E.g., 18-05-2021
E.g., 18-05-2021
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    Gavekal Research

    Unintended Consequences

    Forget the Brazilian real and the Chinese renminbi. The world’s worst performing major currency over the last month is actually the British pound, which has fallen a painful -4.95% against the US dollar since mid-December. The beating has been especially brutal in recent days. After data released yesterday showed British manufacturing output is still languishing not just below its 2008 level, but even below its 1997 level, sterling slumped...

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    Gavekal Research

    Stick With The Dollar

    With the US set to raise interest rates and the eurozone more likely to ease policy, a long-dollar, short-euro position has been an obvious bet. Yet as the DXY inches closer to its March high, the question is whether a breakout is feasible. After all, the long US dollar trade looks crowded, with the world and its dog convinced that Janet Yellen and Mario Draghi will soon be travelling quite different monetary pathways. Such a comfortable...

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    Gavekal Research

    Clearer Political Skies In Spain

    For the last three years Spain has been the poster child for the eurozone’s recovery. In its country report published yesterday, the European Commission described Spain’s growth as “robust, underpinned by sustained job creation, improved financing conditions, high confidence and low oil prices”. Yet not everything in the Spanish garden is rosy. The manufacturing PMI suggests the recovery is facing severe challenges, having slowed from a cyclical...

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    Gavekal Research

    Will The ECB Opt For QE-Plus?

    When the governing council of the European Central Bank convenes this Thursday in the Maltese capital Valetta, the assembled policymakers will be forced to contemplate a track record of quantitative easing that at best can be described as “mixed”. True, since the ECB announced its €60bn a month program of asset purchases in March this year, eurozone activity has staged a modest comeback, with growth expected to rise to 1.6% in the third quarter...

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    Gavekal Research

    Fixing Germany’s Current Account

    Germany’s trade surplus for July rose to a record €25bn, lifting the country’s accumulated current account surplus over the last 12 months to a hefty 8.2% of GDP. The fall of the euro has clearly made German exports more competitive outside the single currency area. As a result, Germany’s expanding trade surplus is by far the dominant influence on the eurozone’s external accounts. Over the last 12 months, Germany’s trade surplus with the rest of...

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    Gavekal Research

    Can Europe Be Part Of The Solution?

    The eurozone is no longer the center of the global market panic, but an interesting question is whether it can be part of the solution. Investors ostensibly sold equities yesterday on more evidence of economic weakness in China. However the deeper fear is of a faltering global growth outlook at a time when the Federal Reserve is looking to hike rates. Eurozone equities topped out back in April as the initial flush of the European Central Bank’s...

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    Gavekal Research

    Bankrolling The Eurozone Recovery

    Europe’s banking sector has been catching the eye with 18 out of the 31 banks in the STOXX Europe 600 reporting positive earnings surprises and almost all beating sales targets. It may be too early to declare Europe's banking sector as being off to the races after a seven year nightmare that started in August 2007, but we see three big trends in the results.

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    Gavekal Research

    The Good News In EU Investment

    When the stimulative effects of the weak euro and the fall in oil prices fade from the picture, what will sustain Europe’s growth? At first glance it is unlikely to be investment. Structural reforms were meant to cut the costs of doing business, increasing returns on capital and so providing firms with both the confidence and the resources to expand production. Yet a glance at the headline numbers suggests things haven’t worked out that way. In...

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    Gavekal Research

    How Much Upside For UK Gilt Yields?

    Eight years after the UK last raised interest rates, several members of the Bank of England’s Monetary Policy Committee are dusting off their hawkish hats. Yesterday’s MPC minutes revealed growing concerns about inflationary pressure, even though consumer inflation was at zero in June. No rate hike is expected before the first quarter of next year, but with the UK economy set to move into a new, more productive, growth phase, it is worth asking...

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    Gavekal Research

    The UK’s Sweet Spot

    Is the UK economy running out of steam? Growth slowed to just 0.3% quarter-on-quarter in the first three months of this year. That was the slowest for more than two years, and a reminder that while businesses have employed more workers, headline productivity growth has all but stalled. The fear now is that with the tightening labor market pushing up wages, poor productivity will lead to slower real growth, making it harder for the UK to attract...

