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Gavekal Research
Will Denyer, Tan Kai Xian
Jul 11th 2017
The Payrolls Paradox: Tight Labor But Weak Wage Growth
As usual the market focused closely on the headline number in last Friday’s employment report, which saw non-farm payrolls come in at a stronger than expected 220,000 in June. As usual, we caution against reading too much into any one month’s figures, for the reasons Anatole has explained so elegantly (see Beyond The March Payrolls Soft Patch). Instead we prefer to take a step back and to attempt to answer the two big questions currently hanging...
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Gavekal Research
Tan Kai Xian, Will Denyer
Jul 07th 2017
What Could Turn Around The US Business Cycle? Hint: Not Much
As often happens, US data is sending mixed messages. Yesterday’s ADP report showed weak job growth in June, despite the latest ISM service sector PMI being decidedly perky. Investing according to the latest high-frequency growth data is a good way to get whiplash. Instead, let’s take a step back and review the US economy’s overall positioning.
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Gavekal Research
Will Denyer
Jun 27th 2017
Not Getting Paid To Take Credit Risk
When things cannot get any better, they rarely do. Credit spreads for both high-yield and investment-grade corporate bonds are back near lows last seen just before the onset of previous financial busts. Will the calm soon give way to another perfect storm? Worryingly, corporate fundamentals are already deteriorating.
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Gavekal Research
Will Denyer
Jun 15th 2017
The Fed's Balance Sheet Contraction
As universally expected, the Federal Reserve raised interest rates by another 25bp yesterday. It also published details about its plan to start shrinking its balance sheet before the end of this year. While this too was widely expected, there remain plenty of questions about how the markets will respond. With no precedents for the Fed’s impending move to contract its bloated balance sheet, no one can be entirely confident how the market will...
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Gavekal Research
Will Denyer
Jun 07th 2017
Policy & Productivity: How To Make America Great Again
A critical and much-debated question about the US economy is whether it is permanently stuck in a “new normal” of 2-2.5% annual growth—about a point below the 3.2% average growth rate in 1970-2000—or if it can regain its previous luster. Will assesses arguments from both the upbeat techno-optimists and the grizzled growth skeptics and updates his own view based on US policymaking in the age of Trump.
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Gavekal Research
Will Denyer
May 29th 2017
Still No Real Recovery In US Profits
After a very strong corporate earnings season, Friday delivered the first estimate of profits as tallied by the US national income and product accounts, or NIPA. Unfortunately, the NIPA data pours cold water over the notion that the US is seeing a real, widespread recovery in profitability. The nonfinancial corporate sector of the US economy (not exactly a niche segment) is experiencing nothing of the sort. Instead, real profitability continues...
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Gavekal Research
Will Denyer
May 25th 2017
What The Fed Really, Really Means
The Federal Open Market Committee has fired the starting gun on its plan to start shrinking the US central bank’s balance sheet before the year is out. The language was coy, but indicated a consensus that outright contraction will start so long as the trajectory of growth and the key policy interest rate matches the committee’s expectations.
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Gavekal Research
Will Denyer
May 02nd 2017
Strategy Monthly: Global Goldilocks And The Two Bears
Markets seem convinced that a Global Goldilocks scenario of “just right” growth and rising corporate earnings is unfolding. This is plausible, but a careful review of the US economy suggests that two far more bearish outcomes are also possible. Will Denyer reviews the case for all three scenarios and recommends reducing risk exposure, especially in the US.
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Gavekal Research
Will Denyer
Apr 27th 2017
Taxing Times In The US
The big news this week is the lack of news. Tectonic changes—that inspired both hope and fear—now look less likely to materialize. The first round result in France’s presidential election suggests that the centrist, pro-euro Emmanuel Macron will be the next head of state, rather than the disruptive Marine Le Pen—no révolution in Europe. Then yesterday Donald Trump revealed his much anticipated tax plan. It only served to show how little progress...
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Gavekal Research
Will Denyer
Apr 06th 2017
Threats To The US Bull Market
I have spent the last few weeks traveling around Europe telling clients to reduce risk exposure—at least to US equities, if not globally. I see four potential threats to the US bull market, and while none is certain, the odds are high that at least one of them spoils the party. Let’s review:
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Gavekal Research
Will Denyer, Charles Gave, Tom Miller, Anatole Kaletsky
Apr 05th 2017
London Seminar — March 2017
In Gavekal’s seminar in London last week Will Denyer, Charles Gave, Tom Miller and Anatole Kaletsky presented their macroeconomic outlooks and offered investors asset allocation advice.
