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E.g., 27-09-2020
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    Gavekal Research

    The Atlantic Divide

    Second order economic effects from the Covid-19 outbreak are ripping through industrialized economies, with soaring unemployment, shuttered industries and a fall in corporate profits. While China has eschewed large-scale government support, Europe and the US have adopted massive fiscal and monetary responses. These Western initiatives do, however, differ in key respects and when lockdowns finally end, one or other approach will likely have...

    1
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    Gavekal Research

    Brexit And The UK Trade Deficit

    The UK has long run a large goods trade deficit with its main trading partners. However, Charles argues that this ”deficit” should really be seen as two different deficits; one is with the world excluding the eurozone, and the other with the eurozone itself. Splitting them makes sense as they have different origins and react to different forces.

    1
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    Gavekal Research

    Musings On Brexit

    With the UK’s elite intent on frustrating the democratically-expressed will of the British people to quit the EU, the lesson for the rest of the continent is that there can be no legal or peaceful exit from the technocratic super-state. As Charles argues here, this increases the probability of disorderly exits in the future, and therefore greatly heightens European political risk.

    8
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    Gavekal Research

    Too Early To Buy Equities, But Time To Sell Dollars

    After the biggest weekly gain in the Dow and with the US government having just approved the biggest-ever fiscal stimulus, how should investors react? While unrepentantly bullish in the long term, Anatole still believes that it is too early to buy equities. But for two other asset classes conditions do seem to be more propitious to call a bottom.

    3
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    Gavekal Research

    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.

    1
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    Gavekal Research

    Britain’s Soggy Prospects

    Despite a worsening coronavirus situation and worries that a Brexit bounce could be short-lived, the Bank of England defied the expectations of many by not cutting interest rates. The UK’s weak medium term growth outlook and difficult impending trade talks with the EU means that policy will remain dovish and sterling’s upside prospects are likely capped.

    0
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    Gavekal Research

    Nonsense Anatole, Boris Deserves Three Cheers

    In 2017, as the Brexit negotiations between London and Brussels got going in earnest, I wrote a paper explaining why the European Commission’s officials and their counterparts across the continent were going to do everything in their power to make the United Kingdom’s departure from the European Union as difficult as they possibly could (see May’s Misguided Brexit Speech). And over the next two years, they did just that.

    10
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    Gavekal Research

    And The Brexit Winner Is...

    With the Brexit deadline in the rear view mirror, Britain's leave voters have are left with the impression that they have been taken for a ride by the UK’s political class, and in particular by their representatives in parliament. So who is the real sovereign power in the UK? The people or parliament? Charles sees three possible outcomes.

    5
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    Gavekal Research

    Fake Brexit? Or No Brexit?

    The British economy since the Brexit referendum is often likened to the suicide jumper who leaps off a 20-storey building, shouting “so far, so good” as he falls past the 10th floor. This comparison is unfair to suicides. The real message about economic performance from the government’s annual budget statement yesterday was “so far, so bad”. While a minority of economists and investors—plus a large majority of Conservative politicians—share...

    10
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    Gavekal Research

    Exponential Optimization

    The bull market of the last few years has been built on the twin assumptions that globalization will continue, and that interest rates will remain low for years to come. These convictions have propelled an exponential wave of optimization. As the coronavirus calls key assumptions into question, the worry is that the giant bubble which sits at the heart of the system may be about to burst.

    9
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    Gavekal Research

    Still Dollar Bears (Humbly)

    The Covid-19 outbreak has sparked a flight to safety, reversing an incipient weakening of the US dollar. This is hardly unfounded, as the US so far has been spared a major outbreak and its economy is decently insulated. Yet most of the factors weighing on the US dollar late last year remain valid. Thus Will and KX advise a negative dollar bias.

    0
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    Gavekal Research

    The Brexit Game Of Chicken

    The Brexit roller coaster seemed to come off the rails on Monday with Theresa May’s effort to prevent parliament voting on what looked like her doomed plan to leave the European Union. May’s decision, which had been denied by her most trusted senior ministers right up to the moment it was leaked to the BBC, initially looked like a typical case of the can being kicked down the road. Yet by the time she had finished her parliamentary statement,...

    4
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    Gavekal Research

    The Downing Street Putsch

    Ever since turning negative on sterling and the UK economy when Boris Johnson dropped his post-election bombshell announcing a new “No Deal” deadline of December 2020, I have been waiting for a chance to double-down on this bearish position. On Thursday, Johnson provided such an opportunity to extend short positions in sterling.

    2
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    Gavekal Research

    No Exit From Brexit

    On Friday, Anatole set out his view that a second Brexit referendum is likely, and that in all probability it will reverse the original 2016 vote. Exercising his right to reply, today Charles explains why no second referendum is possible, why a no-deal, hard Brexit is increasingly likely, and why this will present a great buying opportunity in UK assets.

    15
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    Gavekal Research

    The Arithmetic Of Brexit

    If a country votes to make two plus two equal five, that “democratic decision” will eventually be overwritten by the rules of arithmetic. Anatole reckons this is what’s playing out in Britain, as Theresa May’s government struggles to get a parliamentary majority for any realistic Brexit plan. If the situation persists, the only alternative will be another referendum—only this time the choice would be between remain and a far less attractive, but...

    11
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    Gavekal Research

    How The Brexit Stalemate Breaks

    As the Brexit negotiations enter their endgame, a stalemate has become the most likely outcome. Theresa May’s Conservative Party is now in open rebellion against her leadership, with Britain’s weekend press reporting that her government is just 72 hours from collapse. And a “No Deal” Brexit “car crash” is now described as a 50-50 probability by many politicians and commentators in both Britain and Europe. Yet the pound has maintained its value...

    6
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    Gavekal Research

    Audio & Transcript — Gavekal Research Call March 2020

    In Thursday’s conference call, Louis-Vincent Gave, Andrew Batson and Cedric Gemehl discussed the policy and market reactions to the Covid-19 outbreak.

    0
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    Gavekal Research

    Just When Things Were Looking Up

    It seems the European economy can’t catch a break. After a grim year in 2019, especially for the manufacturing sector, the old continent entered 2020 with reasons for cautious optimism. Survey-based indexes of business optimism appeared to bottom out late last year. Then the Wuhan coronavirus hit China.

    0
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    Gavekal Research

    The Hard Logic Of A Long Brexit Extension

    By removing the hard deadline for Brexit negotiations the EU has avoided the disaster of a 2008-style sudden stop in business with its second largest trading partner. This decision reinforces the bullish momentum for sterling, which remains undervalued especially against the US dollar. Ending the risk of a “No Deal” Brexit should also improve the dismal economic outlook and help stabilize political conditions in Europe as a whole.

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    Gavekal Research

    Paying Your Way In The UK

    A triumphant Boris Johnson is set on consolidating a new electoral coalition through big infrastructure projects that help “level up” forgotten regions, but he faces a weak economy and tough negotiations with the European Union over Britain's trading relationship. The worry is that investors begin to balk at funding a gaping current account deficit.

    1
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