Economic Research

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 confident insights 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 Economic Research Methodology

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 views 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.

Services

Daily Notes

Insightful macroeconomic analysis driven by ideas and provided in a concise 2-page format. (Daily)

Global Financial Trends

Analysis and forecast of global financing conditions and the credit cycle with early warning of vulnerabilities in the financial system and potential triggers. (10 issues per year)

Global Leading Indicators

Proprietary leading indicators for the major developed and developing economies which predict turning points in the growth cycle. (Monthly)

Global Political Drivers

Detailed analysis of geo-political themes that drive global risk appetite among investors. (Fortnightly on Thursdays)

The View

In-depth big picture analysis of global economic issues. Recent themes: ECB exit strategy, oil and GCC, French election and economy, Brexit plan B, Yellen and USTs, currency wars, addressing client questions. (12 per year)

Macro Picture

Focusing on global macro themes at the heart of current market moves and provided in an easily readable 8-10 page format. (Fortnightly on Thursdays)

US Watch

Updates of our central scenario economic, political and market forecasts in 8-10 pages. (One note per week)

Europe Watch

Updates of our the key European economic, political and policy and market views. (One note per week)

China Watch

Analysis of key economic and policy drivers and what they mean for China related markets. (One note per week)

UK Outlook

Comprehensive analysis and 2-year forecast for all major UK economic variables GDP, inflation, money and credit, housing, consumption, govt. spending etc. (Quarterly)

Economics Research

Economics
04 Oct 2019

The View: Japanisation & Europe

  • Japan’s root problems: mismanagement of product strategy …
  • And a docile labour force too willing to ‘pay’ by accepting wage cuts
  • The spread of ‘Japanisation’ to the US is therefore inconceivable
  • Europe has the symptoms: slow growth, deflation threat, negative rates
  • But in the EA, slower growth has resulted from the euro structure
  • Products are competitive and labour forces do not accept wage cuts
  • Divergence of German and Italian labour costs is especially acute
  • Over time, the chief reason has become falling Italian productivity
  • ECB interest rates are negative to protect uncompetitive Italy
  • Germany has become indefinitely undervalued in labour costs
  • Excessive budget austerity has made the whole EA export-dependent
  • Growth potential is slipping, as in Japan, but both may ‘muddle through’
  • Populism adds to EA vulnerability to accidents
READ ME
Economics
04 Oct 2019

Daily Note: Employment data keep Fed on hold - for now

  • FOMC views this as the new equilibrium for jobs. It isn’t
  • Service sector hiring is slowing. So is wage growth, following profits
  • FOMC prefers October meeting to only relay balance sheet adjustment
READ ME
Economics
03 Oct 2019

Daily Note: EA Economy: Quicksand

  • Manufacturing recession continues; households support services for now
  • Disinflation boosts real incomes, but labour market tailwinds are abating
  • Absent domestic and/or foreign stimulus, the EA is walking on quicksand
READ ME
Economics
12 Sep 2019

Macro Picture: Recession scare

With yields inverted and a slump in global manufacturing, investors are increasingly worried about the prospect of a US recession. We do not think recession is the most likely outcome over the next 12 months, but there is a risk that a period of sluggish growth and disappointing corporate earnings turns into something nastier. Here’s how...

READ ME

Track Record

26 Jul 2019

2019: ECB QE-II to set sail in September

Consensus said:

A Bloomberg survey in late June showed only 42% of the economists surveyed expected the ECB to restart the asset purchase programme. 

We said:

Expect more rate cuts, deposit tiering and QE-II in September

The central bank kept its key policy rates unchanged at this week’s policy meeting but set the stage for rate cuts and a package of easing measures, likely to be announced in September.

We continue to expect a package of measures to be announced in September, when the new set of staff macroeconomic projections are released. The steps are likely to include a rate cut, the introduction of a multi-tiered deposit rate and the restart of QE. The Governing Council may also drop the practice of saying how long it expects policy rates to stay where they are or fall further.

Outcome:

On 12 September the ECB announced a stimulus package delivering all the elements we had forecast: a 10bp rate cut, reserve tiering, restarting QE and removing any date reference in its forward guidance. 

10 Jul 2019

2019: France still better than you think

We said:

The impact of one-off drags on domestic demand is fading. Surveys signal more consumption and investment to come. While data remain mixed, the stock market points to resilience.

Our long-held view that the aggregate euro area (EA) economy was headed for a sharper and more prolonged slowdown than many expected is now consensus. But the importance of a nuanced approach to the analysis of major EA countries remains largely underappreciated. France and Spain are cases in point. In this note we develop an argument we’ve been making for being relatively bullish on France.

Like elsewhere in the EA, risks to growth are mounting in France, but the outlook is still positive. Against the backdrop of a further slowdown in the rest of the EA (especially in Germany and Italy, which could even contract in real terms), France’s outlook appears quite rosy.

Interestingly, the stock market provides a key to sifting through contradictory cues. French large caps have underperformed small caps since January. But small caps, which rely much more heavily on domestic demand, have done even better. So, this time, if you are not sure which data series is the most reliable indicator of what is happening to the French economy, just trust the stock market.

Outcome:

The French economy continued to outperform German growth. Despite the CAC falling 3.9% from date of publication to 28 August 2019 it has outperfomed the DAX (-5.8%), IBEX (-6.2%), MIB (-6.2%) and Eurostoxx 50 (-4.3%).