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    Gavekal Research

    Why Athens Has No Choice

    The main actors in the Greek crisis seem happy to choreograph an ending with this week’s “last ditch” negotiations to be followed on Monday by a “final” summit of European Union leaders. Adding to the theatre, Greek Prime Minister Alexis Tsipras will today meet Vladimir Putin in St Petersburg, where talks will presumably focus on the basis for co-operation and financial support between the two nations in the event of Grexit. Our view remains...

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    Gavekal Research

    The Eurozone Recovery Hardens

    On the one hand there is increasing optimism about the eurozone’s cyclical recovery and diminished concerns over sovereign risk linked to the Greek crisis. On the other hand, there are rising concerns about a stuttering US economic recovery, as shown by yesterday’s release of weak factory orders for April. Markets are playing catch-up to the shifting economic sands and risk calculus. Bund yields yesterday jumped 17bps to 0.71%—narrowing the...

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    Gavekal Research

    Greeks Inch Toward Surrender

    The Greek situation rumbles on without resolution after a weekend that saw more posturing, but no deal between Athens and the Brussels group. The message from European Union leaders is that Greece must bow, and while Prime Minister Alexis Tsipras remains defiant, it was noteworthy that his interior minister indicated a willingness to cede ground on Syriza’s anti-austerity program. As this messy endgame plays out, the question facing jaded...

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    Gavekal Research

    The Return Of European Political Risk

    A surprising facet of the post-2010 euro crisis period has been the degree to which the political center in the European Union has held. Despite record unemployment in the struggling South, extremist movements have mostly been contained to the fringes. So it is ironic that just as the long anticipated cyclical recovery arrives, the political tide looks to be turning the other way. Voters in this weekend’s Spanish regional elections gave the...

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    Gavekal Research

    More Air In The Reflation Balloon

    If investors were wondering what triggered the recent spike in eurozone bond yields, perhaps an answer emerged in yesterday’s 1Q15 GDP report. A month ago the yield on bunds out to 9-year maturities were negative and the 10-year touched 0.05%, implying a lost decade of growth—today the curve is positive beyond the 4-year. The argument of our Paris-based team has been that the eurozone is at the start of a cyclical pickup aided by low oil prices...

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    Gavekal Research

    A Tactical Shift On Greece

    As angry rhetoric between Athens and eurozone finance ministers escalated last week, the drumroll towards Grexit appeared to be reaching a crescendo. But having raided the coffers of state enterprises this week, the Greek government can now pay its bills until June. No less significant was the move by the European Central Bank to prop up Greek banks in the face of deposit flight by upping its Emergency Liquidity Assistance limit by €1.5bn to €...

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    Gavekal Research

    The Danger Of Grexit Complacence

    Grexit is growing more likely by the day. Yesterday Wolfgang Schäuble, the German finance minister, said in New York that financial markets had “priced in” all possible outcomes of Greece’s debt woes, arguing there is no risk of contagion to other eurozone members. At the same time, Greek finance minister Yanis Varoufakis is in Washington, where according to reports he is scheduled to meet Lee Buchheit, a senior lawyer who specializes in...

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    Gavekal Research

    The Eurozone's Sustainable Recovery

    Eurozone retail sales registered their first month-on-month fall in five months in February, prompting fears that Europe’s consumer-driven revival may be faltering. Since last May the price of oil has fallen -32% in euro terms, lifting real wages by 2% and boosting consumer purchasing power across the eurozone. Over the last three months, however, oil has rebounded 22% from its January low, eroding some of the European consumer’s purchasing...

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    Gavekal Research

    The Road To Eurozone Rebalancing

    At a record 7.8% of gross domestic product, Germany is running the largest current account surplus in the world. To put that into perspective, in absolute terms Germany’s surplus over the last 12 months amounts to €218bn. In contrast, China’s current account surplus last year was a relatively modest €161bn. With the European Central Bank’s printing presses operating at full steam and depressing the euro’s exchange rate, Germany’s current account...

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    Gavekal Research

    Much Ado About Sterling

    The budget delivered this week by George Osborne will not be enough to win the UK’s May 7 general election for the Chancellor of the Exchequer’s Conservative Party. Instead all signs point to a hung parliament, with no one party holding enough seats to command a majority. Heightened political uncertainty in the run-up to the poll—and quite possibly in its immediate aftermath, given the horse-trading needed to form what is likely to prove an...

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