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Gavekal Research
Will Denyer, Nick Andrews
Aug 23rd 2013
5C Europe: Stealth Rate Hike Watch
In January, when EMU banks began repaying the LTRO loans dished out in the heat of crisis, markets worried that this process effectively constituted a monetary tightening. We wrote at the time not to worry—repayments were a sign of health in the banking system, and with excess liquidity above €600bn, there was no danger of short rates going up (see that piece here). Indeed we recommended forgetting about the issue until excess liquidity fell...
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Gavekal Research
Will Denyer
Aug 23rd 2013
5C US: The Bond Sell-Off Has Not Overshot
The great bond trade is now unwinding. And as is typical of bursting bubbles, there is potential for bonds to overshoot. But they have not done so yet.
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Gavekal Research
Will Denyer
Aug 22nd 2013
The End Is Nigh
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Gavekal Research
Will Denyer, Tan Kai Xian
Aug 15th 2013
Student Loans: Bubble, What Bubble? - Will Denyer & Tan Kai Xian
Last Friday, the US enacted legislation that will peg the interest charges on student loans to 10-year treasury yields. The move headed off an automatic surge in loan rates and should ensure reasonably priced student finance for years to come. But even as Washington celebrated an outbreak of bipartisanship there were concerns that these latest reforms could wrongly incentivize young Americans to pursue higher education.
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Gavekal Research
Will Denyer
Jul 26th 2013
5C US: Disability And The US Job Market
Global investors with an interest in Federal Reserve policy moves have rarely had to scrutinize the US labor market so closely. However, we wonder if a substantial part of the US employment picture is being overlooked by most observers. If so, the implication for future monetary policy decisions could be significant.
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Gavekal Research
Will Denyer
Jul 23rd 2013
Taper Timing: What To Watch
In case you hadn’t noticed, Ben Bernanke wants to dial back the Federal Reserve’s quantitative easing program later this year. This has focused intense scrutiny of the chairman’s every utterance, which is turning hard-nosed Fed-watchers into amateur psychologists. Some ask whether he will initiate a tapering of the program as a professional courtesy to his successor, while others opine on the legacy he may want to secure in the central banking...
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Gavekal Research
Will Denyer
Jul 18th 2013
Housing, Bonds & Ben Bernanke
Ben Bernanke again tried to calm market nerves yesterday by stressing the conditionality of any tapering to the Federal Reserve’s quantitative easing program. In particular, the Fed chairman pointed out that his committee “will be watching to see if the movement in mortgage rates has any material effect on housing.” This is important qualification since yesterday saw new data released which suggests the recent rise in prices and interest rates...
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Gavekal Research
Charles Gave, François-Xavier Chauchat, Will Denyer, Joyce Poon, Nate Taplin
Jul 17th 2013
Five Corners (17 July 2013)
In the latest Five Corners biweekly review of global economics and investment:
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Gavekal Research
Will Denyer
Jul 15th 2013
Australia And The China Syndrome
So for the satellite supplier economies to the Chinese juggernaut, is it simply a matter of following the leader? This morning it was announced that China’s economic growth duly slowed to an annual rate of 7.5% in 2Q13 from 7.7% in the previous period. Moreover, the latest credit data shows that China’s credit cycle has decisively turned, implying that last month’s interbank rate spike was no aberration. Dragonomics will publish a detailed look...
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Gavekal Research
Anatole Kaletsky, François-Xavier Chauchat, Will Denyer, Simon Pritchard
Jul 05th 2013
Europe’s Control Engineers
“Words are, of course, the most powerful drug used by mankind,” so said Rudyard Kipling. When central bankers meet next month for the annual Jackson Hole shindig, they can ruminate on their success being increasingly dictated less by what they do, than what they say. Take the European Central Bank and Bank of England which in recent months have been fairly taciturn next to a loquacious Federal Reserve. Yet, by yesterday verbalizing forward...
