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    Gavekal Research

    US Dipping Into Recession? Not Yet

    US GDP just contracted for the first time since the 2007-09 recession. It was a mere –0.1% decline, but this is still rather unsettling given there is only one example to be found over the last 50 years, in 1977, when US GDP growth dipped below zero without marking the start of a recession. And yet markets shrugged off this shocking news—as they should have. Behind the poor headline number, the components indicate that underlying domestic growth...

    4
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    Gavekal Research

    Europe's Goldilocks LTRO Scenario?

    3
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    Gavekal Research

    A Pulse From US Manufacturing

    Maybe the patient lives. 2013 has already started to deliver early indications that we are indeed at an inflection point in global growth. Canada reported yesterday that its Ivey PMI rebounded to an expansionary level of 52.8 in December, from 47.5; respondents to Germany’s IFO survey of business expectations (highly correlated to German exports) has risen for two straight months. And while less obvious, US data is also beginning to stir. Recent...

    0
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    Gavekal Research

    A New Threat To The US Recovery

    Improvements in the US domestic sector have raised hopes that the US will pull the global economy out of its current funk. But what if the cycle is working in reverse—with weakness beyond American shores feeding back to undermine the nascent recovery at home? After 37 straight months of growth, employment in US manufacturing contracted in November for the first time since 2009, according to ISM. This raises the concern that weak growth in the...

    0
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    Gavekal Research

    Bernanke Turning Hawkish?

    Fed Chairman Ben Bernanke rattled markets yesterday when he explained why the potential growth rate of the US economy appears to have declined while the structural unemployment rate has risen. The initial reaction from equity markets was negative, for an obvious reason: If the chairman is now raising his target unemployment rate, this implies a shorter shelf-life for extremely easy monetary policies.

    0
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    Gavekal Research

    US Tax Changes In A Brave New World

    It is a common complaint that US corporations are sitting on exceptional piles of cash, while the domestic economy experiences lackluster growth in capital spending and employment. With weak growth comes lower tax revenues. As such, policymakers are looking at new ways to raise revenues from corporates and from individuals (mostly the wealthiest). But we live in a “Brave New World” of global operations, fragmented supply chains, and light,...

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    Gavekal Research

    US Recovery Under New Leadership

    Friday’s 3Q GDP report tells a simple story about the US economy—namely that the recovery has come under new leadership. Step aside manufacturing and exports, enter US housing rebound.

    8
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    Gavekal Research

    US Tech: The Modern Day Safe Haven

    3
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    Gavekal Research

    More Liquidity May Burst The Dam

    Whatever else you may think of Ben Bernanke you cannot accuse him of obfuscation—QE3 was telegraphed in his Jackson Hole speech and yesterday the Federal Reserve delivered with a promise to buy $40bn of mortgage backed securities a month while allowing its curve-flattening treasury purchase program (Operation Twist) to expire as planned in December. The short term impact on risk assets is fairly clear; what worries us is the longer term...

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    Gavekal Research

    QE3: Now Or Later?

    4
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    Gavekal Research

    US Housing: It's The Inventory Stupid

    Here’s a conundrum for any economy watcher. The US housing recovery has gathered steam during 2012, and yet the broad economy remains weak as was highlighted by Friday’s 2Q12 GDP release which put growth at a measly 1.5%. So what gives?

    6
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    Gavekal Research

    ZIRP Goes To Europe

    Central banks have set the bar high for what is now considered “major monetary easing”. A bread-and-butter 25bp rate cut no longer qualifies, at least not usually. But last week the ECB not only cut the rate at which it lends to banks by 25bp to 0.75%, it also chopped the rate it pays on deposits by 25bp—to zero. The move focused attention on Mario Draghi’s assertive approach to policy, especially amid signs that deposits are fleeing the ECB....

    3
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    Gavekal Research

    Oil And Equities Part Ways?

    Oil and equity prices have risen and fallen in tandem since the market recovery started in March 2009. This was based largely on changes to the growth outlook and risk appetites (with the turns often marked by monetary or fiscal policy changes). But these two markets have not always exhibited such a strong correlation. This leaves open the question of when this relationship might break down: was it June 2012? After all, oil is now down -12% MTD...

    0
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    Gavekal Research

    Fed's Inflation Complacency Points To More Easing

    While we may not like it, the odds have risen that the Federal Reserve will provide additional monetary stimulus. This could take the form of longer rate guidance, an extension of Operation Twist, or even QE3, and could come as soon as next week’s FOMC meeting. The odds have risen for two reasons: 1) Vice Chair Janet Yellen says so, and 2) medium-term inflation expectations have slipped.

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    Gavekal Research

    Staring Into An Abyss, Tax Rises Stare Back

    0
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    Gavekal Research

    Please-No More Liquidity Fixes--by Will Denyer

    As we hear talk of a global central bank coordinated action to solve Europe’s market malaise, we have to ask, to what purpose? Large liquidity injections once served to keep Europe’s financial system alive until the continent’s economies sputtered back to life. The problem is, this never happened. Now the ECB’s substantial liquidity programs instead serve the purpose of providing leaders more stall time before acting. The monetary union is...

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    Gavekal Research

    US GDP: Soft But Steady As She Goes

    Friday’s US GDP report offered bulls mild disappointment and raised concerns that the recovery is a sub-par affair. First quarter growth was 2.2% compared to expectations of 2.5% and a 3.0% expansion in the last quarter of 2011. The dull economic numbers contrasted sharply with what we are seeing in corporate earnings—75% of reported earnings thus far have beat expectations, with earnings up on average by 6.7% QoQ, or an annualized rate of +27...

    1
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    Gavekal Research

    Fiscal Cliffs And Political Guardrails

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    Gavekal Research

    Markets Question Liquidity Flow

    The last few days remind us that markets are made at the margin. Central bankers are still far from being restrictive, or hawkish. But there has been a marginal shift in rhetoric from “aggressively dovish” to “reluctantly dovish”—for example, the ECB’s expressed concern about rising inflation after deciding to hold policy rates, while the Federal Reserve’s recent communiqué highlights growing reluctance within the FOMC for further monetary...

    0
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    Gavekal Research

    Sterilized QE?

    A WSJ article which quoted unnamed Fed officials as weighing another “novel bond-buying move” has unsurprisingly received a lot of attention. Any reader who glanced through our latest QSCB: The Global Bond Yield Conundrum, will know we think the US needs another round of QE like it needs a hole in the head. But the form of sterilization discussed in the WSJ article is actually long overdue, and could very well be implemented without further bond...

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