Gavekal Research

Will Denyer, Tan Kai Xian

Feb 27th 2019

The Federal Reserve is talking about changing the way it targets inflation. Currently it tweaks policy in an attempt to zero in on a specific inflation rate: 2%. Under the framework it is discussing, instead it would aim to hit a price index level consistent with a particular long term average inflation rate. The distinction might sound subtle, but by targeting a price level, the Fed would compensate for any undershooting by attempting to...

Gavekal Research

Will Denyer

Feb 05th 2019

News flow from the US and beyond over recent months has pointed to an easing of financial conditions. A notable exception has, however, emerged: US commercial banks have stopped loosening lending standards and have started to tighten them—just a touch. I remain constructive, but have gotten more cautious about US risk assets.

Gavekal Research

Will Denyer, Tan Kai Xian

Jan 30th 2019

With Brexit, the US-China trade war and a synchronous global slowdown, these are anxious times for investors. But apparently, all these concerns pale in comparison with worries about US corporate leverage. According to a BofAML survey this month, corporate indebtedness is the biggest single worry among fund managers. We beg to differ.

Gavekal Research

Will Denyer

Jan 17th 2019

As the US government shutdown threatens to enter its fifth week, Will looks back at previous shutdowns to weigh the likely impact on America’s economy and financial markets, against the backdrop of an aging economic cycle, flattening yield curve and tighter financial conditions.

Gavekal Research

Will Denyer, Tan Kai Xian

Jan 04th 2019

This week’s revenue forecast downgrades from Apple and Delta Air Lines and Thursday’s steep dive in the ISM manufacturing PMI only appeared to confirm what market participants already knew: US growth is rolling over. Yet despite the recent sell-off in equities and the further flattening of the US yield curve, we see no recession on the horizon.

Gavekal Research

Tan Kai Xian, Will Denyer

Dec 10th 2018

November’s payroll report gave investors in US equities reason to cheer on Friday as it suggested reduced inflationary pressure, yet they chose to focus on an escalating row over the fate of a top Chinese telecom executive that is intensifying trade tensions with China. A -2.3% fall in the S&P 500 had the technically-inclined scrambling to glean meaning from a “death cross” as the 50-day moving average fell below the 200-day level. We remain...

Gavekal Research

Will Denyer, Tan Kai Xian

Nov 29th 2018

The most cherished gifts often come in small packets, and investors duly cheered just two small words yesterday by the Federal Reserve chairman. In a speech, Jerome Powell said policy rates were “just below” the neutral level. That was a big change from a month earlier when he said they were “a long way from” the not-too-hot-not-too-cold level. This suggests that the pace of interest rate hikes may lessen, while on the same day data was released...

Gavekal Research

Will Denyer

Nov 16th 2018

There is suddenly a flood of commentary speculating that General Electric is a canary in the proverbial coal mine for the US corporate credit market. With investors focused on the troubled conglomerate’s underfunded pension scheme and ailing power business, GE has seen its credit rating downgraded and become a focal point for broader fears that US corporates have taken on too much debt and bought back too much equity. Without taking a view on GE...

Gavekal Research

Will Denyer, Tan Kai Xian

Nov 07th 2018

The Democrats have wrested back control of the US House of Representatives, while Republicans have expanded their Senate majority. Hence, the US’s bicameral legislature is set for two years of gridlock. This was the most benign result possible from this midterm election. While largely expected, confirmation is probably positive for risk assets.