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E.g., 25-06-2021
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  • Gavekal Research

    Beware The Euro Consensus

    The US dollar is hitting new 12-year highs almost daily and the euro seems to be plunging inexorably to below parity. Recent events in the foreign exchange markets seem to have a fairly obvious explanation which most economists and policymakers accept and endorse. President Hollande, for one, has embraced the plunging euro: “It makes things nice and clear: one euro equals a dollar,” he told an audience of industrialists last week. But it is...

    1
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    Gavekal Research

    Nice Economy, Shame About The Politics

    While sterling is setting new post-2007 highs almost daily against the euro and on its trade-weighted index, economic optimism seems to outweigh political nervousness as Britain heads towards its most unpredictable election in living memory on May 7. But is Britain’s economic outlook really good enough to compensate for the political mess that almost everyone now expects?

    0
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    Gavekal Research

    Patience Is A Virtue

    The clichéd phrase “patience is a virtue” does not, strictly speaking, refer to the sort of patience promised by the Federal Reserve in its minutes last night. When Janet Yellen speaks of “patience”, she means a wait of at least three month before she does anything—however gentle—that could conceivably impede US economic growth. But the patience described by medieval Christian scholars as one of the “Seven Heavenly Virtues” was not the opposite...

    1
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    Gavekal Research

    The Risks Recede in Europe

    What is the opposite of a perfect storm? Whatever the term for a sudden confluence of three unexpected blessings—or for the simultaneous removal of three mortal perils—European markets are about to enjoy it.

    2
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    Gavekal Research

    Ignore The US GDP ‘Surprise’

    How worried should we be about the weakening of the US economy towards the end of last year? The answer, despite Friday’s sharp fall in equities and the record low set by the 30-year treasury bond yield, is not at all. Whatever the reasons might have been for last week’s market gyrations, they could not have been connected with the economic slowdown ‘revealed’ by Friday’s fourth quarter GDP figures, since this slowdown was almost certainly an...

    3
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    Gavekal Research

    Will US$50 Be Oil’s Floor, Or Its Ceiling?

    As I explained in yesterday’s Daily, the oil price is set to remain depressed at least through 2015, until the Saudis are satisfied that they have injured their geopolitical and economic competitors severely enough to regain pricing power. The big question now is whether a price of around US$50 a barrel—some 10-15% below present levels—forms the floor of oil’s trading range for the next few years, as it did between 2005 to 2014, or whether US$...

    10
  • Gavekal Research

    Oil: Lower For Longer

    How low can the oil price go? And how long can it stay down? These two questions are weighing on the mind of every investor in the world these days, to the exclusion of almost everything else. Nobody can respond to the first question with any confidence—although we take a stab below—but the second is actually pretty easy to answer.

    3
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    Gavekal Research

    The Great Policy Convergence

    Yesterday’s announcement that the European Central Bank is preparing to buy government bonds from the first quarter of next year is an event of historic importance. As the logical follow-up to Mario Draghi’s commitment to expand the ECB’s balance sheet by €1trn, yesterday’s statement by ECB vice-president Vitor Constâncio confirms beyond reasonable doubt that Europe is ready, at last, to implement full-blown quantitative easing, over-riding the...

    1
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    Gavekal Research

    Gridlock Itself Is Not The Problem

    The votes are in and the result is yet more gridlock in Washington. For the US there is nothing unusual in this situation. Presidents have been opposed by both houses of Congress in 32 out of the 70 years since WWII, and opposed by one house in another 14 years (see here). However, political paralysis is becoming the norm in many democracies, especially in Europe. An important question is therefore how different countries and regions can cope...

    0
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    Gavekal Research

    Walking Without The QE Crutch

    After three rounds, six years and some US$3.7trn in asset purchases, the US Federal Reserve yesterday finally called time on its program of quantitative easing, and shifted its language on the US labor market from ultra-dovish to something slightly closer to neutral. Investors took the news in their stride, largely untroubled by the Fed’s confirmation that it is to take away what many had long regarded as an essential crutch for asset prices....

