Despite the rout, excess liquidity will prove to be supportive

  Stock markets are experiencing a classic crash pattern.  Volatility has spiked and sharp sell offs are often being followed by powerful rallies.  As with previous crash patterns, we would expect markets to continue to gyrate wildly for around the next…


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EM Capital Outflows Gather Pace

We discussed in April that global reserve assets had begun to fall on an annual basis.  This has continued, and the level of contraction is now as great as it has been since at least 2004. Capital flight from EM…


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Spanish Economy Remains on Cyclical Upswing

For all of Spain’s entrenched structural issues (as we detailed in our April thematic, Spain – Still a Hole in Europe’s Balance Sheet), leading economic data continues to point towards a cyclical recovery in Spain. Real M1 is growing at…


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Keep Your Eyes On Aussie Housing Leading Indicators

(from our Tactical from July 14th) We continue to focus on Australian housing leading indicators to help with timing on our structurally bearish Australia outlook, set out in our March thematic Aussie Housing and Banking Boomerang.  Lower rates in Australia…


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Investors fully invested, but negative

We have a buy signal on AAII sentiment. Bearish retail sentiment often offers contrarian signals to enter the market and as the top two chart shows there are very few bears at the moment according to the AAII survey. This…


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The euro to be supported in risk-off scenarios (mostly)

The ECB’s commitment to extra loose monetary policy through forward guidance and QE has resulted in the euro to becoming one of the darlings of the funding currencies.  US corporates such as Nike, Apple and Coca-Cola have taken advantage of…


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Money surges in Europe, growth to follow

If you ignore the ongoing Greek sideshow, rarely has European money growth been as accommodative as it is today. Europe has enormous structural problems of too much debt, an inflexible currency and an ageing population, but cyclical factors are very…


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A Primer on the Euro Breakup

euro

Many economists expect catastrophic consequences if any country exits the euro. However, during the past century sixty-nine countries have exited currency areas with little downward economic volatility. The mechanics of currency breakups are complicated but feasible, and historical examples provide a road map for exit.

The real problem in Europe is that EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than most previous emerging market crises. Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would …


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A False Sense of Security in the UK

The UK’s economy is increasingly beginning to resemble how it looked prior to the financial crisis – this is not healthy and leaves the UK vulnerable to a repeat of the last crisis. In this presentation, we discuss that UK…


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Credit in UK Booming Again; Wage Growth Has Lagged

There are continuing signs the UK’s economy is increasingly resembling itself prior to the financial crisis.  House-price growth has cooled of late, but is still growing at 4.6% YoY, down from almost 12% last summer.  Consumer credit is also growing…


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