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Gavekal Research
Louis Gave
Dec 05th 2019
Is Energy Uninvestible?
Who would have thought at the time of the September attacks on Saudi that the oil sector would perform so dismally in the weeks after? This has been in line with a longer term underperformance, which has led many investors to dismiss the energy sector as uninvestible. Louis examines some of the arguments underlying this belief, and comes to an intriguing conclusion.
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Gavekal Research
Nick Andrews, Cedric Gemehl
Dec 03rd 2019
The Long Slow Road To German Fiscal Expansion
To read the media headlines, you would either think that Germany’s coalition government is on the brink of collapse, or that Europe’s largest economy is on the eve of a massive fiscal expansion. The headlines are exaggerated. Yes, at the weekend the coalition’s SPD partner did elect a duo of free-spending leftists as its new leaders. But the government is likely to survive intact for its remaining two years. And although political thought in...
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Gavekal Research
Anatole Kaletsky
Dec 02nd 2019
Learn To Stop Worrying And Love The Pound
Sometimes, markets just get things wrong. Since early January investors have been panicking about a “no deal” Brexit, and I have been urging clients to buy sterling. Not because I became less gloomy about the damage that will be done to Britain by any form of Brexit, but because a “no deal” rupture is the one version of Brexit that can be confidently ruled out.
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Gavekal Research
Research Team, Tom Holland
Dec 02nd 2019
Strategy Monthly: Risk Assets In 2020
World stock markets have enjoyed a solid couple of months as geopolitical risks have abated and the manufacturing slowdown appears to have leveled off. With major central banks all printing money simultaneously for the first time since the financial crisis, and fiscal policy easing at the same time, there are good reasons to believe the rally will be sustained into 2020.
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Gavekal Research
Charles Gave, Will Denyer, Tom Miller, Anatole Kaletsky, Udith Sikand, Arthur Kroeber
Nov 28th 2019
Seminar Series Multimedia — Fall 2019
Partners and analysts present their core ideas for the big economic regions and global markets heading into the year-end and looking forward to 2020.
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Gavekal Research
Cedric Gemehl
Nov 27th 2019
The Upside Of Downing Tools
A year after the eruption of the gilet jaune protests forced Emmanuel Macron to scrap planned fuel tax increases, the French president is facing fresh opposition to his program of structural reforms.On December 5, a coalition of labor unions is promising to down tools in an “unlimited” strike against the government’s proposed overhaul of France’s state pension systems.
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Gavekal Research
Louis Gave
Nov 21st 2019
Questions On The Changes Of The Past Two Months
Recent weeks have seen a turn in the investment environment, with global equities outperforming those in the US, cyclicals outperforming growth stocks, a steepening US yield curve and a stall in the US dollar’s rally. Louis recently met with a lot of US clients and outlined his explanation for these shifts. He got some push-back and this report is the product of those deliberations.
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Gavekal Research
Louis Gave
Nov 19th 2019
There Is A First For Everything
We live in the 21st century, and if a liquidity injection program by the Federal Reserve doesn’t want to identify as quantitative easing, then we should respect that choice, and call it by whatever name it chooses for itself—even if almost everyone now calls the US$60bn injection “non-QE QE”. However, lost within the debate over naming lies a long list of interesting “firsts”.
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Gavekal Research
Charles Gave
Nov 19th 2019
The Signal In International Liquidity
Historically, few indicators have been as important for global markets as the amount of US dollar liquidity available outside the US. When this has turned down, trouble has reliably followed. This year, notes Charles, the indicator has again turned negative. But as he explains, all may not be lost.
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Gavekal Dragonomics
Lance Noble
Nov 18th 2019
Defending The Single Market
Europe’s leaders are promising a more forceful approach to defending the bloc’s interests. But they do not fully subscribe to the view, widely held in the US, that China is a strategic rival and security threat. What they have been able to agree on, as Lance argues, is the need to protect the EU’s single market against Chinese state capitalism.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Nov 11th 2019
Europe's Political Paralysis
With the Spanish general election unlikely to produce a proper government, the country looks increasingly ungovernable. For an economy that weathered the financial crisis intact but has chronic productivity problems, this is a worry. However, the result of Europe’s fragmenting political landscape is long-term policy stasis rather than a near-term collapse of the single currency.
