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E.g., 24-06-2021
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    Gavekal Research

    Osborne’s Masterful Tack

    “Since 2010, no economy in the G7 has grown faster than Britain,” boasted George Osborne, the Chancellor of the Exchequer, presenting his autumn public spending review yesterday. Indeed it is true that, according to the latest estimates, GDP in both Britain and the US has increased by exactly the same number, 12.4%, since the first quarter of 2010.

    0
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    Gavekal Research

    Preparing For Fed Lift-Off

    Now that Friday’s payroll figures have confirmed the US economy’s apparent slowdown as nothing more than a statistical blip, similar to the summer “soft-patches” of 2011 and 2012 and the winter weather hits of 2013 and 2014, the Federal Reserve is near-certain to start its tightening cycle on December 16—which was what Janet Yellen suggested all along. Apart from praising Yellen for consistency and foresight, instead of castigating her for...

    6
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    Gavekal Research

    The Fed And The US Dollar

    Now that the Federal Reserve has calmed down about the risk of a financial meltdown in China, only one further condition appears to be necessary for a December rate hike: October’s payroll figures, out on Friday, must show an appreciable reversion towards this year’s mean monthly growth of 198,000. That would imply September’s surprisingly weak number was a statistical aberration, which seems a reasonable expectation, since most high-frequency...

    0
  • Gavekal Research

    The Best Financial News In Months

    To our relief, China’s latest reserve statistics showed a significantly smaller than expected decline, confirming that capital flight out of China has eased substantially. The threat to the global economy generated by the summer turmoil has now lifted, and markets all over the world should therefore return to risk-on mode.

    0
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    Gavekal Research

    Not The Obvious Payroll Conclusion

    Is the US economy sliding towards recession? After six years of steady expansion, it would not be unusual for the business cycle to start rolling over. This possibility, suggested by Charles’s time-tested recession indicators (see Positioning For A US Recession), caused equities and the dollar to swoon right after Friday’s unexpectedly weak payroll report. Until this release it was tempting to dismiss such historic cyclical indicators that rely...

    0
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    Gavekal Research

    The Fed Throws EMs A Lifeline

    The Federal Reserve’s decision to keep on procrastinating over a rate hike should have come as no surprise to anyone who has paid attention to the comments of Janet Yellen. And indeed it didn’t come as much of a surprise to the markets, to judge by their reaction yesterday. After a brief flurry of activity following the announcement, the US equity market closed little changed on the day. Currency and bond markets proved a bit more excitable, but...

    0
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    Gavekal Research

    The Real Message From Oil

    Violent swings in oil prices are destabilizing economies and financial markets worldwide. When the oil price halved last year, from US$110 to US$55 a barrel, the cause was obvious: Saudi Arabia’s decision to increase its share of the global oil market by expanding production. But what accounts for the further plunge in oil prices in the last few weeks—to lows last seen in the immediate aftermath of the 2008 global financial crisis—and how will...

    18
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    Gavekal Research

    Stop Worrying And Learn To Love Cheap Oil

    In almost every financial cycle there comes a point when the publicly expressed views of analysts and investors diverge completely from market behavior. Occasionally this can be what George Soros has called a moment of truth, when investors suddenly realize that a financial boom has wildly overshot economic fundamentals and is about to turn to bust. But often it turns out that the markets have grasped a message that has not yet been consciously...

    5
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    Gavekal Research

    The Good News From Greece

    Greece has reopened its banks, paid its dues to the European Central Bank and cleared its arrears with the International Monetary Fund. After five years of pan-European economic depression and the near-death experience in Greece this month, can we finally say that the euro crisis is over? The conventional answer is definitely not. According to the vast majority of political commentators and economists, ranging from left-wing Keynesians such as...

    5
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    Gavekal Research

    The New Iranian Revolution

    Yesterday’s deal to lift economic sanctions against Iran is an event of immense importance, whose reverberations will be felt around the world for decades to come. No one can predict with any confidence the effects of Iran’s re-emergence as a dominant regional power on nuclear proliferation, the security of Israel or the conflict between Sunni and Shia Islam. But one consequence does seem certain: oil prices will continue to move lower for...

