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E.g., 05-08-2021
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    Gavekal Research

    The European Rotation

    As Europe returns towards something approaching normality, the eurozone is undergoing a rotation in economic leadership from goods to services.

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    Gavekal Research

    Is The Reflationary Trade Back On?

    Forget the recent easing signals sent by the Chinese Politburo (and consequent drop in Chinese bond yields). Forget fears about the “Delta variant” giving Western central banks cover to keep extremely loose monetary policies even as inflation rises. Forget also the upcoming US stimulus bill, or the unleashing of European fiscal expansion. A positive signal that no one is yet talking about is the deflationary signal that could have materialized,...

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    Gavekal Research

    Strategy Monthly: The Global Monetary Divergence

    As the world’s three big economies—the US, the eurozone and China—recover at different speeds from the shock of Covid, their monetary policy paths are diverging. This divergence will have major implications for bond investors and foreign exchange markets.

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    Gavekal Research

    Risks To The Rally

    US equities have ground higher on strong demand, easy monetary policy, and unattractive bond yields. As long as this situation remains, investors should remain moderately overweight US equities. But they should also carefully monitor three key macro risks that could upend this fairly benign investing environment.

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    Gavekal Research

    Breaking Down European Inflation

    Two weeks ago, after US consumer price data for June showed inflation had climbed to a 13-year high of 5.4%, my colleague Tan Kai Xian examined the three main drivers of this year’s rise in US inflation: base effects, supply-side constraints and demand-pull factors. He concluded that base effects have started to wear off and supply-side constraints will soon begin to ease. However, demand-pull factors are set to strengthen over the coming...

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    Gavekal Research

    Webinar: Europe Caught Between Stools

    The US has taken an approach to the pandemic that involves reopening and “living with Covid”, whereas most East Asian economies are heading down the "zero-Covid" path. Europe seems to be caught between these two stools. Which way Europe turns could have a big impact on global growth, the value of the euro and key asset values.

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    Gavekal Research

    When Will The Regulatory Rout End?

    Investors in China’s offshore-listed stocks have suffered multiple regulatory shocks. But with both onshore and Hong Kong equities now suffering, the crackdown is hitting domestic investors. Thomas explains why this will likely change the calculus for China’s policymakers, and why regulators are now likely to adopt a more constructive tone.

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    Gavekal Research

    Video: The Semiconductor Crunch And Asian Exports

    Apple's Tim Cook warned investors that it would face microchip shortages in the second half of the year. Yet last week, Taiwan Manufacturing Semiconductor said that it saw an abatement of the great chip shortage. In this video interview, Vincent seeks to reconcile these two statements, and explain what it all means for Asian exports.

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    Gavekal Research

    The Evergrande Drama Plays Out

    Investor confidence in Evergrande Group, China’s second-largest property developer, has been pummeled in recent weeks. While Evergrande has managed to put out the latest round of fires, and a collapse is unlikely, Rosealea argues in this piece that market volatility for developers will probably continue as financial regulators keep on squeezing.

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    Gavekal Research

    Strange Times And The Return Of TINA

    Fresh Covid-19 outbreaks, stunning Chinese regulatory actions and worries over global growth are causing US real bond yields to plumb new depths. So what is the humble investor to do? After all, historically tight US credit spreads means corporate credit is unattractive, while equities keep making new highs, pushing the S&P 500 index up 18% year-to-date. The answer may not be that complicated, as current growth data and market pricing...

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    Gavekal Research

    Behind China’s Corporate Clampdown

    Private education is the latest sector to draw fire from the Chinese authorities. Their action has precipitated an abrupt slide in Hong Kong’s equity indexes as international investors bale out, alarmed at what they see as official caprice. It has also triggered a spate of questions about what lies behind the crackdown, and what the action means for the future of investing in China.

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    Gavekal Research

    A Glass Less Full

    The eurozone’s economy has continued to pick up in July, with the flash composite PMI released on Friday beating expectations to hit a 21-year high. The manufacturing component continued to fire strongly, and notably the services index topped 60 for the first time since May 2006 as governments relaxed Covid restrictions and the summer tourist season got under way. However, after nine months in which eurozone data has consistently come in ahead...

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    Gavekal Research

    Low For Even Longer

    On Thursday, the European Central Bank’s decisionmakers sat down for their first monetary policy meeting since they ditched their longstanding inflation target of “below, but close to 2%” in favor of a new symmetrical target centered on 2%. That decision formalized the ECB’s shift away from its Bundesbank-style focus on price stability and enshrined its role as the guardian of eurozone financial stability.

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    Gavekal Research

    Webinar: The State Of Global Growth

    The reflation trade has ebbed in recent weeks as investors have gotten more comfortable with the trajectory of US monetary policy and concerns have risen over the Delta variant of Covid disrupting economic opening. At the same time, China continues to crack down on its high-growth internet sector. Our team assessed the market implications of these trends.

    0
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    Gavekal Research

    Did The Equity Rotation And Bond Sell-Off End In May?

    The arrival of Covid-19 vaccines in November sparked a selloff in bonds and significant outperformance of value stocks, at least until mid-May. Having advised a bias to value stocks and keeping duration short in bond portfolios since last November Will was wrong-footed by the market moves of the past two months. Will the new trend last?

    2
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    Gavekal Research

    The Fiscal Effect Of Zero Covid

    As a resource-rich economy, Malaysia has been buoyed by strong commodity and energy prices, yet the effect of the pandemic has been to create an unstable political situation. The governing coalition fell apart on July 8 and a new one has not been formed. Ordinarily, the way out of such a parliamentary impasse would be for an election to be held, yet with the country in a fresh lockdown due to surging Covid-19 cases, that will be difficult.

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    Gavekal Research

    Video: The Debt Ceiling Is Back

    After a two-year suspension, the US debt ceiling will soon be reimposed at current levels. Official estimates suggest that the Treasury can delay defaulting on its debt for three to four months. That is shorter than the five months the Treasury was able to delay during a similar standoff over the debt ceiling in 2019. Ultimately, Congress should act and default will be avoided.

    0
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    Gavekal Research

    A High-Pressure Business Cycle

    The US economy may have suffered one of its biggest ever contractions last year, but at just two months, it was one of the shortest due to aggressive policy reactions that spurred an unlikely economic boom. A worry for investors is that late-cycle stresses now emerging cause this expansion to fade as quickly as it started.

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    Gavekal Research

    China’s Afghan Quandary

    For China, the only thing worse than having the United States Army on your border is not having it there at all. When the US completes its withdrawal from Afghanistan this summer, China will have to fill the ensuing power vacuum to stave off terrorism and Islamic extremism at home, as well as protect its Belt and Road Initiative investments.

    0
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    Gavekal Research

    The World Becomes More Fragile

    In a July 2 paper, Didier Darcet explained how after seven months of being positive, the market reading from our Paris-run quant system had turned negative. The takeaway was that equity market volatility had “more than ever” become the indicator signaling a downturn. Watch any move in the Vix above 27 as a signal that US markets are entering the "tails" of the risk curve.

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