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Gavekal Research
Charles Gave, François-Xavier Chauchat, Will Denyer, Rosealea Yao, Cathy Holcombe
Jul 03rd 2013
Five Corners (3 July 2013)
In the latest Five Corners biweekly review of global economics and investment, Charles Gave expresses doubt about the supposed rebound in European industry, while Francois Chauchat looks at whether EMU peripheral bonds are a buy after recent sell-offs. We also have Will Denyer on US bonds/housing, Rosealea Yao on China's interbank drama and Cathy Holcombe on the rising emerging market middle classes. See more details below—and please click...
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Gavekal Research
Will Denyer
Jun 26th 2013
Will Higher Rates Kill US Housing?
Both US house prices and interest rates have experienced big upward moves—raising the obvious question of whether a higher cost of money will derail the housing recovery. Our approach was to test affordability levels based on a range of higher interest rates. We found that the housing market can easily bear 10-year treasury yields at 3%, and may eventually bear higher rates than that, but the fast and easy gains are behind us.
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Gavekal Research
Will Denyer
Jun 20th 2013
What's Wrong With An Optimistic Fed?
The Federal Reserve made no policy changes yesterday—short rates remain near zero and quantitative easing continues at a fast clip of $85bn per month. The Fed did however adjust its economic projections, for the better—unemployment is expected to fall faster than previously thought, and inflation lower. Chairman Bernanke then spent an hour with reporters trying to clarify what this means for the future policy trajectory.
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Gavekal Research
François-Xavier Chauchat, Will Denyer, Joyce Poon, Nate Taplin, Simon Pritchard
Jun 19th 2013
Five Corners (19 June 2013)
In the latest Five Corners biweekly review of global economics and investment:
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Gavekal Research
Will Denyer
May 31st 2013
The Truth About US Rates
Interest rates in the US are extraordinarily low. It is common to blame this situation on central bank manipulation, but Federal Reserve bond buying is only part of the story. The bigger reason for ultra-low rates is that bond markets are pricing in an assumption that the past five years of abnormally low nominal GDP growth will be repeated. We think this is unlikely: nominal GDP growth is picking up and bond yields will rise with it. The...
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Gavekal Research
Will Denyer
May 23rd 2013
Is It A Bond Bear Market?
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Gavekal Research
François-Xavier Chauchat, Louis Gave, Will Denyer, Rosealea Yao, Nate Taplin
May 08th 2013
Five Corners (8 May 2013)
In the latest Five Corners biweekly review of global economics and investment:
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Gavekal Research
Will Denyer
May 06th 2013
Good, But Not Out Of The Woods Yet
After weeks of relentlessly disappointing growth data, the US finally delivered a major positive release. Stronger-than-expected payroll numbers set off an equities rally and pushed up bond yields. This report comes as a relief —but we are not out of the woods yet.
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Gavekal Research
Arthur Kroeber, François-Xavier Chauchat, Will Denyer, Joyce Poon, Nate Taplin
Apr 24th 2013
Five Corners (24 April 2013)
Long-time GaveKal readers will recall a former publication called Five Corners, in which we presented a series of short takes on global economic and market developments. Today we re-launch Five Corners in a new format, which we hope will enable readers to keep closer track of our core views.
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Gavekal Research
Will Denyer
Apr 24th 2013
Growth Falters And GIPSI Bonds Rally?
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Gavekal Research
Will Denyer
Apr 17th 2013
New Century, New Structural Growth Rates
In the second half of the last century, the US labor force was swelled by baby boomers and a surge of female participation. These major demographic forces shaped the economy and established growth expectations. But they have since changed dramatically. The structural growth rate of the labor force is now, and will continue to be, slow and steady. All else equal, this implies a slower and steadier structural growth rate of the economy.
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Gavekal Research
Pierre Gave, Will Denyer
Apr 11th 2013
Growth & Markets Monthly (April 2013)
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Gavekal Research
Charles Gave, Anatole Kaletsky, Arthur Kroeber, Louis Gave, Will Denyer, Joyce Poon
Apr 09th 2013
A First Non-Euro Currency Debate
Last Thursday the Bank of Japan stunned investors with a muscular monetary response that aims to break a deflationary cycle that had seemed to condemn Japan to permanent economic decline. In this piece we debate what the new policy settings mean for investors and crucially, seek to answer the trillion-yen question of where the Japanese currency is headed.
