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E.g., 20-09-2019
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    Gavekal Research

    The EM Oil Shock That Won't Be

    Three “master” prices tend to dictate price levels in most asset markets—US interest rates, the US dollar and energy prices. A synchronized fall in these three prices usually bodes well for emerging market assets, while a rise bodes ill. Since it is rare for all three master prices to move together, the challenge for investors is to figure out which way the cross currents are flowing. If one master price is making a big move, its effect can...

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    Q&A On The Saudi Oil Attacks

    One thing that stands out about the reaction to the weekend’s strikes on Saudi Arabian oil facilities is how muted much of the market response has been. Nevertheless, investors are concerned about what lies ahead. In this report, Louis attempts to answer some of the most prominent questions asked over the last 48 hours.

    2
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    Gavekal Research

    A Saudi Tipping Point?

    Following this weekend's attacks on Saudi Arabian oil installations, the important question has to be whether this proves to be the moment at which investors realize that market expectations have become too far removed from reality. In short, will the attacks shatter the consensus that neither energy prices nor inflation can ever rise meaningfully again?

    7
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    Gavekal Research

    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.

    15
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    Gavekal Research

    Asia's Great Moderation

    Emerging market government bonds yield more than rich-world equivalents because investors worry about getting their money back. This higher return on capital can cause a feedback loop of rising foreign debt and diminished financial sovereignty. Yet, with Asia having seemingly crushed inflation, a “great moderation” may reverse that dynamic and usher in a potential re-rating of risk assets.

    0
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    Gavekal Research

    The Meaning Of The Iran-China Deal

    Reports that China has signed a long term agreement to buy large quantities of Iranian oil in defiance of US sanctions will weigh on global crude prices and further complicate US-China talks, reducing the chances of a deal before the 2020 US election. In effect, the world is now facing a four-way tug of war over the oil price.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    India's Frenetic Inertia

    They say the first step to solving a problem is recognizing that you have one. With its recent moves to shore up sagging growth, Narendra Modi’s new government has finally acknowledged that India’s economy is in trouble. But unless it quickly finds a coherent reform strategy, Modi’s second term could fizzle out into economic failure.

    0
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    Gavekal Research

    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”.

    0
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    Gavekal Research

    Asia Ditches Fiscal Conservatism, Conservatively

    As the external environment darkens, Asian governments are turning on the fiscal spigots—cautiously. Moves announced in recent weeks do not radically move the dial, but they should support growth. For now, monetary policy will remain the main counter-cyclical tool for arresting a downturn in Asia, but recent moves reflect an end to an era of fiscal consolidation.

    0
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    Gavekal Research

    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?

    0
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    Gavekal Research

    Buffeted By Deglobalization, Shipping Lines Tack To Asia

    After a sluggish 2018, global shipping lines are again facing choppy seas thanks to Donald Trump's tariffs and slumping trans-Pacific trade. There is, however, a silver lining for carriers with a strong Asian presence; the US-China trade war is spurring a fragmentation of regional supply chains, and that seems set to boost intra-Asian trade.

    0
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    Gavekal Research

    The Yen Dilemma

    Since the beginning of the month, the yen has been one of the few major currencies to strengthen against the US dollar. At the same time, Japanese government bonds have not escaped the global bond rally. This presents the BoJ’s chiefs, who for the last three years have been pursuing a policy of “quantitative easing with yield curve control”, with a problem.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    India Macro Update: Hardly A Growth Agenda

    India’s economy is weak across the board, weighed down by lackluster investment, anemic consumption and soft external demand. Deep reforms are needed to unlock the country’s economic potential. In this quarterly report, Udith and Tom offer a check-in on India’s growth outlook, explain why equities may be de-rated further and worry about the bond rally fizzling out.

    0
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    Gavekal Research

    The Diminishing Market Impact Of Tariffs

    After the US imposed its first major round of tariffs on Chinese goods last September, the S&P 500 sold off by -20%. After the second round went into force, it fell -6.8%. And since President Trump announced a third round, it has sold off by -6.1%. It seems each successive escalation in the trade war is having a smaller impact on the US stock market.

    2
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    Gavekal Research

    When The World Goes To Hell

    Anatole has previously argued that the correlation between inverted yield curves and recessions has very little predictive significance. In this piece he updates that view to argue that inverted yield curves have no predictive significance whatsoever. For this reason, he thinks that equity investors have gotten their reaction to recent developments about right, while bond investors are all in a muddle.

    5
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    Gavekal Research

    Asian Currencies Remain A Shock Absorber

    It has often been said that when the US sneezes the rest of the world catches a cold. In Asia, a similar link exists between the behemoth China and other regional economies. Hence when Beijing unexpectedly let the renminbi weaken through CNY7.00 to the US dollar last Monday regional currencies fell by 1.6% in the following five days. They could fall more, however there is unlikely to be a broader contagion to regional asset markets. Asia’s solid...

    0
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    Gavekal Research

    Strategy Monthly: Focus On The Fed, Not On US Tariff Threats

    Trade war fears are once again front and center of investors' minds. But the reduced magnitude of pledged US tariffs indicates that Trump is anxious to avoid damaging the US economy and financial markets. This leaves the focus on the Fed, and how much it is likely to cut interest rates.

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