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    Gavekal Research

    A Sweet Spot For US Jobs

    US non-farm payrolls came in stronger than expected in January. Examining more forward-looking data, such as job openings, many observers suspect the US jobs market may be heading for slower job creation and weaker wage growth in the coming quarters. These worries are likely misplaced.

    2
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    Bad Shocks Can Have Benign Effects

    There are few people outside Donald Trump’s administration who think the US-China trade war was a good thing. There are surely even fewer who think the Wuhan coronavirus outbreak has any positive aspects at all. Nevertheless, while both last year’s trade war and this year’s viral epidemic are bad for global economic growth, they are both largely beneficial for US households.

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    Gavekal Research

    The Threat To US Equities

    On Friday the US equity market succumbed to coronavirus jitters, with the S&P 500 sliding -1.77% to wipe out its year-to-date gains for January. The sell-off was accompanied by a surge in the VIX volatility index, which could continue to rise. Happily, however, there are five good reasons to think any such elevated volatility will prove short-lived.

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    Gavekal Research

    Don't Fret About The Fed's Balance Sheet

    As if investors didn’t have enough to worry about just now, many have been spooked by this month’s dip in the size of the US Federal Reserve’s balance sheet. Happily the Fed is one thing investors don’t need to fret about. The Fed’s statement and press conference on Wednesday confirmed that US monetary policy remains clear and predictable—and accommodative.

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    Gavekal Research

    The Dark Side Of A Strong US Economy

    The US’s growth outlook has been bolstered by easy financial conditions and trade deals being reached with China and its near neighbors. Yet, those prospects are also hampered by a tight labor market that threatens corporate profits. What recent data releases highlight is both the enduring strength of the US economy and niggling late-cycle factors that could yet undo it.

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    Video: US Autos Ride Again

    A range of cyclical and structural factors have conspired to hit US auto sales in recent years. But with the US labor market remaining in rude health and US monetary policy being loosened, that may be about to change. The impact could be positive for US growth and for risk assets, argues KX in this interview.

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    Gavekal Research

    A Qualified Bull On US Equities

    US unemployment is at its lowest in half a century. Yet for investors, the strength of the US jobs market is far from an unalloyed good. The biggest macro risk to the bull market in US equities this year is a sharp rise in inflation. And such a rise in inflation could have two probable causes: a steep rise in energy prices, or a marked rise in labor costs.

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    Gavekal Research

    Credit Spreads: Not Worth The Risk

    US corporate bonds had a great run in 2019, and have started 2020 on a strong note. Both investment grade and high yield indexes rose by around 14% last year, with credit spreads contracting substantially in the fourth quarter to approach their narrowest for this cycle. However, as US corporate leverage has risen, considerable latent risks have accumulated in the system.

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    Gavekal Research

    Echoes Of 2017

    Global markets began 2020 on a bullish note, with the US S&P 500 climbing to a fresh record close, up a chunky 4.3% over the last month. Indeed, the US monetary backdrop at the start of 2020 is reminiscent of that in early 2017, a year which saw the S&P 500 climb 19.4%. History may not repeat this year, but there are good reasons to believe it may yet rhyme.

    2
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    Gavekal Research

    Audio — Gavekal Research Call December 2019

    In the final Gavekal Research Conference Call of the year Louis-Vincent Gave, Anatole Kaletsky, Arthur Kroeber and Will Denyer reviewed the current investment environment and outlined their expectations for 2020.

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    Gavekal Research

    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 Research

    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

    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

    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 Research

    Seminar Series Multimedia — Fall 2019

    Partners and analysts present their core ideas for the big economic regions and global markets heading into the year-end and looking forward to 2020.

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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.

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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.

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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.

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    Gavekal Research

    Video: A Turning Point For The Dollar

    For the last five years, the world has lived with a strong US dollar. That may be about to change. Not only has the Fed turned dovish, its return to balance sheet expansion means it is now printing more money each month than its central bank peers, such as the ECB. This liquidity splurge, coupled with a diminution of dollar-supportive international risks may point to a period of US dollar weakness.

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    Gavekal Research

    Time To Embrace The US Consumer

    Whether moving into a fixer-upper or a freshly finished McMansion, most homeowners will splurge on big ticket items to embellish their new abode. With the US housing market looking strong, investors should bet on consumer discretionary—it has the advantage of offering protection if long-dated bond yields move materially higher.

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