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Gavekal Research
Will Denyer
Apr 08th 2013
Why Does Velocity Fall In Spring?
Tolstoy said that “spring is the time of plans and projects.” Obviously, Tolstoy did not manage money as for the fourth year in a row, spring appears to be the time when US growth indicators roll over, the euro project threatens suicide, and investor risk appetite falls out of bed. To be honest, we are still scratching our heads for a solid explanation (and very much welcome comments from our wise readers). But below are a few possibilities to...
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Gavekal Research
Louis Gave, Will Denyer
Apr 05th 2013
Why Bond Yields Are Falling
So much for the great rotation out of bonds. With the lone exception of Italy, ten-year G7 government bond yields have dropped to new lows for the year. And the simple average yield for all G7 bonds just made a new all-time low of 1.92%. Perhaps most crucially, US treasury yields have skidded to 1.75%, decisively below the critical level of 1.84%—which served as a resistance last year and then, thus far this year, a support (see chart). We see...
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Gavekal Research
Will Denyer
Apr 04th 2013
Riding A Bull Market With No Conviction
The Irish poet WB Yeats wrote, “The best lack all conviction, while the worst are full of passionate intensity.” We see something similar in equity markets. With the S&P 500 on Tuesday hitting a new all-time high, we clearly remain in bull market territory. Central bank easing measures such as that just announced by the Bank of Japan mean we could push higher. And yet we see plenty of evidence that these new peaks have come on the back of...
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Gavekal Research
Will Denyer
Mar 04th 2013
Beyond The Sequester
Newspaper headlines are focused on the sequester, but we are more interested in the recent positive developments in the private sector. After all, it is the private sector that truly drives the economy forward over the long run, not the government.
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Gavekal Research
Will Denyer
Feb 25th 2013
Is US Housing Cheap, Really?
US homebuilder stocks were hit especially hard last week by the revelation that some Federal Reserve policymakers want an early end to quantitative easing. Such an investor response makes sense given that the US housing recovery has been fuelled by super low mortgage rates, so any “exit” from easy money must be a big negative. Follow this logic a little further and a thornier question is whether US housing, after an approximate 25% price decline...
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Gavekal Research
Will Denyer
Feb 21st 2013
The Fed In The Red
QE3 has been dubbed “QE Infinity” because it does not have an expiration date. But a growing constituency at the Federal Reserve now appears to be asking whether a third quantitative easing program was one too many. According to the minutes of January 29-30 FOMC meeting, released yesterday: “A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or...
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Gavekal Research
Will Denyer
Feb 07th 2013
US Consumers: Death By Taxes?
A slew of tax increases went into effect in the United State on January 1st, raising concerns that the death of consumption will follow. Nearly all US consumers will be affected—either by the 2 percentage point increase in the payroll tax, the 4.6pp rise of the top marginal tax rate, the new Medicare surtax, higher capital gain and dividend taxes, etc. Without a doubt, this is a significant headwind for US consumption. But there are two major...
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Gavekal Research
Will Denyer
Jan 31st 2013
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...
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Gavekal Research
Will Denyer
Jan 28th 2013
Europe's Goldilocks LTRO Scenario?
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Gavekal Research
Will Denyer
Jan 24th 2013
The Big Cap Effect Is Not About To Ebb
Small firms, and very often newly formed endeavors, have long fuelled job growth in the US. Indeed, it has become axiomatic in public discourse that the business of America is small business. Hence, a reduction in the number of startups and the tendency for small firms to employ fewer workers has sparked a predictable blame game: those with a “declinist” view contend that the US is losing its innovative edge, mainstream economists point to...
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Gavekal Research
Will Denyer
Jan 08th 2013
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...
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Gavekal Research
Charles Gave, Anatole Kaletsky, François-Xavier Chauchat, Will Denyer, Tom Miller, Nate Taplin
Dec 20th 2012
US Seminars: Charles & Anatole Debate, Plus Francois, Will, Nate and Tom
We sent a big gang to Boston and New York for our pre-Christmas seminars this year. Charles and Anatole debated on Keynesianism and the true scope of government participation in OECD economies. Francois explained his nearly singular view within GaveKal that European growth is set for take-off (at least in some parts). Will Denyer examined the shifting drivers of the US economy. Nate looked at why shale gas has not taken off in China, and Tom...
