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Gavekal Research
Nick Andrews
Nov 27th 2020
Yield Curves, The Euro And The Dollar
The balance of probability points towards a steeper US yield curve over the short to medium term as US short rates remain pinned at zero and long-dated US treasury yields push higher. One might think that higher US long rates should attract capital inflows, but what matters is the relative shift in gradients, notably between the US dollar and euro yield curves.
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Gavekal Research
Charles Gave
Nov 20th 2020
Dear Cedric And Nick, Allow Me To Disagree...
...in Thursday’s Daily you argued that Hungary and Poland’s effort to veto yet another power grab by Brussels represents a mere hiccup in the march towards a European nation state. You can add Slovenia into that basket of recalcitrants. I believe that these three countries are posing an essential question: where does the legitimacy of a government come from?
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Gavekal Research
Cedric Gemehl, Nick Andrews
Nov 20th 2020
Webinar: Europe And The Second Wave
European markets were ebullient earlier this week on news that an effective Covid-19 vaccine may be approved for use early next year. In the meantime, regional lockdowns aimed at curbing the escalating pandemic threatens Europe's economic recovery. This all but guarantees loose monetary and fiscal policy for the foreseeable future. In yesterday's webinar Nick and Cedric discussed how this shakes out for investors.
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Gavekal Research
Nick Andrews, Cedric Gemehl
Nov 19th 2020
Limits To EU Solidarity
This week, Hungary and Poland vetoed the European Union’s €750bn recovery fund in a fit of pique at a new mechanism that will stop money going to “bad boy” states deemed to impede the rule of law. With southern Europe waiting for EU cash to support its post-Covid recovery, the two eastern bloc countries hope to force a compromise that will stop outside interference in their domestic affairs. The issue tops the agenda of today’s EU leaders’...
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Gavekal Research
Nick Andrews
Nov 13th 2020
Biden And Brexit
Despite the UK enduring another Covid lockdown and facing a key Brexit deadline on November 15, its political class spent this week obsessing over a personality struggle inside the prime minister’s office. The real significance of a Brexit-supporting aide to Boris Johnson quitting his post may be that the UK is about to accept a trade deal will leave it as an effective satellite of the European Union. After all, hopes for a plucky Britain going...
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Gavekal Research
Cedric Gemehl, Nick Andrews
Nov 13th 2020
After Consolidation, A Further Rerating
Given the violence of Monday’s rotation-driven rally on soaring hopes of an early coronavirus vaccine rollout, it is small surprise that equity markets are now giving back some of those gains. Expectations are still high that developed economies will be able to begin vaccination programs as early as the first quarter of next year. But the intervening days have given investors a keener appreciation of the challenges involved. Meanwhile, the...
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Gavekal Research
Louis Gave
Nov 06th 2020
Let’s Build A Second Maginot Line!
With the coronavirus endemic in Europe, the new anti-Covid lockdowns being imposed by governments across the region, including in France, Germany and the UK, make about as much sense as a second, smaller, Maginot line would have done back in 1943 when the Germans were firmly entrenched in France.
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Gavekal Research
Charles Gave, Cedric Gemehl, Louis Gave, Didier Darcet
Nov 05th 2020
Webinar: US Election & Global Investment Roundtable (in French)
Charles Gave, Louis-Vincent Gave, Didier Darcet and Cedric Gemehl delved into the results of the US election, and discussed the latest impact of Covid-19 on the global economy and markets. Additionally, they presented Gavekal’s latest research on portfolio construction.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Oct 28th 2020
Europe’s Bitter Winter
Just a couple of weeks ago there were still reasons to be sanguine about the damage that rising coronavirus infections would inflict on Europe’s economy and financial markets. Today those reasons are looking a good deal thinner. Europe’s near term trajectory increasingly resembles a “W-shaped” recovery.
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Gavekal Research
Louis Gave
Oct 27th 2020
The Three Key Prices: 10-Year Treasury Yields
A core thesis for Louis is that in financial markets three prices matter above all others: the price of oil, the price of US dollars and the yield on 10-year US treasuries. In this second part of a three-part series, he addresses the bond market question. US treasuries are currently pricing in a highly deflationary future on both a cyclical and structural basis. Such an outcome would defy recent experience in the US bond market.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Oct 23rd 2020
No Fiscal Panacea
It’s been a big week in Europe’s debt capital markets. The European Union sold €17bn of bonds for its SURE job support program and Italy issued €8bn of 30-year bonds yielding 1.76%. The strength of demand was an encouraging sign, given the outsize role that debt-funded government stimulus will have to play in driving the eurozone’s economic recovery from the Covid crisis.
