Economics

Overview

By analysing and monitoring the forces that shape and drive economies and financial markets at the global, regional and country level, we are in an advantaged position to provide fearless research insight into shifting trends and the timing of turning points. Our analysis is based on a deeper understanding of the implications of political and economic events and the interconnectedness of the global economy.

We have a globally-consistent approach, which means our recommendations at a regional or sector-based level are always informed by factoring in the ‘big picture’ implications of macro global analysis. Unlike other researchers who specialise in a specific geography or sector, our outputs benefit from the full spectrum of knowledge from across our entire organisation. This allows us to understand how events or flows at the global level will impact on individual economies and investments.

Our Method

As a company, it’s in our nature to question things – and look for those places where risk and opportunity may be understated or overstated. We do this by considering the fundamental building blocks of economic forecasting – sectoral balances, financial flows, and money and credit growth. Vitally, we look at these economic drivers through the frame of our global economic, policy, and political knowledge, which is outside the range of vision of many forecasters. We also build proprietary models and processes to monitor global leading indicators and financial flows.
 

This allows us to deliver actionable, courageous intelligence that takes the full picture into consideration, and provides a clearer understanding of the ways in which money is flowing around the world.

We are brave in our outlook. We’re not afraid to buck the trend and make early off-consensus calls. When the fundamental facts point towards a particular outcome, we have the discipline to debate and stress-test our ideas rigorously. We are pragmatic in our approach and are not wedded to any single ideology that could restrict our thinking. And, as independents, we have no conflict of interest when it comes to disclosing the full implications of any given situation.

Economics Research

Economics
18 Aug 2017

ECB's taper two-step

  • Draghi’s Jackson Hole speech not going to be a game changer like 2014 
  • Two-step tapering announcement looking more likely 
  • Modalities matter most to markets: Fed-style method remains our assumption 
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Economics
10 Aug 2017

The next crash

The 2008 crisis was deadly because it centred on housing and global banking. The financial system is less vulnerble today. While another crash isn't imminent, elevated asset prices provide the main threat. For the macro economy, this probably resemble dotcom rather than subprime. But watch for amplification risks.

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Economics
08 Aug 2017

The global economy in six charts

  • The global economy remains reflationary, thanks to an industrial revival 
  • But lack of wage inflation reduces risk of aggressive monetary tightening 
  • Structural forces, notably new technologies, should extend the business cycle 
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Economics
07 Aug 2017

Markets ignore Trump, problems don’t

  • Economics: Low-wage recovery, high-wage losses seen in trade 
  • Markets: Strong Q2 supports bullish case  
  • Politics: Calm before the…
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Track Record

24 Jan 2017

2017: OPEC cuts not enough to pull oil price higher

Consensus said:

Goldman Sachs expected WTI to rise to $57.50pb in H1 with OPEC cuts factored into the forecast.

We said:

In the near term, the balance of risks for oil prices looks skewed to the downside. Positioning is stretched. Speculative WTI longs are hovering at record highs and producer hedging has increased markedly over the last two months. Oil price volatility remains depressed, but is bound to creep higher as the global inventory overhang recedes, OPEC compliance is already in the price and the market begins to shift its focus to demand. (LSR Daily Note 24th January 2017)

Outcome:

WTI rose modestly from $53.18pb at time of publication to peak at $53.99pb on 24th February. By 9th March the price had fallen back to $50.28pb.

29 Feb 2016

2016: Yes! The US will grow! No dollar spike.

Consensus said:

Oil price collapse will hit US growth through falling capex in shale, oil and other sectors. Some commentators suggested that job creation in shale fracking had been the only driver of employment. Fear growing that a rise in the USD would hit S&P earnings and capex hard.

We said:

The timing effects of the oil and commodity price collapse - pain first, gain later - have taken longer than in 1986...but the consumer-led growth will come through. The dollar will be protected from undue appreciation as the real Chinese exchange rate falls, by buoyuancy of the euro (also the yen) as real incomes support European consumer growth: the euro's past depreciation, with an already huge trade surplus, boosts current and real-asset capital flows. (LSR View 29th February 2016)

Outcome:

US growth stable at 2-2.5% through 2016 following a weather related soft patch in Q1. USD index (DXY) ranged around 95 from March to October and only jumped to 100 in November following Trump election victory and re-pricing of inflation expectations.

01 Feb 2016

2016: Oil to decline short-term then rebound to $40p/b

We said:

An oil price rally is further away than at any time since 2014. $40p/b should hold in the medium-term level as oversupply is reduced. Further declines are the main risk in the short-term but any move lower would trigger production cuts and so would be brief. (LSR View 3rd November 2015)

Outcome:

WTI (NYMEX) fell from $45p/b in Nov 2015, bottoming out at $29p/b in Jan 2016 and range trading between $40p/b and $50p/b for the rest of the year.

29 Jan 2016

2016: BoJ negative rates are a dangerous mistake

We said:

Negative interest rates are a mistake in Japan. Today's announcement could prove critical in the currency war. China's announcement that they will target a basket of currencies is for real this time and the yen is roughly 15% of that basket. The euro is a further 21% and BoJ aggression will heap pressure on the ECB to act in March. With all the other major central banks looking to devalue, the risk of ever greater USD strength means it will now be difficult for the Fed to send a strong message on the health of the economy by hiking rates in March. (LSR Daily Note 29th January 2016)

Outcome:

ECB cut rates and expanded QE programme on 10th March, Fed did not hike.

31 Dec 2015

2016: Don't panic yet - no global recession

Consensus said:

Some commentators were forecasting a recession amid concern that China's slowdown would drag the world down with it and citing falling commodity prices as a re-pricing of growth expectations. Early January saw the yuan fall and risk assets drop on fears of rising global deflation.

We said:

China to keep growing around 3-5% in 2016. This is good news for the global economy. Resulting lower commodity prices boost consumer incomes and can unleash capex in the West. 2016 should see US growth of 2.5-3% and a stronger dollar while the euro area grows at an above-trend 1.5%. We expect further painful rebalancing, financial market volatility and EM pain, but not a global recession. (LSR View 3rd December 2015)

Outcome:

Global growth became more stable and secure in the US, UK and euro area with consumers and businesses regaining confidence. Chinese growth stabilized around 4% on LSR numbers and PPI turned positive. Deflationary pressure eased through the year and markets re-focussed on the return of inflation risk and rates.

27 Oct 2015

2015: Big bull - tired, but far from dead yet

Consensus said:

Investors becoming more concerned about US earnings and frothy valuations

We said:

Q3 S&P earnings, seasonally adjusted, could be up handsomely despite a significant rise in the dollar as EM currencies weaken. The profit recovery in the US and Western Europe has further to go. (LSR Daily Note 27th October 2015)

Outcome:

S&P 500 rose from 2080 at time of writing to 2141 12 months on and continued to set record highs through December 2016.

Our Team

Economics

Charles Dumas

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Economics

Cristobal Arias

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Steve Blitz

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Larry Brainard

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Michelle Lam

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Davide Oneglia

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Dario Perkins

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Shumita Sharma Deveshwar

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Shweta Singh

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Konstantinos Venetis

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Ken Wattret

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Economics

Bo Zhuang

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POLITICS

With political drivers and government policy playing an increasingly significant role in determining economic and market outcomes, our world-wide team of political analysts are able to provide critical, timely insights into political shocks and policy developments that will influence investment performance – both regionally and globally.

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