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E.g., 22-10-2020
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    Gavekal Research

    Will The ECB Opt For QE-Plus?

    When the governing council of the European Central Bank convenes this Thursday in the Maltese capital Valetta, the assembled policymakers will be forced to contemplate a track record of quantitative easing that at best can be described as “mixed”. True, since the ECB announced its €60bn a month program of asset purchases in March this year, eurozone activity has staged a modest comeback, with growth expected to rise to 1.6% in the third quarter...

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    Gavekal Research

    Could Volkswagen Save Europe?

    Volkswagen's stock price has rebounded more than 20% since its early October low, but there remains uncertainty about the firm’s future. Since news of the diesel polluting scandal broke, US$30bn has been wiped off VW’s market value, and you do not need to be conspiratorial to see a scenario that has the value of the German carmaker’s equity going to zero.

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    Gavekal Research

    Italy’s Debt Trap Escape Bid

    Even though Italy has run primary surpluses for all but one of the last 20 years, public debt has ballooned to 133% of GDP, second only to Greece in the eurozone. Italy’s original profligacy dates to the 1980s, but the real issue has been an inability to bite the bullet on reform, which, according to the International Monetary Fund, has reduced potential economic growth to just 0.4%. The good news is that Italy seems to have woken up and smelt...

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    Gavekal Research

    The Birth Of A Pain Trade?

    The question we have received most in recent days is whether this week’s counter-trend rally in commodities, deep cyclicals and emerging markets can morph into a “melt-up” akin to that seen in 4Q98. Seventeen years ago the blowback from the Asian Financial Crisis culminated in late September with the failure of Long Term Capital Management. Within days of a hurriedly agreed creditor bailout, the Federal Reserve had made the first of three...

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    Gavekal Research

    The Gavekal Monthly: More Questions Than Answers

    With the Fed having put its rate hike decision on hold, investors face an uncertain environment of weak global growth and inflation, tottering emerging markets and continued worries about China. In this edition of The Gavekal Monthly, Louis-Vincent Gave surveys the crucial questions investors must grapple with and identifies the indicators to monitor in the coming weeks. In addition, we highlight three calls from our analyst team: Joyce...

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    Gavekal Research

    QSCB: What Is The Trade Slowdown Telling Us?

    For the first time since the 1970s global trade is growing more slowly than global GDP, and if anything this growth is decelerating. One explanation is that slower world trade is a symptom of weak global demand, and perhaps a harbinger of worse economic news to come. That is possible, but in this Quarterly Strategy Chartbook we argue that the trade slowdown reflects structural changes in the world economy, and signals that a new phase of...

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    Gavekal Research

    Why Big Caps Are Still Blighted

    Big cap stocks globally have had a horrible 2015 with the Volkswagen emissions scandal being just the latest “uncorrelated shock” to hit the sector. In Europe, German utilities RWE and E.ON have lost more than half of their market value, while oil and commodity producers everywhere have been hurt by a collapse in the price of their wares. Still, “blue chips” got that reassuring moniker because they tend to be the highest value counters on the...

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    Gavekal Research

    A Worrying Set Of Signals

    Regular readers will know that we keep a battery of indicators to gauge, among other things, economic activity, inflationary pressure, risk appetite and asset valuations. Most of the time this dashboard offers mixed messages, which is not hugely helpful to the investment process. Yet from time to time, the data pack points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a...

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    Gavekal Research

    Libor Not Lehman

    With shares in Volkswagen down -28% since the diesel emissions rigging story broke last Friday, VW bond yields up sharply, and the securities of other European automakers hit hard by the news, investors face some uncomfortable questions. Is the risk posed by the scandal idiosyncratic, with the fallout likely to be confined largely to VW itself? Or could the risk prove systemic, with potentially catastrophic implications for the broader European...

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    Gavekal Research

    Gastarbeiter Redux

    The influx of hundreds of thousands of asylum seekers from war torn Syria, Afghanistan, Iraq and parts of Africa has laid bare familiar divisions within the European Union. This week’s deal to relocate 120,000 more refugees from Greece and Italy on top of the 40,000 agreed in May starts to address the problem. Many multiples more are making the trip to Europe, but only one country—Germany—is promising to take large numbers. Commentators often...

