-A stamp from the credit rating agencies, yet they miraculously offered a higher yield than other top-notch bonds. We all know how...

Gavekal Research

Armando Castelar

Dec 19th 2019

Brazil’s president Jair Bolsonaro has achieved notable wins during his first year in office. He has secured social security reform, overseen deregulation and secured a draft regional trade deal with the European Union. His problem is that growth remains tepid and events are moving against him, especially a US-China trade deal that may hurt Brazilian farmers.

Gavekal Research

Anatole Kaletsky

Dec 18th 2019

We now know why markets reacted so nervously to Boris Johnson’s election landslide last Thursday. The lack of follow-through after that evening’s exit poll and the retreat when trading resumed on Friday morning was suspicious. But there were no clear explanations until Monday evening, when everything became clear. At 10.30pm Downing Street restated Johnson’s promise to finish negotiating a new UK-European Union trade deal within 12 months and...

Gavekal Research

Will Denyer

Dec 17th 2019

Following the US dollar liquidity squeeze and repo rate spike in mid-September—an event which went on to trigger hearty liquidity injections from the Federal Reserve—the market has been on the lookout for new stressors in the US dollar money markets. There were concerns of renewed stress on Monday as the Treasury sucked up an estimated US$84bn on the settlement of new debt issues and through the receipt of corporate taxes. US money market rates...

Gavekal Research

Arthur Kroeber

Dec 16th 2019

The “phase one” US-China trade deal announced last week still has some hoops to pass through before it becomes real: completion of a bilingual legal text and formal signing in January. Still, both sides have incentives to avoid the economic damage from further tariff escalation, so the deal will almost surely come into force. The agreement falls far short of achieving the US goal of forcing China to change its state-led economic system; instead...

Gavekal Research

Research Team

Dec 13th 2019

“So many books,” lamented the late Frank Zappa, “so little time.” For readers wondering which of the 130mn books published since the invention of the printing press they should curl up with over the coming break, hopefully Gavekal’s annual holiday reading picks may help.

Gavekal Research

Udith Sikand

Dec 12th 2019

India’s economy has slowed down dramatically from around 8% growth a little over a year ago to 4.5% in the most recent quarter. Udith reckons the primary causes of this are domestic factors, as the financial system has continued to struggle while the policy response is too weak to be effective. The risk for the rupee is to the downside.