Our Research

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08 Jun 2018

LSR View: Unstable equilibrium is global

  • Our central forecast remains ‘steady as she goes’
  • But the risks have increased – notably the threat of trade war
  • Yet that could mean a continued cheap euro, helping EA growth …
  • ​… and plenty of money flowing into the US, holding down rates there
  • Meanwhile the techies are still innovating, and capex is picking up
  • Even Italy’s troubles have their bright side – fiscal stimulus could help
  • And China remains in the background, with 6% growth and contained debt
07 Jun 2018

Global Financial Trends: Italy is systemic (in charts)

  • Euro break-up fears surged last week on political uncertainty in Italy
  • Re-denomination and contagion risks have eased since then
  • But Italy remains the biggest threat to EMU stability
  • Foreign claims on Italy dwarf the combined liabilities of Greece, Ireland, Portugal and Spain before the crisis
  • Italy poses a systemic threat to the European banking system
  • The elaborate inter-linkages among European banks mean huge indirect exposure to Italy
05 Jun 2018

Daily Note: EM conflict crises and contagion

  • Unilateral US action threatens global trading order
  • Brazil is following Turkey into economic crisis
  • Contagion fear as investors look for next casualty
31 May 2018

Macro Picture: USD-Ominoes

US monetary tightening is widening global risk premiums, affecting a wide range of asset prices – tech stocks, EM borrowing costs and even European periphery bonds. The US dollar has also strengthened recently, a move which – if it went further – could have important implications for global financial markets.

17 Apr 2018

Trade War What To Watch For

  • A NAFTA deal will confirm US commitment to negotiation
  • China has red lines but will compromise on the deficit
  • Volatility is high, but Trade War risk premium will decline
17 Apr 2018

The Cycle That Keeps Giving

  • Welcome to the second longest economic expansion in modern history
  • Talk of ‘high pressure’ monetary policy echoes the late 1960s
  • But allowing the economy to ‘run hot’ is relatively low risk today
17 Apr 2018

Is The Next Lehman Japanese

  • European banks played a decisive role in the subprime crisis 
  • Japanese banks may have taken over as the main systemic vulnerability
  • Japanese lenders have huge dollar funding needs, like European banks in 2007
  • This leaves them exposed to renewed Eurodollar strains
  • Risk-taking has certainly increased at Japanese banks 
  • But their foreign asset quality is better with still large UST holdings
  • Poor profitability will worsen with UST losses and a dollar rebound
  • But risks of asset fire sales are limited at this point
16 Apr 2018

S&P Not Heavily Overvalued

  • As a measure of over/under valuation, a ratio must revert to mean, long term
  • The 1914-91 'short 20th century' distorted CAPE and price/book ratios down
  • The S&P real value index has 6.6% pa real total return and reverts  to mean
  • The RVI, now 16% overvalued, could get more so before it falls back
16 Jan 2018

The End of Secular Stagnation

  • Consensus is raising its GDP forecasts, real rates are rising 
  • Still plenty of bears worrying about sustainability of this revival 
  • Too soon to declare end of ‘secular stagnation’ but recovery looks sound  
11 Jan 2018

Debt Crisis on The Cards

  • The nature of China’s debt makes a systemic crisis unlikely 
  • The crux of the debt burden issue lies in the Party-State balance sheet  
  • The debt-to-GDP ratio will increase but no Minsky Moment triggers are currently in sight  
  • Closing the gap between credit growth and nominal GDP and deleveraging by stealth are the keys to long-term stabilization of the debt 
  • Defaults have been more widespread than generally thought 
  • The real threat is posed by the housing market, policy missteps and deflation 
11 Jan 2018

Is The Consensus Wrong?

The consensus expects a dull 2018, with solid global growth, a modest pickup in inflation and gradual monetary tightening. We look for risks. China is the clearest threat to the global cycle, though a G7 inflation surprise is likelier. Market-based risks (yields, USD shortage) seem more imminent than macroeconomic dangers. 



08 Jun 2018

Brazil: Bolsonaro surfs the anti-establishment tidal wave

  • In a new investor survey by XP Investimentos, nearly half of those polled now see Bolsonaro winning the ballot, casting doubt on Brazil’s economic future.
  • The recent use of WhatsApp as a powerful tool to mobilize truckers points to its huge potential to influence voter behaviour; it may also mitigate Bolsonaro’s lack of TV/radio ad time.
  • Market-friendly, former São Paulo Governor Alckmin not only trails in fourth place in a new presidential poll but is tied with an alternate candidate from Lula’s Workers’ Party, underscoring his ongoing woes.
  • Alckmin is also tied with his former protégé-turned-rival, former São Paulo Mayor João Doria, who is now unlikely to replace him on the ballot.
  • The truckers’ strike – the latest manifestation of the widespread popular outrage that has been evident since 2013 – highlights the deepening crisis of governability in Brasilia today.
  • That crisis is unlikely to be fully resolved by the October election, adding to the fiscal headaches for the next President.
07 Jun 2018