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Gavekal Research
Will Denyer
Dec 05th 2012
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...
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Gavekal Research
Will Denyer
Nov 21st 2012
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.
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Gavekal Research
Will Denyer
Nov 15th 2012
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
Charles Gave, Anatole Kaletsky, Arthur Kroeber, Will Denyer
Nov 07th 2012
Four More Years
The American electorate may share the same national bed, but they have vastly different dreams. Our take on the election’s significance is similarly bifurcated—a cathartic political cleansing allowing for a deal on the fiscal cliff (Anatole) to disaster (Charles). Arthur asks whether the Republican Party can win nationally without reconciling itself to America’s changed demographics and the realities of the new knowledge-intense economy. Will...
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Gavekal Research
Will Denyer
Oct 29th 2012
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.
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Gavekal Research
Will Denyer
Sep 28th 2012
US Tech: The Modern Day Safe Haven
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Gavekal Research
Charles Gave, Anatole Kaletsky, François-Xavier Chauchat, Louis Gave, Will Denyer
Sep 18th 2012
The Fed's Money Tree
QE3 has set off a debate not just over whether this is good or bad (most here agree it is bad) but on what are the short– vs long-term effects on economies as well as markets. Louis and Charles make the contrarian argument that open-ended and more aggressive quantitative easing will ultimately take away, rather than add, to global liquidity, and warn that investors should prepare for a dollar crisis further down the line. Anatole and Francois...
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Gavekal Research
Will Denyer, Warwick Simons
Sep 14th 2012
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
Will Denyer
Sep 12th 2012
QE3: Now Or Later?
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Gavekal Research
Will Denyer
Jul 30th 2012
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?
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Gavekal Research
Will Denyer
Jul 27th 2012
The Next American Revolution
Our little firm has spent much of the last decade telling investors to look east. Asia has thrived on the back of cheap labor which has cemented its status as an industrial powerhouse. But as countries such as China seek the good life, pushing incomes and consumption higher, other economies will be better placed to compete. We are increasingly convinced that the defining comparative advantage of the next decade will be having access to the...
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Gavekal Research
Will Denyer
Jul 17th 2012
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....
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Gavekal Research
Will Denyer
Jul 10th 2012
No Environment For A Rerating
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Gavekal Research
Will Denyer
Jul 02nd 2012
A Big Week For US Growth Data
This week will deliver some potential market-moving data releases from the world’s largest economy. The Institute of Supply Management’s manufacturing PMI is released today, the ISM non-manufacturing PMI and ADP’s private employment estimate Thursday, and official payrolls Friday. Unfortunately, a number of the early signs do not look good, especially in manufacturing.
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Gavekal Research
Will Denyer
Jun 28th 2012
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...
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Gavekal Research
Will Denyer
Jun 14th 2012
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
Will Denyer
Jun 13th 2012
Staring Into An Abyss, Tax Rises Stare Back
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Gavekal Research
Will Denyer
Jun 06th 2012
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
Will Denyer, Warwick Simons
Apr 30th 2012
US Corporate Profits: On The Roof Or In The Stratosphere?
One of the biggest weights on US equity prices is, ironically, record profits. Based on the maxim that nothing good lasts forever, the fear is that record margins will inevitably be taken down a peg. A popular way to illustrate the situation is to show corporate profits’ “share” of gross national income (product). As the red line in the first chart below shows, the corporate profits to GNI ratio has gone through the roof recently. Many...
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Gavekal Research
Will Denyer
Apr 30th 2012
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...
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Gavekal Research
Anatole Kaletsky, Will Denyer
Apr 20th 2012
Fiscal Cliffs And Political Guardrails
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Gavekal Research
Will Denyer
Apr 05th 2012
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...
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Gavekal Research
Will Denyer
Mar 09th 2012
New Century, New Labor Market
Stronger employment numbers and a falling jobless rate over the past several months have spurred hopes that the US economy is finally on the path to a broad-based recovery. The latest good news came from payroll processor ADP, which estimates that 216,000 new private sector jobs were created in February, bringing the 4-month moving average to 220,000 jobs a month, the highest rate of this cycle. The strong employment numbers support our call...