18 Jun 2019

2019: Bank of Korea will cut rates in Q3

We said:

Trade war, tech confrontation and a cyclical bottom in the semiconductor cycle will combine to ensure an actual fall in Korean exports through 2019. Last year, semiconductor sales accounted for a staggering 92% of Korean export growth, a single product dependence more akin to an oil exporter than a tech hub. The payback is now coming as trade friction exacerbates a chip price collapse.  Export growth ex semiconductors is far from benign, either.  A rate cut and fiscal stimulus are coming in Q3, but this will be insufficient to offset the trade decline.

Outcome:

The Bank of Korea cut interest rates on 18th July, for the first time since 2016, surprising market expectations.

07 Jun 2019

2019: German growth to underperform in the euro area

We said:

Euro area (EA) manufacturing continues to underperform. German manufacturing remains extremely fragile and faced with significant challenges, Spain and France, thanks to limited exposure to Asian export markets, have been showing signs of stabilisation.

As we highlighted in the past, Spain stands out as a relative winner among the four largest EA economies, mostly thanks to the very price-competitive position it acquired in the aftermath of the Global Financial Crisis and its greater dependence on intra-EA demand compared to Germany and Italy. Similar to Spain, French manufacturing has been insulated from the worst spillovers of the EM demand contraction and global trade slowdown.

German (and EA-wide) car production reflects the global slowdown and the retaliatory tariffs China imposed on car imports from the US. But other sectors are not faring well either – e.g. electrical components, metals and machinery. What’s more, the slowdown in foreign demand is now starting to filter through to domestic demand. More interestingly, and consistent with our expectations that German machinery and equipment capex is bound to slow markedly in the coming months, domestic capital goods orders have crashed and have also closed the gap with intermediate goods orders. In this context, the Bundesbank revision of Germany’s real GDP growth down to 0.6% for 2019 come as no surprise, and confirms our view that the slowdown in Germany and in other export-sensitive EA economies (e.g. Italy) will last for most of the current year.

All elements point to a continuation of the current stagnation in the euro area. Moderate optimism for Spanish and French data seems justified only in comparison to the bleak outlook for Germany.

 

 

Outcome:

As trade war sapped global growth and trade volumes Germany underperformed the rest of the euro area and entered technical recession in Q3 2019. 

16 May 2019

2019: German rebound only temporary

We said:

German preliminary Q1 GDP is softer than the headline suggests. Resurgent trade wars and weaker EM FX threaten the recovery. A negative contribution from net exports is already baked in the data.

Inventory is likely to have boosted domestic demand substantially. A mix of prolonged, unforeseen weakness in foreign demand and pre-Brexit stockpiling (perhaps also related to the acceleration of imports mentioned above) caused a build-up of inventory in Q1. Bottom line: as manufacturers constrain production and run down stocks of finished products in the coming quarter(s), a partial reversal of Germany’s current growth is on the cards.

More generally the global macroeconomic outlook has deteriorated markedly since President Trump imposed a new round of tariffs on China. A further ratcheting up of the US-China trade war is no longer a tail event. If Trump carries out his threat to levy duties on all Chinese imports, Beijing will have an incentive to double down on its credit stimulus, increasing the chances of a global rebound in 2019H2. However, non-oil emerging markets in S.E. Asia and Latin America are already suffering from a stronger dollar. S.E. Asia, LatAm and Turkey combined account for the same share of German exports as China. Adding Korea and Japan, which are not faring well either due to falling world trade, we get to 10% of total German exports – or about 4% of nominal annual GDP. In other words, the positive spillover effect of Chinese stimulus on export-dependent economies such as Germany and the rest of the EA could now be offset by further demand contraction in other major export markets. German growth seems poised to remain slow for longer and the balance of risks is now tilted to the downside.

Outcome:

Short-term German data continue to weaken to the extent that the authorities begin to contemplate fiscal stimulus. 

01 May 2019

2019: EA Green shoots? Not so fast

Consensus said:

Most commentators were predicting a swift growth recovery for Germany and the wider euro area in 2019H2. 

We said:

Are you an optimist or a realist? Data are always open to interpretation and the same set of numbers can lead to different forecasts. The preliminary Q1 GDP figures for the euro area (EA) published yesterday are no exception. Optimists are reading the modest QoQ acceleration – both at EA aggregate level and in Italy – as a sign that the EA is out of the woods earlier than expected (see left-hand chart below). In contrast, we stick to our view that, although the worst of the slowdown might now be behind us, many indicators suggest that the current soft patch will last until the end of Q2.

First, exports are still struggling significantly. Second, the inventory build-up in Q1 implies lower production later this year. Third, consumption is the strongest driver of EA growth. Fourth, Spain confirms once more that it is an important EA growth engine. Finally, Italy requires extra care.

With ECB President Mario Draghi trying every rhetorical trick in the book to kindle inflation, real M1 starting to expand again and Chinese fiscal stimulus in the pipeline, we think EA growth is now testing a floor. However, no quick rebound seems in sight yet.

Outcome:

Euro area GDP continued to slow with Germany posting growth of -0.1% for Q2. 

Our Team

Economics

Charles Dumas

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Economics

Larry Brainard

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Economics

Steven Blitz

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Bo Zhuang

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Dario Perkins

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Shweta Singh

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Economics

Konstantinos Venetis

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Economics

Shumita Sharma Deveshwar

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Economics

Rory Green

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Davide Oneglia

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Wilson Ferrarezi

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Krzysztof Halladin

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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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Using the wealth of macro economic, policy, and global political insight at our disposal, our team of strategists are able to provide actionable, unbiased advice on asset allocation, investment positioning and portfolio risk management.

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