    3
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    Gavekal Research

    Behind The Equity Market Meltdown

    Why are stock markets around the world falling? The surest explanation is one that works whenever the markets move in a big way: there are more sellers than buyers after a long period without a meaningful correction (it is three years since the 20% decline that ended in October 2011). A more sophisticated account of the correction might point to the collapse of oil prices and its impact on natural resource shares. While falling oil prices are...

    3
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    Gavekal Research

    The Power Of The US To Impress

    Rightly or wrongly, the US payrolls have for years been the biggest market-moving event in the monthly news cycle. The market action on Friday was a reminder of their totemic power. We have repeatedly noted the mesmerising effect of the monthly payrolls, not just on Wall Street but even more on markets outside the US (note the near-perfect coincidence between the peaks and troughs shown on the chart below).

    5
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    Gavekal Research

    The UK Now Faces Years Of Volatility

    The probability that the United Kingdom will break apart now appears to be at least 50%. The weekend’s crop of opinion polls agree with each other, and support last Tuesday’s poll showing a powerful swing in favor of a ‘Yes’ vote in next week’s referendum on Scottish independence. Given that up until last Tuesday most investors and analysts (including me) saw no more than a 10%-20% probability of independence, what has happened in the past few...

    3
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    Gavekal Research

    The Juncker Quid Pro Quo

    Who will be the hero of the hour, basking in universal gratitude when the EU summit culminates this evening with the appointment of Jean-Claude Juncker as President of the European Commission? Believe it or not, the man all the other leaders will be secretly thanking is David Cameron—and investors in Europe should do the same. Cameron is certain to suffer severe embarrassment this evening if he insists on forcing a vote that he is bound to lose...

    1
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    Gavekal Research

    Janet Yellen, Control Engineer

    Yawn! What could be more boring than Wall Street setting a new record? This has happened in eight out of the last 15 trading sessions, and it is likely to happen many more times in the weeks and months ahead because of the one financial event that is even more boring and predictable than a Wall Street record—a presentation on US monetary policy.

    0
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    Gavekal Research

    An Uber Bubble Awaits

    Last week was clearly an important one for financial markets and the world economy. Friday’s US payroll data confirmed that all the jobs lost since 2008 have been restored. The European Central Bank overcame the opposition of the Bundesbank and joined the Federal Reserve, Bank of Japan and Bank of England in the ranks of growth-oriented central banks that are willing to whatever is necessary to pump up inflation and nominal GDP. And peace talks...

    13
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    Gavekal Research

    No Magic For ECB In Negative Rates

    At last, the European Central Bank seems ready to do something—judging by last week’s comments from Mario Draghi, reinforced by the Wall Street Journal story that triggered a sell-off in the euro yesterday. The market reaction has been pretty much along the lines described by Francois last week: bond yields in Italy and Spain have fallen to record lows, European stock markets are up 1% to 2%, and the euro has weakened from almost €1.40 to €1.37...

    3
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    Gavekal Research

    Breaking The Pattern: This Could Be The Year To Buy In May

    Sell in May and go away. This time-honored adage has served equity investors extremely well for the past four years. In every year since 2010, stock markets have corrected sharply, falling from a high in May to a low in the summer or early autumn: in terms of the S&P 500 by 15% in 2010, 19% in 2011, 9% in 2012 and 5% in 2013. Given that the S&P closed last week less than 1% shy of its all time high and that the Dow Jones Industrial...

    0
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    Gavekal Research

    The Japanese Value Trap

    Equities around the world have enjoyed a modest rebound over the last week, with encouraging signs of buy-on-dips behavior and the leadership rotation that we believe was the main driving force behind early April’s sharp setback (see The New Rotation Into Value). But there is one major market that is a glaring exception to the generalized shift from growth to value: Japan.

    0
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    Gavekal Research

    The New Rotation Into Value

    Considering last Friday’s US employment figures were as investor-friendly as anyone could hope, Wall Street’s sharp sell off after a strong initial rally might be viewed as a very bearish market signal. Indeed that has been the interpretation of many investors, both those who are technically oriented and those who focus on corporate fundamentals. Looking at the data, however, it is hard to find reasons for concern.

    2
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