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Gavekal Research
Will Denyer
Mar 22nd 2017
Will Washington Disappoint?
Equity markets have pretty much straight lined higher since the US election on hopes for market-friendly tax cuts, health care reform, and broad deregulation. Worries about high import tariffs and other potential growth-sapping measures have been set to one side. In short, investors have been counting on “Trump without the bad stuff”. With the S&P 500 yesterday sliding -1.2%—the first fall of more than -1% since November’s election—they now...
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Gavekal Research
Will Denyer
Mar 21st 2017
The Profit Illusion
Inflation has a way of making things look better than they really are. This is especially true of corporate profits. After a dismal first half last year, S&P 500 companies reported an earnings recovery in 2H16. In the final quarter, they posted profit growth of 6% YoY (with or without financials). Alas, this recovery appears to be a mirage, caused by accelerating inflation. Using official flow of funds data for the domestic non-financial...
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Gavekal Research
Will Denyer, Tan Kai Xian
Feb 24th 2017
Are Border Adjustments Protectionist?
The introduction of border adjustments into the US tax code is by far the most controversial part of the House Republicans’ “blueprint” for tax reform—with good reason. This reform alone would be a game-changer, with many winners and losers. This is why, like all major tax reforms, it faces an uphill battle to become law, and why it may never happen. But the same was said of a Donald Trump presidency, and of Brexit. So, investors still need to...
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Gavekal Research
Louis Gave, Anatole Kaletsky, Will Denyer
Feb 22nd 2017
Hong Kong Seminar — February 2017
Gavekal’s global macroeconomic seminar in Hong Kong in February featured Anatole Kaletsky, Will Denyer and Louis-Vincent Gave. They presented on the global investment outlook under a Trump presidency, the decline in US productivity, and the sustainability of the "Trumpflation" rally.
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Gavekal Research
Will Denyer, Tan Kai Xian
Jan 27th 2017
Border Tax Adjustments In Context
US president Donald Trump moved a step closer to realizing his “America first” trade policy yesterday, promising a 20% tax on imports from Mexico. However, rather than an outright tariff on imports, it is looking increasingly likely that the new levy will come in the form of a border tax adjustment, as envisaged by the House Republican majority as part of a wider US tax reform program. In theory, border tax adjustments should be trade-neutral,...
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Gavekal Research
Will Denyer
Jan 24th 2017
Trump May Yet Learn To Like Border Adjustments
Last week, Donald Trump dismissed border tax adjustments as “too complicated”. He may yet reconsider. If the newly-installed president has one dominant policy objective, it is to make the US more attractive as a destination for investment and as a location for manufacturing. Alongside deregulation and cutting the US corporate tax rate, imposing border tax adjustments along the lines proposed by the House Republicans is one of the simplest and...
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Gavekal Research
Arthur Kroeber, Charles Gave, Will Denyer
Jan 18th 2017
Audio & Transcript — Gavekal Research January Call
Charles Gave argued that Donald Trump’s protectionist policy could lead to a breakdown of the post-1971 fiat money system that is based on a US dollar standard. Will Denyer deconstructed the likely workings of a new trade taxation regime in the US and explained what that means for currencies. Arthur Kroeber outlined the likely Chinese response to a US trade broadside and argued that Beijing was decently well placed to weather the attack.
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Gavekal Research
Will Denyer, Tan Kai Xian
Jan 16th 2017
Tax Reform And The Dollar: It’s Not So Straightforward
Tax reform is high on the agenda both for US president-elect Donald Trump and for the new session of Congress that began earlier this month. Among the reform proposals that could most affect investors are those advanced by the House Republicans, which many commentators have argued could cause a substantial exchange rate appreciation of the US dollar. In theory—all else being equal—this would be true. But our examination of current exchange rate...
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Gavekal Research
Tan Kai Xian, Will Denyer
Jan 04th 2017
The US Equity Dilemma
On the first trading day of the year, we learnt that the Trump trade remains very much alive. The S&P 500 rose 0.8%, 10-year treasury yields inched up 1.3bp and the DXY US dollar index climbed 0.4%. While investors seem focused on the positive ramifications of a Donald Trump presidency, the year ahead is full of uncertainty—with changes in store for fiscal, monetary, regulatory and trade policies, all of which will occur in the context of a...
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