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E.g., 27-02-2020
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    Gavekal Research

    What Will End The US Dollar’s Run?

    Among the confounding effects of the coronavirus has been its impact on foreign exchange markets. The last few weeks have seen heavy flows into the US dollar, on the grounds that the US economy is relatively insulated from the ill-effects of the outbreak. As fears have grown of a dismal first quarter for the eurozone on diminished external demand (see Just When Things Were Looking Up), the euro has slumped to a near three-year low against the US...

    1
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    Video: Will The Economic Contagion Hit Europe?

    Europe’s financial markets are sending mixed signals. On one hand, fears about the eurozone's exposure to China’s coronavirus-hit economy have pushed the euro to a 21-month low against the US dollar. On the other, euro-denominated stocks are hitting record highs. In this interview Nick examines the mixed message.

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    Paying Your Way In The UK

    A triumphant Boris Johnson is set on consolidating a new electoral coalition through big infrastructure projects that help “level up” forgotten regions, but he faces a weak economy and tough negotiations with the European Union over Britain's trading relationship. The worry is that investors begin to balk at funding a gaping current account deficit.

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    Gavekal Research

    Just When Things Were Looking Up

    It seems the European economy can’t catch a break. After a grim year in 2019, especially for the manufacturing sector, the old continent entered 2020 with reasons for cautious optimism. Survey-based indexes of business optimism appeared to bottom out late last year. Then the Wuhan coronavirus hit China.

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    Gavekal Research

    Britain’s Soggy Prospects

    Despite a worsening coronavirus situation and worries that a Brexit bounce could be short-lived, the Bank of England defied the expectations of many by not cutting interest rates. The UK’s weak medium term growth outlook and difficult impending trade talks with the EU means that policy will remain dovish and sterling’s upside prospects are likely capped.

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    Gavekal Research

    Playing The ECB Strategic Review

    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.

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    Gavekal Research

    The European Recovery Lives, Just

    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.

    0
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    Gavekal Research

    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

    Europe's Political Paralysis

    With the Spanish general election unlikely to produce a proper government, the country looks increasingly ungovernable. For an economy that weathered the financial crisis intact but has chronic productivity problems, this is a worry. However, the result of Europe’s fragmenting political landscape is long-term policy stasis rather than a near-term collapse of the single currency.

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    Gavekal Research

    It's Not 2017 Again In Europe

    Yesterday saw a global risk-on move as investors cheered reports that a US-China trade deal may be in the offing. In Europe, this followed data releases that showed German factory orders picking up and PMIs stabilizing. On first blush, this looks reminiscent of 2017’s recovery. Alas, there are three key reasons to think a rerun may not materialize this time around.

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    Gavekal Research

    Video: In Search Of Policy Traction

    New European Central Bank boss Christine Lagarde has called on European governments to do more on the fiscal front to support eurozone growth. Only Germany has wiggle room within the EU fiscal straitjacket to launch a significant stimulus program. However, political resistance in Berlin to opening the spending taps remains formidable, and may be insurmountable.

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    Gavekal Research

    A Swedish Canary In The Coal Mine

    Sweden’s Riksbank plans to raise its main policy rate to zero from -0.25%. A relieved governor, Stefan Ingves, said last week it would be a “bonus” to return to parity in December and warned against staying negative for too long. The Swedish recantation follows the European Central Bank’s controversial move last month to further cut rates to -0.5%. Investors should take note because the Swedish canary may be signaling a shift in attitudes to...

    0
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    Gavekal Research

    The German Spillover

    Perhaps the most remarkable thing about this year’s slump in manufacturing is how few negative spillover effects it has had on demand in the broader economy—until now. Services PMIs for both the eurozone as a whole and for Germany took a sharp turn south in September. In Germany, the deterioration is making a technical recession all but inevitable.

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    Gavekal Research

    Up Against The Limit With The ECB

    German savers face “custody fees” when depositing big sums at the bank, or get clipped 50bp when buying a euro-denominated money market fund. Such outcomes explain why a growing number of economists oppose calls for the European Central Bank to cut rates further and restart quantitative easing when it meets tomorrow.

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    Gavekal Research

    Video: Italian Politics Favors Bonds

    Yesterday Italy’s new government took office, the 66th since 1946. Meanwhile, Italian bond yields have reached record lows. Nick attributes this to two factors. First the global bond rally. Second, the shifting winds of Italian politics away from the Euroskeptics to the Europhiles, which bodes well for Italian-European budget negotiations.

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    Gavekal Research

    Strategy Monthly: The Message From Bonds

    Record low bond yields point to a deflationary catastrophe in the making. Yet growth data in the world’s two biggest economies remain decent. Could investors be reacting to a rupture in the international order? Gavekal analysts are not persuaded by such arguments and offer four alternative explanations for the “bond bubble”.

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    Gavekal Research

    Germany’s Fiscal Firepower

    Uniquely among the world’s big economies, Germany runs a budget surplus, in accordance with the “debt brake” written into its constitution following the 2008-09 financial crisis. This means Berlin could, in theory, deploy considerable fiscal firepower even within the current rules, and a great deal more if it chose to bend or rewrite them.

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    Gavekal Research

    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

    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.

    0
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    Gavekal Research

    Sterling’s Information Void

    Since Boris Johnson became prime minister, the UK government’s promise of a “do or die” Brexit has caused sterling to slump -2.9% against the US dollar to about US$1.21. While the chances of Britain actually leaving the EU without a deal remain small, this outcome will remain unclear for some time. That presents risks, but great opportunities for those dealing in sterling.

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