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    Gavekal Research

    What The VW Scandal Could Mean

    Last year as Europe tightened economic sanctions on Russia for its role in fomenting the Ukrainian conflict, German business confidence readings took a bath. This was not surprising as German exports to Russia—a one time key growth market for Teutonic metal bashers—have shrunk by about €9bn in two years. However, once the dust settled on 2014 it became clear that far from being decimated, Germany’s highly diversified exports had actually risen...

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    Gavekal Research

    How Much Does China Really Matter?

    How much does China’s slowdown really matter to the rest of the world? At first this might sound like a silly question. After all, China is home to a fifth of humanity, it is the world’s second largest national economy and its second largest importer, and in recent years has contributed between a quarter and a third of global growth. What’s more, the recent volatility in China’s stock markets and exchange rate caused shockwaves around the world...

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    Gavekal Research

    Europe And Chinese Risk

    Yesterday Joyce argued that the slowdown in China was not a major problem for most developed economies (see How Much Does China Really Matter?). Arguably an exception to that general observation are Europe’s multinationals, which over the last decade or so have thrived by selling goods that Chinese firms and households love to buy.

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    Gavekal Research

    Is The China Panic Abating?

    For the past six weeks, global markets have been in a China-centric panic, sparked partly by bad economic data, but mostly by policy bungling from China’s policymakers. Having spurred a huge expansion in equity margin debt, regulators turned tail in June and cracked down on the practice. As an equity market crash unfolded, policymakers took to swinging a big stick: price-keeping operations were tried, stock trading was halted and speculators...

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    Gavekal Research

    How Corbynomics Could Work

    Whatever you may think of Jeremy Corbyn, he has a point about economic policy. Actually he has two good points and one bad one. Corbyn has been right about what he called People’s Quantitative Easing, a potentially transformative idea for restoring economic prosperity that was proposed years ago by several radical economists but had never been taken seriously in Britain until it became the centerpiece of Corbynomics. Corbyn has also been right...

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    Gavekal Research

    Is The Bull Market Over? (II)

    Yesterday we examined the three big fears that—in the absence of any markedly negative news from the OECD economies—lie behind the recent equity market sell-off, and which have prompted many investors to ask “Is The Bull Market Over?”

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    Gavekal Research

    Fixing Germany’s Current Account

    Germany’s trade surplus for July rose to a record €25bn, lifting the country’s accumulated current account surplus over the last 12 months to a hefty 8.2% of GDP. The fall of the euro has clearly made German exports more competitive outside the single currency area. As a result, Germany’s expanding trade surplus is by far the dominant influence on the eurozone’s external accounts. Over the last 12 months, Germany’s trade surplus with the rest of...

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    Gavekal Research

    The US Current Account Deficit And World Markets

    Spotting turning points in the US current account is central to Gavekal’s research method, as such shifts impact all other economic relationships. When the US dollar is strong the US tends to run a big current account deficit, providing the world with lots of “earned dollars.” Conversely, a weak dollar eventually leads to a shrunken US current account deficit and more incentive to borrow in dollars. Big moves in the dollar exchange rate create...

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    Gavekal Research

    German Exports Are Not Kaputt

    Predictions of the German export machine’s demise followed southern Europe’s 2011 slide into deflation, the yen’s 2012/2013 devaluation, and now the emerging world’s slowdown. And yet German exports hit a new high in 2Q15 and the latest IFO survey points to more strength in 3Q. Far from going kaputt, German exporters can likely handle an emerging world crunch due to their geographical diversification, the benefit of a weak euro and improving...

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    Gavekal Research

    Can Europe Be Part Of The Solution?

    The eurozone is no longer the center of the global market panic, but an interesting question is whether it can be part of the solution. Investors ostensibly sold equities yesterday on more evidence of economic weakness in China. However the deeper fear is of a faltering global growth outlook at a time when the Federal Reserve is looking to hike rates. Eurozone equities topped out back in April as the initial flush of the European Central Bank’s...

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