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E.g., 12-12-2019
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    Gavekal Research

    Is The Shale Boom Turning To Bust?

    America’s shale bonanza has been one of the great success stories of the last ten years. Since the mid-2000s, the US energy industry has transformed itself, as rising international energy prices and advances in horizontal drilling made it feasible to exploit vast hydrocarbon resources locked away in the shale beds which underlie much of the country east of the Rockies. As companies drilled new wells by the thousand, domestic production soared,...

    15
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    Gavekal Research

    Fed To The Rescue?

    “Lord, grant me chastity and continence, but not yet.” That prayer from a young Saint Augustine sprung to mind when listening to St. Louis’ Fed president, James Bullard, suggest yesterday that the Federal Reserve may extend its quantitative easing program beyond the planned end date on October 29. Bullard thinks the Fed should “invoke that clause about it being data dependent” and keep buying $15bn worth of treasuries and mortgage bonds, at...

    0
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    Gavekal Research

    Five Corners (October 15): The Equity Rout

    Overview: François Chauchat asks whether a US recovery is enough to drive global equity markets or has the world changed.

    0
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    Gavekal Research

    5C US: Domestic Plays Beat Multinationals

    The current sell-off has left few places to hide, but some areas have done worse than others. Small caps have underperformed large caps; cyclicals have fallen versus defensives; and foreign markets have done worse than the US (especially in US dollar terms). While our clients have surely given a lot of thought to these trends, today we suggest dividing the US equity market another way: between ‘domestics’ and ‘multinationals’.

    2
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    Gavekal Research

    Seek refuge In The US

    Markets have suffered a significant risk-off move in the last month. US equities have fallen as much as –3.8%; European stocks are down -6% in euro terms and –8% in US dollar terms, and government bonds have been bid up while credit spreads have widened. Readers are surely wondering what to do now: Buy the dip, or sell everything before this turns into a full-on bear market? Hold steady, or adjust portfolios? To answer these questions, we have...

    6
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    Gavekal Research

    5C US: Beware The Small Cap Energy Effect - Will Denyer & Tan Kai Xian

    The US hydrocarbon industry continues to suffer weak natural gas prices and must wait until 2016 before new LNG export terminals allow more gas to be shipped overseas. Hence, active production rigs in areas such as Texas and North Dakota are increasingly being used to extract oil. The expansion of US crude production has seen output reach 8.6mn barrels per day, back to levels seen in the 1980s; and the rig count continues to rise. But if this is...

    0
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    Gavekal Research

    Can Working Women Revitalize Japan?

    In his reshuffle earlier this month, prime minister Shinzo Abe appointed five women to Japan’s cabinet. By more than doubling the number of senior ministerial posts held by women, Abe was hoping to lend some extra impetus to the ‘third arrow’ of his ‘Abenomics’ program to revitalize Japan’s economy. The first two arrows—fiscal and monetary stimuli—have succeeded in weakening the yen to a six year low against the US dollar, returning Japan to...

    1
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    Gavekal Research

    The Fed And The Volatility Conundrum

    As investors digested the utterances from yesterday’s FOMC meeting, the broad US dollar index jumped a meaty 1%, gaining against every major currency. At first glance, such a volatile reaction seems odd. After all, the statement was an effective non-event—just another well telegraphed $10bn tapering of asset purchases, that leaves the Federal Reserve on course to end its quantitative easing program next month. If anything, this could have been...

    0
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    Gavekal Research

    Cutting Through The Noise: A New Inflation Indicator

    The outlook for US inflation and monetary policy was already cloudy, even before the Federal Reserve further muddied the waters yesterday with its conflicting signals. To help clients pierce through the haze, Will and KX have developed a new composite diffusion index to provide a reliable leading indicator of US consumer inflation, which they are publishing for the first time in today’s Chartbook. Based on five components from both the money and...

    2
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    Gavekal Research

    The Maturing US Recovery, Policy & Markets

    World markets are jittery going into a two day Federal Reserve meeting on the “good-is-bad” concern that a sustained recovery will produce a faster than expected move toward monetary tightening. In this chartbook Will provides a comprehensive update of his US economic view and explains what these projections mean for policy setting. His bottom line is that the US economy looks more like it did in 2004 than in 2007. Hence, there is every reason...