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Gavekal Research
Will Denyer
Mar 09th 2012
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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Gavekal Research
Anatole Kaletsky, Arthur Kroeber, François-Xavier Chauchat, Louis Gave, Pierre Gave, Will Denyer, Warwick Simons
Mar 05th 2012
QSCB: The Global Bond Yield Conundrum
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Gavekal Research
Will Denyer
Feb 23rd 2012
US Deleveraging: Still A Long Road Ahead
It is three years since the nadir of the financial crisis that brought the US household credit boom to an abrupt stop. After the collapse in asset prices sent leverage ratios into the stratosphere in 2009, US consumers have been gradually reducing their debt; meanwhile the recovery in equity markets has done even more to bring leverage ratios back down. But US consumers have a lot more deleveraging to do. At best, household leverage is only...
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Gavekal Research
Will Denyer
Jan 30th 2012
Less Gov't, More Private Growth
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Gavekal Research
Will Denyer
Dec 22nd 2011
The ECB’s 489 Billion Euro Christmas Gift
After much anticipation, 523 banks tapped the ECB for €489bn of its new 3 year loans-significantly exceeding market expectations closer to €300bn. This confirms our initial take that this new facility, with longer duration loans and easier collateral requirements, is a major development. But what exactly does it accomplish?
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Gavekal Research
Will Denyer
Dec 05th 2011
Daily - Further Signs of a "Two Speed" US Economy
The latest data from the US is comforting in two ways. First, with the shadow that Europe’s unresolvable crisis is casting over the global economy, any offsetting role that the US can play is obviously welcome. Second, the jobs data from the US fit the pattern of a “two-tiered” economic recovery; in other words, one which is led by the non-leveraged sectors (see our latest monthly chart book, USA: A Two-Speed Economy). This is crucial because...
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Gavekal Research
Will Denyer
Dec 02nd 2011
Daily - US Swaplines: What a Difference a Few Basis Points Make
It would be easy to write off this week’s news on USD swaplines as a bit of technical trickery aimed at boosting market sentiment without any real costs. In fact, the adjustment to the Fed’s swap facility changed the very nature of the program in a way that greatly enhances its significance in today’s global financial environment. At the prior cost of 100bp over OIS, the USD swaps were analogous to high-deductible, catastrophic insurance—only to...
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Gavekal Research
Will Denyer
Nov 29th 2011
The ECB Is Already Doing QE, Its Own Way
The current pleas for the ECB to start “quantitative easing” often miss one important detail: the ECB is already conducting QE, in every way but in name. The two core elements of what is commonly referred to as QE are: 1) the expansion of the asset side of a central bank’s balance sheet, well beyond what is required to simply target short-term policy rates and with the aim of easing credit conditions; and 2) the expansion of a central bank’s...
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Gavekal Research
Will Denyer
Nov 29th 2011
The Fed's Exposure to Interest Rate Risk
It goes without saying that the bold policy measures by the Fed and the ECB have increased risks for both central banks, and in turn both of their currencies. But the risks taken on each side of the Atlantic are very different in nature. The ECB is primarily vulnerable to “balance sheet risks” stemming from increasingly suspect outright holdings and collateral (see today’s Daily). This is a real concern in today’s environment of weakening EMU...
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Gavekal Research
Will Denyer
Nov 29th 2011
Daily - Looming Balance Sheet Risks for the ECB
Lately, as the EMU crisis intensifies, many of our clients have wondered when the ECB is going to get serious and start actual quantitative easing? Our first response to this question is that, semantics aside, the ECB has already effectively done €260bn worth (or $350bn) of QE thus far, and that figure is growing every week. This of course pales in comparison to the Fed’s QE operations of closer to $2 trillion. And given what is happening in EMU...
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Gavekal Research
Will Denyer
Nov 15th 2011
Monthly Strategy Chart Book - USA: A Two-Speed Economy
In the short term, it looks like the US will avoid recession once again. But there is the risk that the recovery could prove fairly anemic or short lived. The bigger question is what are the structural sources of growth that can get the US back on track to its long-term average growth rate of 3% plus?
