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

    Too Quiet On The Southern Front

    Since the euro crisis kicked off six years ago, policy decisions affecting banks have had two main goals. Whether it be monetary policy, the 2014 asset quality review or moves toward both a banking and capital markets union, the objective has been to boost confidence in the system and reduce the fragmentation of credit markets. A -20% fall in eurozone bank shares YTD on concerns about the impact of negative interest rates shows that the first...

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    Gavekal Research

    Down The Negative Rate Rabbit Hole

    “Curiouser and curiouser,” as Alice remarked on falling down the rabbit hole and entering Wonderland. Released yesterday, the minutes of the European Central Bank’s January meeting strongly hinted at further monetary easing measures when the governing council next meets in March. Already committed to €60bn in asset purchases per month until March 2017 and charging a negative interest rate of -0.3%, the ECB now looks likely to push its deposit...

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    Gavekal Research

    Learning To Love A Weak Ruble

    The oil price may have bounced in recent days and with it the ruble, but Russia’s financial situation looks increasingly perilous. The economy is struggling through a second year of recession and Russian corporates must roll over US$120bn of foreign currency debt by mid-2017. Moreover Russia’s central bank seems to have embraced a policy of benign neglect toward the ruble as it tries to preserve a reduced pile of foreign exchange reserves.

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    Gavekal Research

    Good Enough In Turkey

    Investors have welcomed last weekend’s victory of the Justice and Development Party (AKP) founded by President Recep Tayyip Erdoğan in Turkey’s elections, with the lira and equities both rallying strongly. After June’s inconclusive poll failed to produce a workable government, the concern was that a country with huge economic, security and strategic challenges would become ungovernable. In this context, the election result was the best that...

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    Gavekal Research

    Good Enough In Turkey

    Investors have welcomed last weekend’s victory of the Justice and Development Party (AKP) founded by President Recep Tayyip Erdoğan in Turkey’s elections, with the lira and equities both rallying strongly. After June’s inconclusive poll failed to produce a workable government, the concern was that a country with huge economic, security and strategic challenges would become ungovernable. In this context, the election result was the best that...

    0
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    Gavekal Research

    Why The Ruble Rally May Be Over

    Global investors are bulled up on Russian financial assets with the ruble having outperformed most emerging market currencies since the “junk rally” got going in early September. On a YTD basis Russian bonds have outpaced those from other big EMs. As a result, dedicated Russian funds last month saw a big inflow for the first time in a year. Certainly, the shift in sentiment has been spurred by the Federal Reserve delaying any interest rate move...

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    Gavekal Research

    Gastarbeiter Redux

    The influx of hundreds of thousands of asylum seekers from war torn Syria, Afghanistan, Iraq and parts of Africa has laid bare familiar divisions within the European Union. This week’s deal to relocate 120,000 more refugees from Greece and Italy on top of the 40,000 agreed in May starts to address the problem. Many multiples more are making the trip to Europe, but only one country—Germany—is promising to take large numbers. Commentators often...

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    Gavekal Research

    German Exports Are Not Kaputt

    Predictions of the German export machine’s demise followed southern Europe’s 2011 slide into deflation, the yen’s 2012/2013 devaluation, and now the emerging world’s slowdown. And yet German exports hit a new high in 2Q15 and the latest IFO survey points to more strength in 3Q. Far from going kaputt, German exporters can likely handle an emerging world crunch due to their geographical diversification, the benefit of a weak euro and improving...

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    Gavekal Research

    Europe's Democratic Divide

    Voters, it would seem, pose a clear and present danger to the eurozone. Syriza’s success in last weekend’s “Greferendum” shows there is only so much conventional medicine that electorates will take before looking for miracle cures. The party’s rise has mirrored the fall in Greek living standards since the financial crisis and the failure of Troika bailout packages to turn the country around. It has been useful to label Greece as “exceptional”...

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    Gavekal Research

    Why Germany Is Not Turning Japanese

    Germany has economic problems that most countries would die for—low unemployment and steadily rising real wages mean that policymakers must respond to bottlenecks such as labor shortages (see Germany Normalizes). The longer-term worry is that these “gaps” will become permanent as high-growth Germany must also grapple with Japanese-style demographics. The fear is that its post-2010 expansion could be a swan song before the structural growth...