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Gavekal Research
Anatole Kaletsky
Oct 22nd 2020
Crisis Averted, Hard Times Ahead
This week, Boris Johnson got what he needed politically: a bromide from Brussels that will allow him to camouflage the compromises he must make to secure a trade deal with the EU before the year’s end. But it will be a minimalist deal that will leave the UK’s service sector out in the cold, increasingly shut out of the EU’s markets.
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Gavekal Research
Louis Gave
Oct 22nd 2020
The Biggest Event Of 2020 (By Analogy With 2007)
What’s the most important event of 2020? Easy, you will answer: the Covid-19 pandemic. Maybe. But will it really look that way in hindsight? Sure, Covid seems pretty momentous today. But years hence, will it really be seen as a key driver of structural change? Or will the most important event of 2020 be regarded as something else entirely?
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Gavekal Research
Tom Miller, Udith Sikand
Oct 20th 2020
Erdoğan’s Dangerous Game
Turkey’s economy is in crisis. The International Monetary Fund is forecasting a -5% contraction in GDP this year, the Turkish lira is down -28% against the euro year-to-date, unemployment and inflation are both in double digits, and bond yields are soaring. Yet President Recep Tayyip Erdoğan is pressing ahead with costly military adventures. Turkey tested its new Russian missile air-defense system in mid-October, defying its NATO allies. It is...
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Gavekal Research
Andrew Batson
Oct 16th 2020
Webinar: Understanding Chinese State Capitalism
The advance of the private sector and the retreat of the state sector has been central to China’s long transformation from an isolated socialist nation to a globally connected economy. Yet the notions of China’s private sector being either in the ascendency, or facing a squeeze in the statist Xi Jinping era are not born out by the facts. Andrew Batson discussed the findings in his recent major piece of research on this topic.
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Gavekal Research
Cedric Gemehl
Oct 16th 2020
Europe Battens Down
Having remained sanguine over recent weeks as coronavirus infection rates in Europe mounted, on Thursday investors sat up and paid attention. After the French government imposed a 9:00pm curfew on Paris and eight other cities, and after the German government tightened restrictions on Covid hotspots including Berlin and Frankfurt, the euro Stoxx index fell -2.2% during Thursday’s session. Clearly as infection rates have risen, and governments...
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Gavekal Research
Louis Gave
Oct 14th 2020
The Three Key Prices: Oil
In financial markets, there are three prices matter above all: the price of the US dollar, the yield on 10-year US treasuries, and the price of oil. Get the direction of these right, and the other pieces of the investment puzzle fall into place. In the first of a three-part series, Louis examines in depth what could cause the oil price to break out of its current trading range.
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Gavekal Research
Will Denyer
Oct 14th 2020
New Tech, Same Fiat Money (For Now)
This week saw seven western central banks and the Bank for International Settlements issue a joint report on central bank digital currencies. They come not to bury cash nor to undermine banks, but to modernize payments for a digital age. If so, the introduction of CBDCs is unlikely to upend the banking system and monetary policy, but would resemble the rollout of ATMs in the 1960s.
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Gavekal Research
Cedric Gemehl
Oct 13th 2020
Counting Europe’s Zombies
Usually when an economy contracts, corporate bankruptcies go up. This time is different. In European countries, bankruptcies in the second quarter—the low point of the lockdown-induced economic collapse—were down by anywhere between -16% and -33% in year-on-year terms. By suspending normal bankruptcy regulations and offering generous liquidity assistance, European governments successfully prevented their lockdowns from causing a mass wave of job...
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Gavekal Research
Charles Gave
Oct 13th 2020
A Typology Of Bear Markets Based On Wicksellian Analysis
In half a century of doing financial analysis, Charles has acquired the core conviction that there is not one type of bear market, but two. Think of these as the gentle black bear-type downturn that is survivable and the highly-dangerous, big brown grizzly collapse that for many money managers proves fatal. In this piece, Charles seeks to map this insight with some analytical rigor.
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