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Gavekal Research
Will Denyer
Nov 07th 2011
Daily - A Two-Speed Economy in the US?
Our regular readers will know that we have argued recently that the current rally is largely dependent on US economic performance, since Europe’s crisis is not going to be solved anytime soon. On that basis, Friday’s reports of mixed and lacklustre data for US employment may not seem overly confidence-boosting. The household survey showed the unemployment rate unexpectedly ticked down from 9.1% to a six-month low of 9.0% in October; but the...
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Gavekal Research
Will Denyer
Oct 17th 2011
Is the ECB Aiming for 'Stealth Cut' to 0.75%?
Recent moves by the ECB are more significant than some may realize, and could prove significantly bearish for the Euro/USD as excess liquidity is flooded into the system by the end of the month. And yet the Euro has risen since the ECB announcements on October 6th, likely for the following reasons:
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Gavekal Research
Will Denyer
Oct 03rd 2011
The US Needs Brent Below $90 and Gas Below $3
Dark clouds loom—as US data teeters on the edge of recession territory, the EMU struggles to remain united and avoid its own recession, and Beijing continues to rein in credit growth despite evermore fears of a ‘hard landing’. But the silver lining to these dark clouds may be the resulting softness in oil prices. Along with developments in Libya, China tightening and lower global growth outlooks have killed the momentum in oil prices. But what...
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Gavekal Research
Will Denyer
Sep 21st 2011
This is Not 2010: The Context of this Fed Meeting
As the Fed sits down to discuss monetary policy options, the environment seems, at least on the surface, to bear an uncomfortable resemblance to the 2010 “soft patch”, which of course brought us QE2. Indeed, regional manufacturing surveys have plummeted to levels that incite double-dip fears, while national data such as the manufacturing and services ISMs, factory orders and industrial production have also rolled over and now hover uncomfortably...
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Gavekal Research
Will Denyer
Sep 19th 2011
Central Banks Prepare for a Potential USD Squeeze
When the Fed announced plans for US Dollar loans to a number of global central banks at last week’s meeting of finance ministers in Poland, it was easy to see this as confirmation that the long-awaited Dollar crunch was now upon us. Yet, while the USD has risen some recently, it has not yet shot up in the fashion of the late 2008 Dollar short squeeze. Likewise, USD LIBOR rates and spreads have ticked up some, but remain quite low, especially...
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Gavekal Research
Will Denyer
Sep 19th 2011
The Swiss Version of QE
How far is the SNB willing to go to defend its new ceiling of 1.20 Francs per Euro, and for how long? The short answer is that, assuming the Euro remains, the SNB will likely defend the ceiling aggressively, so long as this is consistent with the SNB’s desired domestic monetary policy stance. Here is why...
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Gavekal Research
Will Denyer
Sep 05th 2011
A Big Week for the Euro
Our readers know we have long been structurally cautious on Europe’s single currency, due to its significant design flaws. These flaws have of course come to the forefront in recent years, and yet the Euro has pushed higher (in nominal terms and on a PPP basis). Our best explanation for this Euro resilience is twofold: 1) The fiscal/political situation in the US has recently looked just as bad, if not worse; and 2) the ECB did not loosen as...
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Gavekal Research
Will Denyer
Aug 24th 2011
Daily - The ECB's Stealth Rate Cuts
This week there seems to be an inordinate amount of focus on what Ben Bernanke might say at Jackson Hole on Friday, and whether we are due for another round of QE from the Fed. However, the real news on central bank policy actually comes from across the pond: not only has the ECB been more aggressively buying assets of distressed sovereigns as part of its “solvency management” policy, but significant liquidity provisions have resulted in stealth...