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Gavekal Research
Nick Andrews
Nov 08th 2019
It's Not 2017 Again In Europe
Yesterday saw a global risk-on move as investors cheered reports that a US-China trade deal may be in the offing. In Europe, this followed data releases that showed German factory orders picking up and PMIs stabilizing. On first blush, this looks reminiscent of 2017’s recovery. Alas, there are three key reasons to think a rerun may not materialize this time around.
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Gavekal Research
Nick Andrews
Nov 08th 2019
Video: In Search Of Policy Traction
New European Central Bank boss Christine Lagarde has called on European governments to do more on the fiscal front to support eurozone growth. Only Germany has wiggle room within the EU fiscal straitjacket to launch a significant stimulus program. However, political resistance in Berlin to opening the spending taps remains formidable, and may be insurmountable.
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Gavekal Research
Louis Gave
Nov 05th 2019
The Knowledge Revolution And Its Consequences
From Hong Kong to Santiago to Paris, this year has seen protestors rage against out-of-touch political elites. But does anything more than anger connect these apparently disparate movements? Louis argues that the upheavals posed by the ongoing “knowledge revolution” may explain the phenomenon, and offers investment advice on how to survive revolutionary times.
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Gavekal Research
Anatole Kaletsky
Nov 04th 2019
Behind The Risk-On
In recent months, economic data has improved or stabilized, and political risks have receded. But now that equity prices on Wall Street have hit new records and US treasury yields have rebounded from the bottom of their post-2011 trading range, it is worth asking if the move to risk-on conditions is a temporary mood swing, or one supported by economic fundamentals.
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Gavekal Research
Charles Gave
Nov 01st 2019
Gold Signals A System Failure
To make the point that gold is the only monetary asset that is not someone else’s liability, John Pierpont Morgan used to say that “gold is money, the rest is credit”. For simplicity’s sake, let’s assume that this quip corresponds to reality—the implication is that the relationship between the gold price and the credit system must be full of information.
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Gavekal Research
Will Denyer, Tan Kai Xian
Nov 01st 2019
Strategy Monthly: Towards A Dollar Decline
The last five years have been an era of US dollar strength. That era may now be coming to an end. After the US Federal Reserve halted its balance sheet contraction and last month resumed buying T-bills at a rate of US$60bn a month, the Fed is now printing money faster than the other central banks. As a result, relative liquidity growth now favors US dollar weakness.
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Gavekal Research
Nick Andrews
Oct 30th 2019
A Swedish Canary In The Coal Mine
Sweden’s Riksbank plans to raise its main policy rate to zero from -0.25%. A relieved governor, Stefan Ingves, said last week it would be a “bonus” to return to parity in December and warned against staying negative for too long. The Swedish recantation follows the European Central Bank’s controversial move last month to further cut rates to -0.5%. Investors should take note because the Swedish canary may be signaling a shift in attitudes to...
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Gavekal Research
Louis Gave
Oct 29th 2019
Where Will Growth Come From Now?
In the spring of 2003 Gavekal posited that China would become the new locomotive of world growth. But now, the days when China could be counted upon to gear up its balance sheet and pull global growth up by its bootstraps are coming to an end. And as global activity slows investors are asking “where will the growth come from"?
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Gavekal Research
Cedric Gemehl
Oct 24th 2019
Draghi's Potent Legacy
Mario Draghi threw the cat among the pigeons at last month’s fiery policy meeting of the European Central Bank by cutting interest rates and cranking up asset purchases. Today’s general council meeting and sign-off by the outgoing president should be quieter, but the circumstances of the baton-handing show how much the ECB’s reaction function changed under Draghi. That legacy poses a big challenge for his successor, Christine Lagarde, but he...