    2
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    Gavekal Research

    The Eurozone Is Not On The Brink

    When totally wrong-footed by an astonishing event that embarrassingly contradicts one’s expectations, it is tempting to seek refuge in high-flown metaphors and literary allusions, especially if this embarrassing turn of events happens in Greece. But rather than distracting attention with references to Pyrrhic Victories, Siren Voices and Labours of Hercules, let me get straight to the point and admit that my predictions about the Greek referendum...

    5
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    Gavekal Research

    Greferendum And The Markets

    Contrary to most of this morning’s headlines, the astonishing weekend events in Greece will almost certainly prove bullish for risk assets around the world and especially in Europe. The European market mayhem triggered by Alexis Tsipras’ bizarre referendum announcement (which Greek officials only found out about through Twitter in the midst of a negotiating session with the Troika in Brussels) seems reminiscent of the panics about US politics...

    0
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    Gavekal Research

    Greek Default Would Trigger Regime Change, Not Grexit

    As Greece moves inexorably towards default, the big news from the markets is not contagion but the opposite—the remarkable lack of response in the euro exchange rate ($1.125 today compared to $1.123 the day before January’s Greek election) and sovereign bond spreads in the Club Med (BTP-bund spread today is 150bp, against 120bp on January 23). Is this just a case of investor complacency and wishful thinking, like the period prior to Lehman? Or...

    16
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    Gavekal Research

    From Farce To Irrelevance

    The good news is that a Greek default, which has become more likely after Prime Minister Alexis Tsipras’ provocative rejection of what he described as the “absurd” bailout offer by Greece’s creditors, no longer poses a serious threat to the rest of Europe. The bad news is that Tsipras does not seem to understand this. To judge by Tsipras’ belligerence, he firmly believes that Europe needs Greece as desperately as Greece needs Europe. This is the...

    3
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    Gavekal Research

    Oil At Its Ceiling, Not Floor

    With oil prices rebounding strongly this week, despite the non-event of last Friday’s meeting of the Organization Of Petroleum Exporting Countries, it seems appropriate to re-examine the case for cheaper oil that we have been presenting since late last year. Specifically, our view in December that US$50/bbl was more likely to be a ceiling than a floor for the Brent oil price in the long term has been contradicted by market actions of recent...

    2
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    Gavekal Research

    The Death Throes Of The Bond Bubble

    What should we conclude from the jump in bond yields that has transfixed investors in every market around the world since late April, when a disappointing German auction started the sudden rout? The simplest answer, and probably the best one, is “not much”. Like the US taper tantrum of May 2013 and the brief bump in Japanese bond yields a few months earlier, when the Bank of Japan got serious about quantitative easing, the present market...

    1
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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...

    0
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    Gavekal Research

    The UK Cliffhanger

    Conventional assumptions about British elections say that the incumbent party of government generally enjoys a swing of one or two percentage points in the final period of campaigning. Like most electorates, once all the shouting is done, British voters typically focus on livelihood issues and tend toward “the devil they know”. In recent days the Conservative Party has seen the opinion polls move slightly in their favor, but nothing so...

    1
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    Gavekal Research

    Starving The Greeks Out

    After Friday’s near-total breakdown in the negotiations between Greece and the eurozone, it is clear that both sides need a Plan B. In the case of Greece the alternative to a negotiated solution has always been clear. It is to default on its debts to other European governments, thereby presenting those nations with a stark alternative: either expel Greece from the euro and risk contagion to Portugal, Spain and Italy, or offer Greece the money it...

    12
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    Gavekal Research

    Instability Lies Ahead For The UK

    What country faces the highest degree of political risk in Western Europe? And whose financial markets should therefore carry Europe’s biggest political discount? Six months ago, when we first argued that Britain was in danger of losing its safe haven status, both in the political sense and as a tax haven for international capital, this was still a matter of speculation. Now, with the May 7 election only three weeks away, our warnings about the...

    1
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