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Gavekal Research
Will Denyer
Aug 22nd 2011
The Good & the Bad in Recent US Money Growth
In the US, M2 has swung from a weak +1.5% YoY growth rate in mid-2010 to a frothy +10.2% today. And this is not due to a low base effect; M2 has grown at an annualized rate of +42% in the last month! This has raised quite a few eyebrows and we have received several questions on this topic. Should we be excited or cautious, in view of these impressive moves in money supply growth? Our answer is, well, both:
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Gavekal Research
Will Denyer
Aug 12th 2011
Daily - More Ugly Currencies Will Not Help
Underlying the current market turmoil is a decline of confidence in the two main reserve currencies of the world, the USD and the Euro. While this may not yet be characterized as a fiat currency crisis, serious questions have clearly driven many to diversify into other fiat currencies (the CHF, Yen, AUD…), or move completely out of fiat currencies into zero-duration assets (gold, silver, fine wines…). This has driven the prices of these “...
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Gavekal Research
Will Denyer
Aug 09th 2011
Why We Have Not Seen a US$ Squeeze This Time
As the last few days have made painfully clear, markets face a level of uncertainty that is high even on today’s standards. But one question that most investors (ourselves included) are struggling with is why, in this uncertain environment, the US$ is not faring better? Indeed, in recent months we have repeatedly laid out the case for of an international US$ Liquidity Crisis. This was largely based on the observation that the growth rate of US$...
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Gavekal Research
Will Denyer
Jul 14th 2011
A Review of Ben Bernanke's Latest Speech
We received a number of questions on Ben Bernanke’s speech yesterday. Below is Will’s take on it:
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Gavekal Research
Will Denyer
Jul 06th 2011
Daily - Weaker EMU Data and Shakier Euro Fundamentals?
After the last ECB meeting, the central bank ECB signaled that it would hike rates at tomorrow’s meeting (by using the “vigilant” phrase), in an attempt to pressure EMU CPI rates back down from the current +2.7% toward the ECB’s single medium-term target of +2%. In all likelihood, Jean-Claude Trichet will carry through with his promise (or threat). Yet we cannot help but wonder if he wished he had kept his intentions to himself, as recent...
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Gavekal Research
Will Denyer
Jun 13th 2011
The US$-Euro From Here
In recent years, the USD’s path of least resistance has been lower, except at times of crisis and financial market stress. And undeniably today, a number of potential “fat tail-risks” could shake markets. These include another flair-up in the EMU crisis, a crisis in one of the several countries around the globe currently exhibiting a high combination of trade and budget deficits (see p. 35 of our Quarterly), a shortage of Dollars abroad to...
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Gavekal Research
Anatole Kaletsky, Will Denyer
Jun 02nd 2011
QSCB - 3Q11 - Life After QE2
Many of the key risks in global financial markets can ultimately be linked to the Fed's enthusiasm for printing money (which even, to some extent, exacerbates the Euro crisis). Thus, the end of QE2 in June will likely bring the world economy to a cross-roads. For this reason, we have decided to focus our latest Quarterly on what the end of QE2 should entail.
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Gavekal Research
Will Denyer
May 05th 2011
A Roadmap For The Coming Changes In Fed Policy
Following a typically anticlimactic FOMC statement, Ben Bernanke recently held his first post-meeting press conference ever and reviewed what the next steps in America’s unorthodox monetary policy might be. Will US monetary policy continue to weigh on the Dollar and support the already elevated Euro, commodity prices, commodity currencies, etc.? Or will the end of QE2 in June mark a change in trajectory for financial markets? Today, most market...
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Gavekal Research
Will Denyer
Apr 11th 2011
Where the Fed Stands on its Mandates
When Bernanke took the job as Chairman of the Fed, he took on the legal mandate "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." While the desirability of these multiple mandates is debatable, one can see why, in 2008-09, the Fed Chairman felt compelled to aggressively cut rates and buy long-term MBS and UST. Bank loans were contracting, unemployment soaring, CPIs and price...
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Gavekal Research
Will Denyer
Mar 28th 2011
A Catalyst for a Structural Shift in Japanese Trade?
The 2001 recession was followed by a ‘jobless recovery’ in the US—at least in the US manufacturing sector, where basically all of the layoffs occurred (see chart). That jobless recovery was soon followed by another sharp decline, courtesy of the Great Recession. In a lunch we attended last week, Yale’s Dr. Peter Schott explained that leading up to the 2001 recession, the seeds were already sown for a wave of outsourcing of relatively low-end,...
