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E.g., 24-03-2019
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    Gavekal Research

    The Trouble With Champions

    When last Sunday, Angela Merkel’s heir-apparent published an opinion piece on the EU’s future, she left the door open to an EU industrial strategy and competition policy focused on creating European champions intended to compete in global markets. Such a policy may be attractive to politicians, but it is less appealing to investors.

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    A Potential Lifeline For Europe's Banks

    As the members of the European Central Bank’s governing council prepare to meet in Frankfurt this Thursday, they face the unsettling possibility that their policy settings may risk compounding, rather than alleviating, the eurozone’s economic weaknesses.Unfortunately for members of the council who may be inclined to dither, doing nothing is not a viable option.

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    Gavekal Research

    What Europe’s Political Ructions Mean

    European politics is again heating up. Yesterday saw the Spanish government fail to pass its budget in a move likely to spur fresh elections. Populists in Italy and yellow vests in France are keeping up their campaign of disruption. Given that few of these issues directly threaten the structures of the EU, the question for investors is: Does any of this matter?

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    Gavekal Research

    Not Such An Ugly Duckling

    A spate of weak data releases last week confirmed Europe as the ugly duckling of key economic regions, and things may soon get worse. The worry is that a weakening external sector negatively impacts the domestic recovery through lower investment and job creation at a time when policymakers face both technical and political constraints.

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    Gavekal Research

    Audio & Transcript — Gavekal Research Call February 2019

    In the call yesterday, Charles Gave and Cedric Gemehl presented their views on the economic and political situation in Europe. Cedric outlined key risks facing Europe’s economy. If the worst is avoided, he thinks Europe could get a soft landing. Charles took a different view, arguing that the eurozone was now an irretrievably diverging system.

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    Gavekal Research

    Strategy Monthly: Europe's Containable Risks

    As China slows and the US expansion limps into its dotage, a heavily export-dependent Europe looks vulnerable to another downturn. The latest growth numbers from Italy and Germany make for especially grim reading. Potential shocks loom in the shape of a hard Brexit, populist discontent in France and Italy and the threat of auto tariffs from the US.

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    Gavekal Research

    Germany's Industrial Slump

    With leading indicators in Germany pointing south, and a host of external macro factors looming, things are likely to get worse before they get better. However, much of the potential bad news is already priced into the German stock market. As a result, there is scope for a pick-up in German equities later in the year should the worst of investors’ macro fears fail to materialize.

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    Gavekal Research

    Macron Is Muddling Through

    As the economy weakens, yellow-vested agitators show no sign of giving up on their campaign to block President Emmanuel Macron’s effort to change the way France works. I have argued against the increasingly mainstream view that Macron is a busted flush whose efforts to reform an unreformable France are doomed to fail and am sticking with that position.

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    Gavekal Research

    Europe's Changed Policy Mix

    Until last week it was possible to make the case that the EU could still push ahead with major structural reform under the current political configuration. After a continuity candidate took over as head of Germany’s governing party and Macron turned on the fiscal spigots in France to buy off political dissent, that is no longer the case.

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    Gavekal Research

    Macron’s Reform Program Lives On

    At first sight, the French government’s decision to postpone its proposed fuel tax increases in the face of popular gilet jaune street protests looks a lot like the climb-downs of 1996, 2006 and 2016, all of which saw attempts at economic reform derailed by mass opposition. Cedric argues such a conclusion would be overly hasty.

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    Gavekal Research

    The True Story Of Eurozone Equities

    Since the financial crisis, European equities have proven serial duds compared to their transatlantic cousins. Cedric argues this divergence is simple reflection of the higher earnings-per-share achieved by US firms. Looking forward, however, he says it will be almost impossible for US firms to maintain this profits gap.

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    Gavekal Research

    Germany, And Europe, After Merkel

    All political careers end in failure. Doubtless Angela Merkel is already feeling the sting. Even as the long-serving German chancellor stands up on Tuesday to address the European parliament in Strasbourg, political observers and investors are looking beyond Merkel’s term in office to the identity of her successor. That is likely to be decided on December 7, when Merkel’s Christian Democratic Union is set to elect a new party chairman, so...

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    Gavekal Research

    Listen To What Italians Say

    Among the factors rattling global markets this week has been the brewing dispute between Brussels and Italy’s populist government over its blowout budget proposal.The fear is that Italy gets into a vicious circle of tightening credit markets and faltering growth that could end with a resumption of the euro crisis and ultimately its exit from the single currency.

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    Gavekal Research

    The Politics (And Economics) Of A Multi-Polar Europe

    This weekend’s election in Bavaria saw voters deal parties in Germany’s ruling coalition a bruising rebuff that further erodes Merkel’s authority and effectively kills off Macron’s plan for the EU to integrate at a faster pace. In light of such a changed environment, Nick and Cedric introduce a new framework to explain how political bargaining will work in an increasingly multi-polar Europe.

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    Gavekal Research

    Bottoming Out In France

    It has been a tough summer for the French economy, and a difficult rentrée—as the French call September’s return to classes at the start of the school year—for the government of president Emmanuel Macron. France’s growth rates have fallen of a cliff this year, with GDP growth falling to just 0.2% quarter-on-quarter in the first and second quarters, from an average of 0.7% in 2017. And after household spending actually contracted in 2Q, consumer...

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    Gavekal Research

    Europe’s Populist Wave Peaks

    Since the migration crisis of 2015, nationalist-populist movements have been on a tear across Western Europe. Sunday saw the anti-immigrant Sweden Democrats boost their ranking, and even claim to be the election’s real winner. Yet look closer and what stands out over the last two years has been such parties’ failure to fully break through.

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    Gavekal Research

    Italy’s Chaotic Tendency To Stabilize

    Italian debt holders have been spooked by a leading figure in the country’s populist government threatening a fiscal blowout. Such rhetoric threatens the relatively benign scenario that I advocated in July and has investors fretting about another eurozone crisis. While Italian politics will remain febrile, such concerns are probably overdone.

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    Gavekal Research

    When Non Means Non

    The UK government is on the offensive trying to sell a “Chequers” plan that would leave it with a semi-detached trading and administrative relationship with the European Union. The negotiating position, has won few plaudits at home, and over the last week got a courteous, but non-committal response on the continent. Cedric is doubtful that the intended "divide and conquer" approach will bear fruit.

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    Gavekal Research

    Stabilizing, Not Slumping

    After a rocky first half of the year, in which a clutch of key indicators deteriorated steeply, recent signs indicate that eurozone growth is stabilizing rather than rolling over. Without doubt, there are still formidable downside risks. However, on balance the latest batches of data point to a continuation of above-potential growth, albeit in a lower gear than in 2017.

    0
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    Gavekal Research

    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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