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Gavekal Research
Anatole Kaletsky, Cedric Gemehl
Oct 18th 2019
Europe's Brexit Booster
Boris Johnson has secured a revised Brexit deal and the stage is set for a key Saturday vote in the House of Commons. On balance, there is a 70% chance of the vote passing as Labour leader Jeremy Corbyn seems unable to control his Brexit-supporting rebels, while Johnson looks to have persuaded his Brexiteer wing that it could be now or never.
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Gavekal Research
Louis Gave
Oct 18th 2019
Video: The End Of The Trend?
For the past few years, US treasuries, the US dollar and the oil price have all broadly traded in a range. In fact, the only bankable trend for investors has been the outperformance of US equities, without which global stock indexes would still be trading at 2006 levels. However, there are signs that the investment environment is changing.
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Gavekal Research
Charles Gave
Oct 17th 2019
The Paris Project In A Keynesian Time
Some time ago, I had gathered a team in Paris to develop a new venture that would apply macro research analysis to portfolio construction in a systematic way. Things are progressing well and I wanted to update readers on the initiative. The common thread is a rejection of forecasting and a reliance on market prices and economic data.
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Gavekal Research
Louis Gave
Oct 16th 2019
The Age Of Range Trading
It is a Gavekal adage that 10-year treasury yields, crude oil prices and the US dollar exchange rate are “master prices” that have an outsized impact on economic activity and financial markets. Yet as Louis notes, in recent years, these three prices have shown little by way of a structural trend. In this piece, he seeks to understand the meaning from this range-trading phenomenon.
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Gavekal Research
Anatole Kaletsky
Oct 14th 2019
Sizing Up The Brexit Risks
The pound surged after Boris Johnson and Irish Prime Minister Leo Varadkar achieved a negotiating breakthrough on Thursday over arrangements for the Irish border. The question is: What next? Anatole argues that while these moves still point to a multi-pronged set of outcomes, at least there is now a measurable set of permutations.
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Gavekal Research
Charles Gave
Oct 11th 2019
Please, Your Majesty, Do Nothing
Western democracies in the early 1990s stood unchallenged in the battle of big ideas. Alas, everything that has gone wrong in western economies over the last decade or so stems from the lessons that the technocracy took from this victory. Charles considers the mistakes and examines the investment consequences that must now follow.
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Gavekal Research
Vincent Tsui, Udith Sikand, Tom Miller, Arthur Kroeber
Oct 11th 2019
Audio & Transcript — Gavekal Research Call October 2019
Vincent outlined EM Asia's "great moderation", as inflation is diverging from other emerging markets, creating opportunities in bonds. Udith argued that Indian growth may be bottoming out but a bad banking picture means that equities may have more downside. Tom addressed the remaking of Asian supply chains in light of the US-China trade war.
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Gavekal Research
Tom Holland
Oct 10th 2019
At Home In The Range
Almost a month after missile attacks on key Saudi Arabian oil production and processing facilities pushed benchmark global oil prices up by 20% overnight, the market has moved on. Saudi Arabia has defied industry expectations by continuing to supply oil to the market in abundant quantities. The current market pricing reflects that.
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Gavekal Research
Nick Andrews
Oct 04th 2019
The German Spillover
Perhaps the most remarkable thing about this year’s slump in manufacturing is how few negative spillover effects it has had on demand in the broader economy—until now. Services PMIs for both the eurozone as a whole and for Germany took a sharp turn south in September. In Germany, the deterioration is making a technical recession all but inevitable.
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Gavekal Research
Louis Gave
Oct 02nd 2019
The Greater Good Versus Individual Liberty
Yesterday Hong Kong's streets were again the stage for violent clashes between protesters and police. At the heart of the conflict is a showdown between the shared identity in Hong Kong shaped by the common law system inherited by the British and the common narrative in China emphasizing the "greater good" over individual liberties.
