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Gavekal Research
Louis Gave
Dec 18th 2019
Why Aren’t Markets Pricing In Global Reflation?
Back in October, when the Fed said it would start expanding its balance sheet at the same time as the ECB and BoJ, Louis reasoned that powerful forces were aligning for a global reflation trade. A little over two months later, markets have ripped higher, but the reflation trade has not materialized quite as anticipated. In this paper, Louis examines why not, and asks what conditions will be needed for it to come good in 2020.
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Gavekal Research
Will Denyer
Dec 17th 2019
The Repo Paradox
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...
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Gavekal Dragonomics
Thomas Gatley
Dec 17th 2019
Stable Growth Without Undue Stimulus
China's latest economic figures show continued growth into the end of this year. In this report, Thomas outlines how these data points, combined with the fragile US-China trade truce, might give Chinese policymakers the space they need to achieve their goal of maintaining stable growth without resorting to excessive stimulus.
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Gavekal Research
Arthur Kroeber
Dec 16th 2019
The Trade War’s Uneasy Truce
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...
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Gavekal Research
Louis Gave
Dec 13th 2019
Is Brexit The Midwife To A New Investment Environment?
With the confirmation of a conservative victory in the UK election, and a long awaited trade deal between the US and China, the pieces are falling into place for a weakening of the US dollar and a continuation of the global reflation trade. Already, both sterling and the euro have strengthened in response to the reports of a Tory victory.
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Gavekal Research
Research Team
Dec 13th 2019
Our 2019 Holiday Reading List
“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.
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Gavekal Research
Cedric Gemehl
Dec 12th 2019
Towards A Green Supply Shock
The “European Green Deal” announced with much fanfare on Wednesday was long on ambitious targets, short on implementation details about how they will be achieved. The lack of detail leaves investors to ask how Brussels’ green deal will affect the continent’s growth prospects. Here it is possible to set out some pointers.
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Gavekal Research
Udith Sikand
Dec 12th 2019
Video: India’s Economic Malaise
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.
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Gavekal Dragonomics
Andrew Batson
Dec 11th 2019
Scenarios For 2020
Beijing has been largely successful in balancing a response to China’s economic slowdown with a need to continue its financial cleanup, but how sustainable is this delicate status quo? In this report, Andrew lays out different scenarios and the likelihood of policymakers being able to maintain their “selective easing” strategy through 2020.
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Gavekal Research
Will Denyer
Dec 11th 2019
What Would Volcker Do?
Paul Volcker, who died this week aged 92, leaves a legacy of public service with a backbone. He managed the monetary affairs of the world’s leading economy during its post-WW2 nadir, and so his perspective on conducting monetary policy in times of political turmoil is without match.
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Gavekal Research
Cedric Gemehl
Dec 11th 2019
The French Resistance
While most of the rest of Europe, including Germany, has run into stiff headwinds from the slowdown in global demand, the French economy has continued to trundle along largely untroubled, with growth closely in line with potential. Cedric argues France’s economy will continue to grow in steady, if unspectacular, fashion over the medium term.
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Gavekal Research
Udith Sikand
Dec 10th 2019
Japan's Fiscal Engagement
Japan's upward revision to GDP growth yesterday was taken as a bad omen. It suggests that shoppers went on a spree before the October 1 tax rise, and tougher times may follow. This explains why the government unfurled a big emergency fiscal stimulus last week. On the face of it, this should be negative for the yen, yet other forces are likely to keep the currency range-bound.
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Gavekal Dragonomics
Thomas Gatley
Dec 10th 2019
Why The Private Liquidity Crisis Isn't Over
The multi-year liquidity squeeze for Chinese private-sector firms continues, despite repeated promises from policymakers to resolve the issue. In this report, Thomas explains how Beijing’s tight grip on financial risk has stymied efforts to alleviate China’s beleaguered private sector—and why this lending crunch will persist through 2020.
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Gavekal Research
Vincent Tsui
Dec 09th 2019
A Rentier's Paradise
For East Asia’s emerging economies, these are the best and the worst of times. Bad news can be seen in slowing trade, deglobalization effects and China’s structural slowdown rendering the commodity “super cycle” a memory. Yet they also benefit from good policy choices, contained energy costs and favorable liquidity conditions. Indonesia is the prime example of this low-growth, low-inflation new normal.
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Gavekal Research
Will Denyer
Dec 09th 2019
Parsing Payrolls And The Fed
November’s employment figures show that the US jobs market is slowing, but the slowdown is gradual and not sufficient to worry investors to any significant degree about an impending recession. Nor, with inflation expectations subdued, do recent jobs data give the Federal Reserve reason to act either one way or the other at this week’s policy meeting.
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Gavekal Research
Cedric Gemehl
Dec 06th 2019
Video: Upside-down Europe
Ever since the European debt crisis Germany has outperformed the rest of Europe thanks to booming external demand, while the rest of the continent suffered from a restrictive policy mix. However, lately these conditions seem to be reversing, with Germany suffering from a collapse in its crucial auto industry. Cedric discusses this shift and outlines the implications for investors.
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Gavekal Research
Will Denyer, Tan Kai Xian
Dec 06th 2019
A Safety Rope On The Wall Of Worry
Markets are heading into the end of 2019 on a broadly constructive note. Yet there are daunting risks hanging over 2020. And although a number of these risks may be of modest probability, the impact on portfolios should they arise will be great. This means investors are to an extent climbing a wall of worry. Fortuitously, there is a safety rope to hand.
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Gavekal Dragonomics
Lance Noble
Dec 05th 2019
The Pitfalls Of Beijing’s AI Strategy
The Chinese government has made artificial intelligence a national development priority and is dedicating huge resources to the task. Yet, as Lance explains in this report, the effort is suffering from mismanagement, wasteful provincial competition and difficulty retaining skilled workers.
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Gavekal Research
Louis Gave
Dec 05th 2019
Is Energy Uninvestible?
Who would have thought at the time of the September attacks on Saudi that the oil sector would perform so dismally in the weeks after? This has been in line with a longer term underperformance, which has led many investors to dismiss the energy sector as uninvestible. Louis examines some of the arguments underlying this belief, and comes to an intriguing conclusion.
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Gavekal Research
Vincent Tsui
Dec 05th 2019
Carry Is Still King In Asia
With the Federal Reserve firmly set in easing mode and the US heading into an unpredictable election season, there are good reasons to think the US dollar could be set for a period of weakness. A key beneficiary could be Asian currencies, which as a group are down about -10% against the global reserve currency in the last five years.
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