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Gavekal Research
François-Xavier Chauchat, Pierre Gave, Will Denyer, Warwick Simons, Will Freeman
Mar 05th 2011
QSCB - 2Q11 - A Structural Turning Point for Markets?
We would first like to offer our readers an apology: not only are we publishing our Quarterly Strategy Chart Book just 24 hours after the publication of our China Economic Quarterly (with can't miss articles on alternative energy, insurance, RMB deregulation, Mongolia, and the property slowdown), but this quarterly is long as well: a full 74 pages!
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Gavekal Research
Will Denyer
Feb 07th 2011
The ECB Hikes Rates Without Making Headlines
Whether Fed and the ECB move together, or apart, matters greatly to forex rates. Bernanke and Trichet both responded to the global crisis by flooding their banking systems with excess reserves, thus driving overnight interbank rates down near their respective ‘floor rates,’ the rate paid by central banks for deposits of excess reserves. With the floor rate set at 0.25% in both systems, the short rate spread thus became negligible. However, one...
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Gavekal Research
Will Denyer
Jan 20th 2011
GaveKal Daily - Signs of Returning Pricing Power
Six months ago, the US was experiencing a ‘soft patch’ that many feared would turn into a ‘double dip’ recession. And with core price measures already quite weak, there were renewed fears of a deflationary spiral. Inflationary expectations according to TIPS were falling fast. In response, the Fed stepped in aggressively, providing QE1.5 in early August, and then talking up QE2 in late August. Inflation expectations started to recover, and are...
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Gavekal Research
Will Denyer
Jan 14th 2011
A Quick Review of US Job Growth in 2010
Going into 2011, the odds seem to be that the US$ will come out on top of the next round of the ugly contest between the euro, yen and pound (see The UK in 2011); if only because the current momentum of US economic growth should lead the Fed to soon start managing expectations about how much longer its extreme case of monetary incontinence can last (see Easy Money, Easy Fiscal…but For How Long?).
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Gavekal Research
Will Denyer
Nov 22nd 2010
It's Never a Good Time for Price Floors, Even Wages
This document is part of our old archive. It was published on 2010-11-22.You can download it here: GKFiveCorners1011224.pdf
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Gavekal Research
Will Denyer
Nov 01st 2010
QE2 - The Fifth Phase of the Fed's Crisis Response
This document is part of our old archive. It was published on 2010-11-01.You can download it here: GKAdHocComment1011011.pdf
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Gavekal Research
Will Denyer
Oct 12th 2010
Why QE Has Not Stopped the Yen's Ascent
This document is part of our old archive. It was published on 2010-10-12.You can download it here: GKDailyReport1010122.pdf
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Gavekal Research
Will Denyer
Sep 06th 2010
Some Real Improvements in US Personal Income
This document is part of our old archive. It was published on 2010-09-06.You can download it here: GKFiveCorners1009064.pdf
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Gavekal Research
Will Denyer
Jul 26th 2010
Lessons From Bernanke's Testimony
This document is part of our old archive. It was published on 2010-07-26.You can download it here: GKFiveCorners1007261.pdf
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Gavekal Research
Will Denyer
Jul 12th 2010
China Does Not 'Generally' Export Inflation
This document is part of our old archive. It was published on 2010-07-12.You can download it here: GKFiveCorners1007122.pdf
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Gavekal Research
Anatole Kaletsky, François-Xavier Chauchat, Louis Gave, Pierre Gave, Will Denyer, Joyce Poon
Jun 10th 2010
Quarterly Strategy Chart Book 3Q10 - The Great Rebalancing
This document is part of our old archive. It was published on 2010-06-10.You can download it here: GKQuarterlyStrategy1006101.pdf
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Gavekal Research
Will Denyer
Jun 01st 2010
The Collapse in M2 Growth
This document is part of our old archive. It was published on 2010-06-01.You can download it here: GKFiveCorners100601.pdf
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Gavekal Research
Will Denyer
May 17th 2010
The Fig Leaf Comes Off
This document is part of our old archive. It was published on 2010-05-17.You can download it here: GKFiveCorners1005178.pdf
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