Global Political Driver: Trump trade wars friendly fire

  • Trade disputes between transatlantic friends may seem less scary than with rising rival China
  • Such appearances are deceptive: historic geopolitical alignment paradoxically reinforces the attractions of Europe as a Trump trade war target
  • Those attractions range from domestic US politics to the ‘German cars’ question, with the geopolitical kicker being to prolong the row
  • This protracted prospect in turn aggravates the negative economic and financial market effects of inhibited capex and dollar strength
31 May 2018

India: Rural revival at a fiscal cost

One of the first steps that the Bharatiya Janata Party took after assuming office in the southern state of Karnataka earlier in May was to waive farm loans up to Rs100,000 (US$1,500) each. The state government that introduced this measure lasted only two days, but its successor is under pressure to continue with the estimated Rs530 billion write-off. All parties are wooing the rural voter in the run-up to India’s 2019 general elections. Below we examine how India’s troubled rural economy will shape the economics and politics of the country in the next 12 months.

03 May 2018

Saudi Arabia: The Kingdom to come

Over the last 12 months we have closely followed Muhammad bin Salman’s relaunch of his Kingdom. In this note we join up the findings of the past year of research to answer the question: what will the new Saudi Arabia look like?

17 Apr 2018

Winning the Trade War

  • Global: EM gain on limited US trade choices 
  • China: Fiscal policy will be contractionary 
  • Brazil: Presidential door open for a novice 
  • India: Tax compliance push will boost GST 
  • Russia: Tax change to reverse capital flight 
  • Mexico: NAFTA will survive despite Trump 
  • Philippines: BSP will allow peso to weaken 
13 Apr 2018

Brazil: More Light on The Presidential Race

At the six-month mark to the October general election, important parameters have been set on what is still shaping up to be Brazil’s most unpredictable presidential race in three decades. In the wake of the high-profile imprisonment of former President Lula – the country’s current presidential frontrunner – fragmentation remains the rule of the game: myriad dark horse candidates across the political spectrum have entered the race in the absence of strong consensus centrist candidates. Another trend is the growing anti-establishment movement, with new players eager to surf the wave of rising popular anger. Over the next three months, political parties will begin to forge electoral alliances with an eye to aggregating more free, mandatory TV/radio electoral ad time for their candidates; such alliances will be key to monitor.

10 Apr 2018

Russia: Smooth Growth, Tripwire Hazard

  • But for the ‘minor detail’ of geopolitics, Russian growth is on course to speed up to 2% this year
  • Recent softer data are misleading
  • Exemplary macroeconomic policies are supporting all growth components
  • Homebuilding and consumer durable are likely sweet spots
  • This healthy baseline outlook will either be ruined or re-assert itself depending on how the latest spiral of Russia-West geopolitical confrontation plays out
25 Jan 2018

Growth Recovery at Expense of Macroeconomic Stability

Widening twin deficits and rising inflation are fast emerging as risks to India’s macroeconomic stability that will threaten the nascent growth revival.  

25 Jan 2018

Lula Thwarted: Electoral Implications

  • The unanimous appeals ruling against Lula means that the market’s top electoral concern has been allayed, favouring bulls despite reform gridlock. 
  • The ruling does not bar Lula from registering for the presidential race, but it does significantly raise the odds that he will be found ineligible to run. 
  • Lula’s expected removal from the race will help less-polarizing candidates; the biggest risk to monitor ahead is the fragmentation of the centrist vote. 
  • Public reaction to the verdict was relatively muted, underscoring the former leader’s fall from grace in the wake of the corruption investigations and despite his current presidential frontrunner status. 
24 Jan 2018

Xi's Global Gauntlet

  • Xi Jinping feels confident of being able to confront the Trump administration in seeking global influence 
  • Beijing will do all it can to promote its political and economic model as an alternative to “failing” democratic capitalism 
  • The outlook is for heightened China-US tension as the Trump administration sharpens policy towards the PRC 
18 Jan 2018

US Versus China and Russia

  • America’s new National Security Strategy published last month – and echoed by this week’s National Defence Strategy from the Pentagon – crystallizes the global geopolitical backdrop of structural great power tension.  
  • Any isolationism implied by Trump’s ‘America First’ stance is sifted out by the stern realism of the military men at the top of  his administration and the result is an agenda of continuous, comprehensive and – above all – zero sum competition against China and Russia.  
  • Another contrast with the Cold War is, however, negative: confrontation with the economically isolated Soviet Union spelled none of the day-to-day risks to the global economy and trade posed by the prospect of periodically rising US-China tensions. 
16 Jan 2018

Saudi and Iran: The 'Hot War' Case

  • Rivalry between Saudi Arabia and Iran is going to intensify in 2018. The war in Yemen presents a particular risk.
  • This rivalry will give a tailwind to oil prices, but does not have real capacity to constrict supply.
  • It could instead bring about the end of the OPEC+ consensus and the return of global supply glut.


