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
05 Aug 2019

Daily Note: Weaponizing the yuan

  • USDCNY breaking 7 is a form of retaliation for “bad faith” negotiations
  • The yuan will devalue another 3% in August and could break 7.5 in 2020 if all tariffs on Chinese imports increase to 25%
  • Capital outflows will likely be capped below US$100bn per month
READ ME
Economics
29 Jul 2019

EM Watch: Not bottoming out

  • Global: Trade remains an underlying drag
  • China: Inventory liquidation to hit growth
  • Brazil: Weak economy weighing on fiscal
  • India: Fiscal credibility increasingly in question
  • Russia: The CBR’s cautious easing explained
  • Thailand: No export recovery in Q3/19
  • Turkey: Stagnant growth drives rate cut
  • Strategy: India: 10yr USD bond spread 90-110bp
READ ME
Economics
26 Jul 2019

Global Financial Trends: The €1.5 trillion question (in charts)

  • We expect the ECB will announce a new stimulus package in September
  • It may include a rate cut, a multi-tiered deposit rate and the restart of QE
  • We expect QE-II to include public sector bonds, non-bank private debt and supranational bonds
  • The size of eligible assets range from EUR1-1.5 trillion, depending on whether the ECB eases its QE curbs
  • But , the fresh stimulus is unlikely to boost the EA’s relative competitiveness
  • The ECB is pushing on a piece of string and it is aware of it
READ ME
Economics
18 Jul 2019

Macro Picture: Debt trapped

Global debt ratios have continued to rise over the past decade, as low interest rates kept the world growing in spite of secular economic weakness. After a brief market panic in 2018, the prospect of renewed central bank easing has supported sentiment and re-ignited the search for yield. But where is the balance sheet to ‘reflate’ global demand?

READ ME

Track Record

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.

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. 

31 Mar 2019

2019: US stocks to make new highs when VIX stablises

We said:

Equities are still on their way to a full recovery. After an initial wobble, stocks (in the US and elsewhere) have quickly stabilised and started to recover. The VIX, which spiked to nearly 18 on Monday, has fallen back below 14. As we’ve pointed out repeatedly, a VIX below 15 is a strong indication that equites remain on a path of full recovery and are likely to make new highs.

Outcome:

VIX fell back to the 12-13 range and the S&P 500 hit a new all-time high on 23rd April. 

12 Mar 2019

2019: 8 reasons why TLTRO-III will disappoint

We said:

On March 7, the ECB announced a set of three measures, the timing of which was ahead of consensus expectations. While the timing of the ECB policy changes was in line with our expectations, the details available so far could leave room for disappointment. While these details will be announced in ‘due course’, we list 8 reasons why markets may be disappointed by the latest ECB package.

1 - Loans of shorter maturity - two years rather than four
2 -  Loans to have floating interest rates not fixed
3 - Limited capacity for Italian and Spanish lenders to borrow under the new TLTRO scheme
4 - Uncertainty about what the floor rate on TLTRO-III borrowings will be and what benchmarks the ECB will apply for banks to benefit from TLTRO-III subsidies
5 - Markets may be anxious about rolling over their TLTRO-II borrowings between June-2019 (when the funding ‘cliff edge’ starts to bite) and the September -2019 starting date for the first series of TLTRO-III borrowings.
6 - The ECB downgraded its growth forecast for this year to 1.1% from the earlier projection of 1.7%. The downward revision was in line with our expectations, but it has disappointed the consensus
7 - The most important point is that TLTROs do not address the problem of weakening eurozone growth and loan demand
8 - TLTRO-III merely postpones the funding risks for Italian and Spanish banks

Outcome:

On 7 June the ECB downgraded its growth forecasts further. The detail of the TLTRO-III lending plan disappointed the markets and fell short of our lower expectations. 

Our Team

Economics

Charles Dumas

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Economics

Larry Brainard

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Steve Blitz

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Bo Zhuang

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Dario Perkins

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Shweta Singh

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Konstantinos Venetis

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Shumita Sharma Deveshwar

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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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