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Gavekal Research
Anatole Kaletsky
Oct 01st 2019
The Upside For Europe
The euro is trading at its weakest against the US dollar since May 2017. Whether it falls further from here or finds support around current levels to establish a base for a rebound will depend mainly on whether Europe’s economic performance continues to deteriorate, or whether upside surprises are likely in the months ahead.
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Gavekal Research
Charles Gave
Sep 26th 2019
Legal Is Not The Same As Legitimate
Democracy is in trouble. Everywhere the cause is the same: a massive conflict between legitimacy and legality. For the last 100 years or more, the split between left and right left anchored the legitimacy of any democratic government. Unfortunately, over the last couple of decades or so, the left has betrayed the people, while the right has betrayed the nation.
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Gavekal Research
Cedric Gemehl
Sep 23rd 2019
Black Zero Or Green New Deal?
Investors and environmentalists alike got their hopes dashed on Friday. Their best-case scenario would have seen Berlin invoke a climatic emergency to override fiscal orthodoxy and roll out a stimulative program of green investment. In the event, the measures announced not only fell short of the green lobby’s expectations—they were budget-neutral.
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Gavekal Research
Charles Gave
Sep 19th 2019
The Industrial Disease (II)
Last week, Charles examined the decline of the US industrial sector, introducing his “industrial Wicksellian spread” as an indicator of environmental conditions for industry. Now he looks at the probable causes of industrial deterioration, explains why neither monetary nor fiscal policy can help, and uses his toolkit to draw some important conclusions for portfolio investors.
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Gavekal Research
Tom Miller
Sep 18th 2019
The Cost Of Cleaner Shipping
Right now, investors concerned about energy prices are focused on the attacks on Saudi Arabia’s processing facilities. But a possible conflict in the Gulf will not be the only emergent factor likely to affect oil prices over the coming months. New rules for cleaner shipping fuels, known as “IMO 2020,” also have the potential to roil global petroleum markets.
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Gavekal Research
Cedric Gemehl
Sep 13th 2019
Draghi's Fiscal Gift
As he pushed interest rates still further into negative territory and announced the resumption of quantitative easing on Thursday, outgoing European Central Bank chief Mario Draghi made clear that he was passing on the baton of policy stimulus—not so much to his successor, but rather to Europe’s finance ministries.
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Gavekal Research
Charles Gave
Sep 13th 2019
The Industrial Disease (I)
Something ails the industrial sector. Since the 2008 crisis, the growth of US industrial production has failed to keep pace with the growth of the overall US economy. In this paper, Charles examines the industrial sector’s malaise using tools derived from the theories of 19th century Swedish economist Knut Wicksell. His conclusions are disturbing.
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Gavekal Research
Louis Gave
Sep 12th 2019
The Three Waves Of Capitalism
Three great forces drive capitalism and markets: the Schumpeterian, the Ricardian, and the Malthusian. Usually only one dominates at any one time. The flood of capital into tech indicates investors believe that Schumpeterian creative destruction will continue to drive returns over the coming years. But Louis argues that a new wave may be about to take over.
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Gavekal Research
Nick Andrews
Sep 11th 2019
Up Against The Limit With The ECB
German savers face “custody fees” when depositing big sums at the bank, or get clipped 50bp when buying a euro-denominated money market fund. Such outcomes explain why a growing number of economists oppose calls for the European Central Bank to cut rates further and restart quantitative easing when it meets tomorrow.
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Gavekal Research
Louis Gave
Sep 10th 2019
The Danger Of A Dumbbell Portfolio
Both bond and equity markets are signaling investors' belief that monetary policy will not only stay easy for as far as the eye can see, but actually get easier in the coming weeks and months. But what if they end up getting wrong-footed in their expectations of another wave of interest rate cuts, quantitative easing and other uber-dovish monetary policy measures?