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    Gavekal Research

    5C Europe: Russia’s Diminished Pricing Power

    Is Russia a player to be reckoned with in the oil pricing game? Last year Russia accounted for 11.7% of global oil production, ranking below the US (12.6%) but above Saudi Arabia (10%). In theory this elevated position should lend Russia formidable pricing power. In practice, however, Russia lacks the flexibility to make the most of its market share, a failing it is unlikely to overcome in the next couple of years.

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    Gavekal Research

    The Ruble Reconfigured

    Yesterday the Central Bank of Russia announced it had embarked on a program of foreign exchange purchases that will see it buy between US$100mn and US$200mn a day. It explained its move by saying the purchases are intended to replenish Russia’s foreign exchange reserves, depleted by last year’s currency market interventions. In effect, however, the central bank is serving the market with notice that it does not want the ruble to strengthen any...

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    Gavekal Research

    The Rebirth Of CEE Banking - Cedric Gemehl & Nick Andrews

    Who will benefit most from Europe’s extraordinary monetary easing? Will it be struggling giants such as Italy and France, or those lapping up liquidity on the fringes? Our contention is that Central and Eastern Europe is at the early stage of a “deflationary boom” while financial institutions have sufficiently recovered to transmit the European Central Bank’s quantitative easing program into credit expansion.

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    Gavekal Research

    5C Europe: Fringe Benefits

    After a stellar performance in 2014, Turkish assets have recorded sizable losses since the middle of January. With a current account deficit running at 5.2% of GDP financed largely by volatile short term capital flows, Turkey has suffered along with other vulnerable emerging markets from a stronger US dollar and rising expectations that the US Federal Reserve will hike interest rates in June. The sell-off has been exacerbated by disappointing...

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    Gavekal Research

    Turkey’s Big Win From Oil

    The Turkish lira hit a new low against the US dollar this week, in part due to heightened political tension that followed the arrest of journalists who have been critical of the ruling AK Party. The episode acts as a reminder that Turkey remains vulnerable to changing perceptions of political risk and even small shifts in global risk appetite. Still, we remain generally enamored with a Turkish growth story that should get a major boost from a...

    1
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    Gavekal Research

    Take Profits On Hungarian Bonds

    Hungary has been Europe’s stand-out economic performer this year, outgrowing both its Central and Eastern European counterparts and its larger Western neighbors. While much of the continent has faltered, Hungary has surprised on the upside, with growth hitting 3.8% YoY in the second quarter; its highest reading since 2006. Meanwhile, unemployment has fallen back to 2007 levels, inflation is at a record low, and the country’s external accounts...

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    Gavekal Research

    Russia's Stagflation Dilemma

    Given the escalation of East-West tensions in Europe it is hard to consider Russia’s prospects without obsessing about the impact of economic sanctions. However, the exogenous shock from Ukraine has hit an economy that was already reaching the limits of its chosen development model. In particular, Russia faces a stagflation problem which is pitting a sensible monetary policy against an increasingly cavalier fiscal approach.

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    Gavekal Research

    Turkey: From A Buy To A Hold

    Four months ago we argued that the sharply de-rated Turkish equity markets were a buy. To sum up that argument, we thought that the political risk premium was priced in, and that the conditions were right for a smooth adjustment of Turkey’s large current account deficit (see Is Turkey a Joke – or a Buy?). The bet on political and economic stabilization has been rewarded by a 40% gain in Turkish stocks from their February lows. Looking ahead, a...

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    Gavekal Research

    Turkish Resilience

    Turkey has a fragile economy and resides in a troubled neighborhood. More than one million refugees have arrived from Syria over the last two years and now Iraq is splintering. On the face of it, such developments pose an existential threat to an economy that is heavily dependent on imported oil and runs a structural current account deficit. Yet even as Brent crude hits $114 per barrel, Turkey is muddling through. Yesterday, the central bank...

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    Gavekal Research

    5C Europe: Eastern Europe’s Zero Inflation

    Central and Eastern European economies have rebounded convincingly since the spring of 2013. Yet while real gross domestic product growth is likely to average almost 3% this year, CEE inflation has fallen below even the eurozone’s. Average consumer inflation in the region has collapsed from 4.3% in September 2012 to 0.3% in May 2014—compared with 0.5% in the euro-area.

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