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Gavekal Research
Nick Andrews
Sep 19th 2018
When To Buy UK Stocks
“Deal or no deal” is the question blurring all UK investment decisions. Britain’s exit from the European Union should be settled before the end of the year, but the run-in will be nerve-wracking. Since Prime Minister Theresa May released her halfway-house “Chequers” plan in early July, investors have fretted that the UK may crash out of the EU next March with no new trading relationship in place. My colleague Anatole has consistently downplayed...
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Gavekal Research
Nick Andrews
Sep 07th 2018
The Case Against Eurozone Stocks
The eurozone may not face the kind of liquidity crunch roiling US dollar-based emerging economies, but its equity markets remain on a grinding downward trajectory. The MSCI EMU index is within 1.0% of this year’s low and a range of technical indicators make for ugly reading. I would advise global investors to generally avoid the single currency area, but for those who must be there I will slightly surprise myself by arguing that the eurozone’s...
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Gavekal Research
Nick Andrews
Sep 03rd 2018
Europe’s Whimpering Economic Cycle
As with most of the developed world, the eurozone has seen a breakdown of the Phillips Curve link between inflation and unemployment. The 2008 crisis and ensuing double-dip recession created a sclerotic environment where labor market dynamics had little impact on general prices. This is another way of saying that Europe’s economy has remained stuck a in low-growth funk. Last year that seemed to have finally changed, with cyclical forces driving...
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Gavekal Research
Tom Holland, Nick Andrews
Aug 27th 2018
Last Place In The FX Beauty Contest
In mid-August, the US dollar hit a 12-month high against developed country currencies, and a multi-year high against emerging market currencies. Two weeks on, the burning question for investors is whether those highs represent a turning point, whether the dollar strength that prevailed from mid-April to mid-August has now played out, and whether the US currency is about to resume the softening trend that predominated through 2017. As always,...
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Gavekal Research
Nick Andrews
Aug 15th 2018
More Than Collateral Damage
Among the collateral casualties of Turkey’s lira crisis have been European bank shares. Over the last week, as the lira plunged, the SX7E index—the EuroSTOXX banking index—slumped -7% on fears about banks’ exposure to Turkish borrowers. But Turkey is not the only concern weighing on European bank stocks. The sell-off over the last week is just the latest in a series of downlegs that together have seen the SX7E fall -19.7% over the last six...
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Gavekal Research
Cedric Gemehl, Nick Andrews
Jul 23rd 2018
What US Auto Tariffs Would Mean For Europe
Last week’s public hearings in Washington heard a chorus of industry opposition to the US administration’s proposed import tariffs on cars and car parts. But in Europe at least, markets appear to be coming around to the view that the tariffs will go ahead regardless. After Friday’s fall, the auto and auto parts sub-index of the Stoxx 600 has slumped -15% since late May when the US Commerce Department announced its Section 232 investigation,...
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Gavekal Research
Nick Andrews
Jul 10th 2018
The Message From Eurozone Credit
Should we worry that eurozone corporate bond spreads have doubled since late January? After all, bond yields are rising globally and as deflationary risks have ebbed the European Central Bank has signaled its intent to normalize monetary policy. Yet, looking back at the eurozone’s last cycle, policy was tightened without spreads blowing out. My concern is that the present squeezing of financial conditions is sending a darker message, and will...
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Gavekal Research
Nick Andrews
Jun 28th 2018
Slower Eurozone Growth Ahead
Wednesday was another grim day for European bank stocks, which are now down almost -24% from their late January peak. Yesterday Louis looked at the reasons behind the slump in bank shares globally, and attempted to find a silver lining to the dark cloud of their underperformance (see The Message From Bank Stocks). When it comes to Europe, however, the fall in bank shares is just one more reason to feel pessimistic.
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Gavekal Research
Nick Andrews
Jun 26th 2018
Behind European Underperformance
Amid Monday’s trade-war-inspired risk-off, it is significant that European equities underperformed. Sure, Europe had already closed when White House trade advisor Peter Navarro emerged to reassure investors that the US administration is not proposing blanket investment restrictions. Even so, European markets suffered disproportionately. That should be no surprise, considering that the current global trade uncertainties have arisen against a...
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Gavekal Research
Nick Andrews
Jun 15th 2018
Europe Through Rose-Tinted Specs
If the European Central Bank had a dot plot, on Thursday it would have shifted downwards. The ECB’s dovishness stood in contrast with the Federal Reserve, which just a day earlier moved its own dot plot projection of future interest rates upwards. If the market retained confidence in Europe’s relative growth and returns, this divergence of rate expectations probably would not matter greatly. But with European growth softening, and political risk...