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Gavekal Research
Nick Andrews
Sep 06th 2019
Video: Italian Politics Favors Bonds
Yesterday Italy’s new government took office, the 66th since 1946. Meanwhile, Italian bond yields have reached record lows. Nick attributes this to two factors. First the global bond rally. Second, the shifting winds of Italian politics away from the Euroskeptics to the Europhiles, which bodes well for Italian-European budget negotiations.
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Gavekal Research
Anatole Kaletsky, Will Denyer, Louis Gave
Sep 05th 2019
Audio & Transcript — Gavekal Research Call September 2019
In yesterday’s conference call, Anatole Kaletsky, Will Denyer and Louis-Vincent Gave outlined reasons for recent dramatic moves in bond markets and made arguments for what comes next. Anatole also addressed Brexit developments and Louis discussed the situation in Hong Kong.
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Gavekal Research
Cedric Gemehl
Sep 04th 2019
Italian Politics And The Bond Market
On Tuesday, members of Italy’s left wing populist 5-Star Movement lent their support to the formation of a new coalition government with the Democratic Party. The new government, to be led by Giuseppe Conte, technocrat prime minister in the previous coalition, still has to secure a confidence vote in Parliament. But that should go through in the next couple of weeks. If it does, right wing populist Matteo Salvini—Italy’s most prominent...
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Gavekal Research
Anatole Kaletsky, Will Denyer, Charles Gave, Nick Andrews
Sep 03rd 2019
Strategy Monthly: The Message From Bonds
Record low bond yields point to a deflationary catastrophe in the making. Yet growth data in the world’s two biggest economies remain decent. Could investors be reacting to a rupture in the international order? Gavekal analysts are not persuaded by such arguments and offer four alternative explanations for the “bond bubble”.
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Gavekal Research
Anatole Kaletsky
Sep 02nd 2019
‘Do Or Die’ Boris Is Bullish For Sterling
Considering the political chaos that will descend this week on the UK, it may seem surprising that the pound has bounced back to its trade-weighted level just before Boris Johnson became prime minister. Or maybe it is not too surprising—if a “No Deal Brexit” is the only possible scenario that would justify a further weakening of sterling and other UK assets.
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Gavekal Research
Tom Holland
Aug 29th 2019
The Importance Of Oil
The world’s fixed income markets are priced for a severe bout of demand destruction and deflation. Yet, outside Europe at least, growth in the world’s major economies continues to tick over. However, could a sudden oil price rise spark an uptick in inflation pressure that triggers an abrupt repricing in which bond yields spike sharply higher?
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Gavekal Research
Anatole Kaletsky
Aug 26th 2019
Europe’s Victimhood Culture
The biggest threat to world economic growth today is not the US-China trade war, but German exceptionalism. Even as Germany has suffered the greatest growth downgrades of any major economy, its politicians have obstinately rejected any Keynesian fiscal expansion. Now calls are mounting for a policy U-turn, but Anatole isn’t holding his breath.
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Gavekal Research
Louis Gave
Aug 23rd 2019
Video: The Anatomy Of The August Panic
As more and more government bonds around the world slide into negative yield, investors can draw one of two conclusions: either the world faces an economic meltdown, or there is a buying panic in safe assets. But although there is indeed a synchronous global slowdown in growth, Louis favors the latter explanation.
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Gavekal Research
Nick Andrews
Aug 22nd 2019
Germany’s Fiscal Firepower
Uniquely among the world’s big economies, Germany runs a budget surplus, in accordance with the “debt brake” written into its constitution following the 2008-09 financial crisis. This means Berlin could, in theory, deploy considerable fiscal firepower even within the current rules, and a great deal more if it chose to bend or rewrite them.
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Gavekal Research
Charles Gave
Aug 21st 2019
German Banks And The Dollar
I am certainly no technical analyst, but I do have a good memory. The story of major financial crises can be told with reference to the US dollar’s movements against the euro (and its antecedents). It now looks to have reached a significant juncture, especially with Italy moving toward another period of political instability.
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