    6
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    Gavekal Research

    5C US: The Reaction To Fed Tightening

    Yields at the short end of the US bond market are creeping up as it looks increasingly likely that the Federal Reserve will hike rates next year, perhaps in the first half. Recent data showing a maturing US recovery support these moves (see yesterday’s Chartbook: The Maturing US Recovery, Policy & Markets).

    0
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    Gavekal Research

    5C US: Cutting The Slack

    Federal Reserve chair Janet Yellen opened her speech in Jackson Hole with the fairly obvious assertion that the labor market has made major improvements but has yet to recover fully. We agree. Our preferred cyclical labor market indicator, the employment-to-population ratio for core working ages 25-54, has risen to 76.6% from the trough of 74.8% in late 2010, but it is still way below its pre-crisis peak of 80.7%.

    0
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    Gavekal Research

    The US Consumer Lives, Really

    Even as US real wage growth has picked up over the last 18 months, consumption spending has been slow to respond. The relatively weak state of the US consumer, once the irresistible force pulling along the global economy, has emboldened those advocating a ‘secular stagnation’ thesis. But is this really a fair analysis? The answer has a particular relevance as central bankers gather for the Federal Reserve’s annual Jackson Hole shindig and...

    0
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    Gavekal Research

    Five Corners (20 August): Velocity Of Money

    In the latest bi-weekly review of global economics and investment we focus on the velocity of money and the credit cycle in the major economic regions: Overview: Charles Gave notes with concern the downturn in the Gavekal Velocity Indicator. US: Will Denyer looks where the US is in the credit cycle and argues it looks more like 2004 than 2007. Europe: François Chauchat argues that contrary to popular belief Europe’s long credit crunch is...

    0
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    Gavekal Research

    5C US: Is This 2004 Or 2007?

    The tide is coming in. The US business cycle is maturing from the recovery phase to the expansion phase. Credit is growing and money is flowing.

    0
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    Gavekal Research

    5C US: The Fed's Balance Sheet: No Change Is A Big Change

    The largest balance sheet in the land will almost surely see a year of stability after the Federal Reserve’s latest round of QE purchases tapers off in October. But that stability will itself be a big change from recent years. It will be interesting to see how the market reacts.

    2
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    Gavekal Research

    The US Growth Engine Sparks Into Life

    Second quarter US GDP growth came in encouragingly strong at 4% quarter-on-quarter annualized, much better than the expected 3%. At the same time the 1Q number was revised up to -2.1%. That’s up from -2.9%, but it’s still a contraction; so a strong 2Q reading was crucial to show the previous GDP number was just a blip and not the start of a slide into recession. But looking past the headlines, was this really a strong report?

    0
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    Gavekal Research

    5C US: No Longer Cheap, But Keep Reaching For Yield

    In 2012 and early 2013, it was easy to argue in favor of selling bonds and loading up on US equities on the basis of valuations alone. Equities were extremely cheap, bonds extremely expensive, and you would have been hard pressed to find standard metrics to indicate otherwise. Even Charles, who was anything but enthusiastic about the US policy mix, suggested overweighting equities and shunning bonds. Now the valuation call is no longer obvious,...

    0
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    Gavekal Research

    The Next Phase Of The Rally

    With US equities making new highs and another earnings season now under way, it is a good time to remember that to be sustainable, a bull market should rest on three pillars: liquidity, valuations, and growth. At any given point in time, however, just one of the pillars is likely to be doing most of the load-bearing. Consider the current bull market. At the outset, central bank liquidity played the key role. Then last year was largely about...

    2
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    Gavekal Research

    5C US: The Inflation Rebound Is For Real

    US inflation measures have bounced back up near the Federal Reserve’s 2% target. This is not just noise. The rebound is evident not only in the volatile headline CPI, but also in the core and median metrics (see chart). Moreover, there is growing corroborating evidence of economic actors regaining pricing power.

    0
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