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E.g., 08-07-2020
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    Gavekal Research

    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.

    0
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    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.

    0
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    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.

    0
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    Gavekal Research

    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.

    0
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    The New Champion Of Monetary Conservatism

    The People’s Bank of China and the Bundesbank have never been known to be close. But Yi Gang, the Chinese central bank governor, is starting to sound German in his views on monetary policy. He argues that negative interest rates and quantitative easing have been a failure, and China must stick with conventional policy and positive rates.

    1
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    The Long Slow Road To German Fiscal Expansion

    To read the media headlines, you would either think that Germany’s coalition government is on the brink of collapse, or that Europe’s largest economy is on the eve of a massive fiscal expansion. The headlines are exaggerated. Yes, at the weekend the coalition’s SPD partner did elect a duo of free-spending leftists as its new leaders. But the government is likely to survive intact for its remaining two years. And although political thought in...

    4
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    Gavekal Research

    Learn To Stop Worrying And Love The Pound

    Sometimes, markets just get things wrong. Since early January investors have been panicking about a “no deal” Brexit, and I have been urging clients to buy sterling. Not because I became less gloomy about the damage that will be done to Britain by any form of Brexit, but because a “no deal” rupture is the one version of Brexit that can be confidently ruled out.

    1
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    Gavekal Research

    An American Intervention

    After easily passing both houses of Congress, Donald Trump had little choice but to sign bills dictating the US government’s treatment of Hong Kong. Its significance will be determined by Beijing’s response, and for now that is likely to stay focused on achieving an interim trade deal that delivers a roll-back on US import tariffs.

    0
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    Gavekal Research

    The Earningless Equity Rally

    In the third quarter, US macro-level domestic earnings fell -1.9% year-on-year. Behind this squeeze lies a weak sales picture tied to trading uncertainty and a rise in wages. In the near term, both factors could intensify. Yet there is nothing especially new in weak US profits and a ripping equity market. There are, in fact, three reasons to think this situation can be sustained.

    2
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    Gavekal Research

    The Upside Of Downing Tools

    A year after the eruption of the gilet jaune protests forced Emmanuel Macron to scrap planned fuel tax increases, the French president is facing fresh opposition to his program of structural reforms.On December 5, a coalition of labor unions is promising to down tools in an “unlimited” strike against the government’s proposed overhaul of France’s state pension systems.

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    Gavekal Research

    The VIX, Fragility And Indexation

    At the same time as US stock markets ascended to all-time highs on Monday, the VIX volatility index fell to its lowest close in more than a year. In and of itself, this decline in the VIX should hardly be a great surprise given the Fed's liquidity expansion. But as part of a longer term pattern, this policy-driven decline in stock market volatility is deeply troubling.

    1
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    Gavekal Research

    The Hong Kong People Speak

    The last 15 years has seen pro-government parties in Hong Kong rely on voter apathy and division across the democratic camp to often rule the roost. That changed yesterday, with establishment parties getting thumped in local council elections as voters expressed anger at the government’s handling of violent street protests in the last six months.

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    Gavekal Research

    Musings On Trump And Powell

    His detractors will never admit it, but Donald Trump has done much that is good for the US economy. Notably he has reduced corporate taxes and cut red tape, boosting returns on invested capital. But in calling on the Federal Reserve to cut interest rates further, he is not only making a big mistake, he is courting disaster—though not for the reason his critics believe.

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    Gavekal Research

    The Hong Kong Effect Means A Taiwan Opportunity

    Taiwan's stock market has gained 18.6% year-to-date. This rally will be vulnerable to a heightening of bellicose rhetoric from Beijing prompted by the expected victory of the incumbent China-skeptic Tsai Ing-wen in January’s presidential election. But given the favorable structural and cyclical trends, any sell-off around the election should provide an attractive buying opportunity.

    0
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    Gavekal Research

    The Implications Of Hong Kong For China

    Many clients ask how China’s ruling Communist Party, the CCP, will react to what many policymakers in Beijing regard as an intolerable challenge to their authority by protesters in Hong Kong. The answer to this question will have direct implications for the city and its future as China’s international financial center. It will also have implications for the evolution of policy within mainland China itself.

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    Gavekal Research

    There Is A First For Everything

    We live in the 21st century, and if a liquidity injection program by the Federal Reserve doesn’t want to identify as quantitative easing, then we should respect that choice, and call it by whatever name it chooses for itself—even if almost everyone now calls the US$60bn injection “non-QE QE”. However, lost within the debate over naming lies a long list of interesting “firsts”.

    2
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    Gavekal Research

    The US Manufacturing Slump Abates

    US manufacturing output fell -1.5% year-on-year in October to mark its weakest month since December 2015. The worry is that a US manufacturing recession causes such a drag that even well-performing sectors like housing get sucked down as well. The good news is that these production numbers look like a nadir.

    1
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    Gavekal Research

    Saudi, Peak Oil Demand And Aramco

    With the rise of environmental concerns and alternative energy sources, the preoccupation is that peak oil demand could be as few as 10 years into the future. The fear that come the 2030s or soon after, it could be left sitting on 300bn barrels of stranded assets is behind the Saudi Arabian government’s decision to sell shares in its monopoly petroleum producer, Saudi Aramco.

    1
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    Gavekal Research

    Looking Through To US Inflation

    In Congressional testimony yesterday, Jay Powell expressed optimism that US inflation will gradually rise toward the Federal Reserve’s target of 2%. If this is the case then it is reasonable to think that the US central bank could be done with rate cuts in this cycle but some way away from any rate hikes—this points to a Goldilocks of sorts.

    0
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    Gavekal Research

    Something Has To Give

    Public support for Hong Kong's protest movement has been re-energized by perceived police brutality, the local government offering no political response to the crisis and Mainland authorities delivering mixed, but slightly sinister messages about their next move. This piece assesses the political forces at play and takes a stab at explaining what comes next.

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