01 Jun 2018

EM Strategy Monthly: Why exit from QE is proving traumatic for some EMs

Risk: We maintain our negative call on overall risk.
Russia: We move to a positive call on equities following an easing of sanctions risk.
Brazil: We move to strong negative on faltering recovery and rising political risk

29 May 2018

EM Watch: Asia to win from trade war fallout

  • Global: EM Asia set to win from trade war fallout
  • China: Policy tightening accelerates defaults
  • Brazil: Truckers’ strike highlights rising risks
  • India: Monsoon to keep lid on inflation
  • Russia: Dividends and orthodox policies
  • Mexico: The hard road to a light NAFTA 2.0
  • Thailand: High growth unlikely to continue
23 May 2018

Macro Strategy: Liquidity roadmap bodes ill for EM

  • Turkey and Argentina could lead EMs lower still
  • Liquidity conditions likely to improve briefly before deteriorating in H2
  • Risk premium to rise: we take off USD/ZAR short and tighten stops
18 May 2018

Asset Allocation: Unsynchronised growth

  • Global growth has become less synchronised, with EA and China slowing
  • But, with the US still going strong, the end of the global cycle is not imminent
  • Cheaper valuations in all asset classes fairly reflect heightened risks
  • DM equities still the better choice; EMs under pressure from higher USD, yields
  • 10y yields roiled by QT, but breakout scope limited by short positioning
  • Risks rising for credit but too early to be short – we stay close to benchmark
  • Dollar strength likely to be transient – we remain bullish EUR
28 Mar 2018

Trading Trade Trouble

  • US has a framework to discourage trade manipulation; next report due in April
  • We sell CNY/KRW as Korean FX intervention likely to diminish
  • Tariff tit-for-tat retaliation good for BRL as soybean exports grab market share
27 Mar 2018

April 2018 Chartbook

  • Macro Drivers. Fiscal stimulus is stoking an overheating US economy, trade wars may be a drag
  • Multi Asset. S&P ERP in line with long-term average, making stocks fair value vs bonds
  • Fixed Income. Market underestimates pace of Fed hikes; ECB underestimates impact of unwinding QE
  • Currencies. Change in Fed reaction function means USD no longer the worst currency in the world
  • Equities. The RoE gap between EA/Japan and the US is narrowing, supporting higher valuations
  • Commodities. Oil demand to continue outstripping supply in the absence of trade wars
19 Mar 2018

Trade War, IP: China in The Firing Line

  • Global: Shoot first style will hit markets
  • China: US-China tensions set to escalate
  • Brazil: Short-term fiscal outlook improves
  • India: Bypoll losses pile pressure on Modi
  • Russia: Putin’s victory signals are positive
  • Mexico: NAFTA runs into election season
  • Turkey: The lira is teetering on the brink
  • Indonesia: Politics raises stability risks
  • Strategy: EM political risks in 2018
16 Mar 2018

This is What Normal Looks Like

  • VIX higher than it recently was doesn’t mean we’re in a vol ‘new normal’
  • 2017 was a freak year for volatility – this is what ‘normal’ looks like
  • The cycle is maturing but overheating is not imminent
  • Trade war risk is back but still fairly remote – we don’t position for it
  • Higher EA and Japan RoE should narrow the valuation gap with the US
  • Bonds to continue consolidation; Fed meeting to set tone for next move
  • Dollar no longer the weakest currency in the world
19 Jan 2018

It is Rational to Be Irrational

  •  2018 is likely to see the beginning of the equity market melt-up 
  •  During the late stages of a rally, expensive stocks get more expensive 
  •  Also, high-beta equities tend to outperform low-beta 
  •  Rational to be irrational: dumb beta likely to beat smart alpha, again 
  •  We go 16% overweight on stocks after US, China upgrade to +2 
  •  We continue to see upside to yields; we cut IG, HY, EM debt by 6%  
  •  Euro on the front foot: growth and positioning warrant upgrade to +2 
  •  Dollar likely to stay on the back foot: we raise GBP and AUD to 0 from -1 
10 Jan 2018

Neither Growth Nor Flows Support The Dollar

  • Global growth strong but US data likely to enter a soft patch 
  • Short-USD positioning is clean, and cleaner than it looks in EUR 
  • Add short-USD exposure by selling USD/RUB, close Gilt-UST trade on China news 
09 Jan 2018

Why A 'Putting Money To Work' Rally Will Prove Positive For Emerging Markets

  • Risk: We raise our rating on overall risk for EM assets to strong positive.
  • China: We hike our call on China equities to strong positive.
  • Russia: We maintain our positive equity call amid improving economic fundamentals


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Track Record

We have a 28 year track record of successful calls. Many of these calls combined economic, political and market analysis.



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