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E.g., 29-10-2020
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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

    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.

    0
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    Gavekal Research

    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

    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?

    21
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    Gavekal Research

    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

    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.

    0
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    Gavekal Research

    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...

    0
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    Gavekal Research

    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.

    2
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    Gavekal Research

    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

    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...

    0
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    Gavekal Research

    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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    Gavekal Research

    Keeping It Super Simple

    Let me start with President Donald Trump’s policies as I understand them. As a businessman, since taking office in 2017 his singular goal has been to keep US firms’ return on invested capital as high as possible. So, if Trump is reelected on November 3, I would expect more of the same. In contrast, a Joe Biden win would lower ROIC and cause the US dollar to fall against the euro.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, October 2020

    Yanmei Xie discussed the US team’s assessment of risks surrounding the US election, Anatole Kaletsky explained the reasons for his return to bullishness and Louis Gave talked about global asset allocation and how to find “anti-fragile” assets.

    0
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    Gavekal Research

    Video: The Euro's Next Move

    The euro’s appreciation against the US dollar has stalled out as resurgent Covid-19 infections threaten new lockdown measures, and a possible upending of the economic recovery. Nick argues that the euro’s decade-long run as a “weak currency” was down to policy settings that kept domestic demand weak. A convincing reversal is not likely until those domestic drivers are again firing.

    0
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    Gavekal Research

    European Divergence Is Back

    Like a car, the more excess weight you add to an economy, the slower it drives. Slapping restrictions on normal activities, even if income support measures are offered, makes it harder for an economy to grow. In Europe, the second wave of Covid-19 infections is having an uneven effect depending on the severity of the outbreak and the sector composition of the affected economy. The result will be to deepen the divergence in European growth and...

    0
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    Gavekal Research

    A Dove With Ammunition

    Hawks want the European Central Bank to wind down its monetary stimulus once the immediate Covid crisis is over. On Wednesday, ECB president Christine Lagarde poured a large bucket of cold water over that idea. Speaking in Frankfurt about the central bank’s current strategy review, she made clear that the ECB regards deflation, not inflation, as the main monetary risk, and opened the door to a symmetric inflation target going forward. In the...

    1
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    Gavekal Research

    The UK’s Savings Problem

    The British government's new job support scheme to take effect next month offers much less generous subsidies, and job losses are inevitable. Heightened job insecurity will mean increased precautionary savings, compounding the downturn in consumption. But the government faces institutional constraints on how much it is willing and able to borrow to plug the gap.

    0
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    Gavekal Research

    Lockdown-Lite

    A series of controls have been announced by European countries in reaction to sharp increases in the numbers testing positive for the Sars-CoV-2 virus.This has raised fears of renewed lockdowns and economic havoc. But it appears European policymakers are opting for a lockdown-lite approach to public health restrictions in order to minimize the economic damage.

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    Gavekal Research

    Riding Europe’s Second Wave

    The latest Covid figures from Europe make sobering reading, with countries including France, Spain and others seeing pronounced second waves of new cases. Equity markets, however, have reserved judgment. Yes, the rebound that started in mid-March has been stalled for the last two months as infections have mounted. However, European markets have not sold off significantly, despite this month’s US volatility. And an examination of the opposing...

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