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Gavekal Research
Nick Andrews, Cedric Gemehl
Jun 12th 2018
Europe's Cyclical Blues
When they meet on Thursday, European Central Bank policymakers face a dilemma. As wage and price pressures rise across the eurozone, they are expected to outline an exit from quantitative easing policies. At the same time, growth indicators are weakening, raising the specter of a eurozone recovery (again) being cut off in its infancy. The essential point is whether Europe’s turnaround has become self-sustaining. We think the answer to that...
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Gavekal Research
Charles Gave, Nick Andrews
May 28th 2018
Europe’s Italian And Turkish Troubles
On the face of it, the collapse on Sunday evening of attempts in Italy to form a coalition government comprising the populist and Euroskeptic Five Star and Lega parties should be good news for European assets and the euro, at least in the short term. On Friday, fears of a populist government in Rome, coupled with the prospect of a no confidence motion and general election in Spain undermined both the euro and peripheral debt. Also down were...
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Gavekal Research
Nick Andrews
May 18th 2018
A UK Consumer Reckoning
This week saw the release of moderately good news for the Brexit-bound UK economy, as wages rose the most in almost three years. With inflation moderating, real incomes have edged higher, giving hope that consumption can again fire up growth. The problem is that the UK—like the US—increasingly displays late cycle characteristics, as shown by a tight labor market and falling profit growth.
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Gavekal Research
Cedric Gemehl, Nick Andrews
May 16th 2018
The Next Phase Of Eurozone Reform
During last year’s French presidential election, Emmanuel Macron opened a debate by asking “what do we want to do with the euro?” His answer was more political integration and burden sharing. Those plans must get traction at the June 28-29 meeting of European Union leaders if they are not to be crowded out by a likely messy end to the Brexit process and next year’s European Parliament elections. Right now, this seems a long shot and attention...
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Gavekal Research
Nick Andrews
May 11th 2018
The Outcomes In Italy
Political uncertainty isn’t always bad news. It is now 10 weeks since Italian voters went to the polls in a general election, and still Italy’s bickering political parties have not managed to form a stable coalition government. That hasn’t proved an obstacle for investors. Since the election, Italian equities have gained 9.7% in euro terms, 6.4% in US dollar terms, making Italy the world’s best performing major stock market over the year to date.
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Gavekal Research
Nick Andrews
Apr 27th 2018
Europe’s Coiled Spring Currency
There was a neat circularity to yesterday’s press briefing by Mario Draghi. The European Central Bank was happy to stick with its monetary accommodation as growth data had softened and the euro was pleasingly weaker. Hence, as German exporters go through one of their periodic bouts of angst and confidence readings pull back across the eurozone, the logic runs that the euro could now slide further. This would especially seem to be the case as...
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Gavekal Research
Nick Andrews
Apr 16th 2018
No Time To Give Up On Europe
Even as winter descended in January, the economic climate seemed decidedly balmy. Eurozone growth for 4Q17 came in at 2.7% YoY, while the year’s first PMI peaked at a post-2006 high of 58.8. Investors liked the idea of deflation finally being slain and a possible earlier-than-expected normalization of monetary policy. Alas the fun didn’t last as a series of data disappointments punctured an equity rally that had been led by financials. My bet is...
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Gavekal Research
Arthur Kroeber, Rosealea Yao, Nick Andrews
Apr 13th 2018
Hong Kong Seminar — April 2018
At Gavekal’s seminar in Hong Kong this week, Arthur Kroeber, Rosealea Yao and Nick Andrews presented their latest views on the brewing trade war between the US and China, Chinese growth and the property market outlook, and how to capture European growth.
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Gavekal Research
Nick Andrews
Mar 14th 2018
A Fork In The Road For European Equities
In the first half of last year making money in European stocks was easy as benchmarks steamed higher on hopes that less political risk would allow an economic surge into sunlit uplands. It has not exactly worked out that way. Such has been the loss of momentum that both the MSCI EMU and broader MSCI Europe indexes have plunged below their 200-day moving averages (just as worrying for tea leaf readers, the 50-day moving average for the narrower...
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Gavekal Research
Nick Andrews
Mar 08th 2018
What A Trade War Means For Europe
The departure of free-trader Gary Cohn from the Trump administration has investors rightly concerned that a global trade war may loom. Markets rallied yesterday on reports that the US may carve out exclusions for its steel and aluminum tariffs, but President Donald Trump seems set to announce a punitive package as early as today. The European Union has taken a tough stance against the US threat, and yesterday added orange juice and peanut butter...
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