May, 04 2017 by lsr team

China remains the key country as far as future gas demand growth is concerned. However, countries such as India and Pakistan as well as South East Asia are emerging as other major sources of demand. With global gas markets changing and becoming increasingly liberalized, LNG is set to dominate supplies into the Asian market.

October, 14 2016 by lsr team

The euro area LI continues to put in an above consensus call. It is probably over predicting growth somewhat but its strength is fundamentally underpinned by the newly emerged German locomotive. While German demand often turns out to be derived from others, chiefly China, in this case it is genuine. In fact, this is highlighted by our below consensus Australia call. China’s stimulus has not fed through to a rebound in private demand, although easing PPI deflation is helping manufacturers.

July, 27 2016 by lsr team

Since March, we have consistently made the argument for yield-seeking as opposed to growth-seeking strategies, with a particular emphasis on emerging markets.The relative disregard that EM assets have displayed for the UK referendum result and yuan weakness to multi-year lows underscores the resilience of this ongoing rally. Two important questions for investors are: how long can the rally last and what is the biggest risk? Click above to watch the full video or below for our latest Macro Strategy report on EM carry.

June, 30 2016 by lsr team

The UK voted last Thursday to leave the EU. So far at least, market reaction to the news hasn’t been anywhere near as violent as the doomsday predictions before the vote implied. There is little evidence of either liquidity stresses or contagion so far. We believe that the imminent risks of contagion may be quite limited as, unlike in 2008, there is no major drying up of liquidity to force a widespread liquidation of risk assets. To find out more about Brexit’s market implications and our views, click above to watch the video or below for our latest Macro Str...

June, 22 2016 by lsr team

June would have been a busy month for event risk by any measure, with ECB, Fed, BoJ and BoE policy decisions, an OPEC meeting at the start of the month and Spanish elections at the end. But all these have been completely overshadowed by the EU referendum the UK will hold tomorrow on June 23. With the emphasis very much on the short term, we focus on two aspects of Brexit: what’s likely to happen and how to position for it. Click above to watch the full video or below for our latest Asset Allocation report on Brexit strategy.

March, 09 2016 by lsr team

Improved risk sentiment is driving another rebound in EM assets. Investors have scaled back fears of a US recession, with Treasury yields now off recent lows and inflation breakeven rates bouncing from depressed levels. At the same time, China is loosening the fiscal taps, while the PBoC has shifted its focus back to boosting liquidity and credit. In turn, commodity prices have found a degree of stability. Market expectations for the path of Fed policy hit extremes in February. Since then, the US$ index (DXY) has turned higher, EM currencies have strengthened and oil pri...

February, 23 2016 by lsr team

With the prospect of a June referendum hanging over the markets, interest in Brexit trades has heightened. There is currency-market evidence showing that speculative investors have been positioning for a possible Brexit principally in the FX options markets. Indeed, a chunk of decline in sterling during late December and January may be related to the build-up of option-market positioning, since spot market positioning indicators do not show evidence of extreme short positioning so far (see chart above). Our central view is that sterling will remain the main shock-absorbi...

February, 09 2016 by lsr team

Ironically, financial market turbulence has hit just as the world economy’s chances of rebalancing successfully had increased. We published our year ahead piece in early December with the title “Don’t panic!”, but investors returned to work after the holidays worried about China’s slowdown, collapsing oil prices, global debt unwinding and the dearth of policy options left open to leading central banks. Widespread anxiety pulled the rug from under asset prices. As is our tradition, we asked our clients in mid- January for their top questions...

December, 09 2015 by lsr team

Twelve months ago we said 2015 would be a year of ‘deceptive calm’. With the S&P 500 up 5% and US 10-year yields around 5bps higher, you could say our forecast was accurate. Markets spent much of the year in an anxious state, fretting about Greece, then China, then the risk of a synchronised global recession. In 2006 and 2007, LSR had a high conviction that a financial meltdown was about to wreak havoc on the global economy. This time around we stick with our 2015 theme ‘Keep Dancing’ but with no great conviction. Looking ahead to 2016, China...

November, 25 2015 by lsr team

Last week we published our LSR View explaining why US growth is likely to accelerate into 2016 and that, by inference, recent scares about the potential for a US recession are greatly overplayed. We think US real GDP growth is set to quicken to 2½ -3% from the 2% average of the past five years. This exceeds most current estimates of US growth potential and fully justifies the Federal Reserve’s expected rate increases. Rapidly growing household spending, on housing as well as consumption, plus an end to five years of fiscal drag will be the main engines of gr...

November, 18 2015 by lsr team

Last week we summarised the first panel discussion of our recent conference in New York, “The New Abnormal: American monetary policy and China’s liberalisation”. The second panel addressed the question of whether China’s financial transformation would be “a boon or a curse for the world economy”. LSR’s own Diana Choyleva was joined by Chinese political analyst TL Tsim and Fraser Howie, co-author of “Red Capitalism”. The panellists agreed that the process of financial market reform had reached a critical point, exempli...

November, 04 2015 by lsr team

The drop in oil price since mid-2014 has been especially abrupt due to a huge positive supply shock that has magnified the impact of a decline in demand for commodities. US oil production has increased by almost five million barrels per day (mbd) over the last five years. Moreover, the re-admission of Iran to the global oil market will further increase near-term supply by around one million mbd. But with persistent oversupply, along with some uncertainty about remaining storage capacity, could oil prices remain at the $40p/b floor we outlined at the start of 2015? Click...

September, 16 2015 by lsr team

When oil prices crashed last winter, the world’s major central banks were planning to ‘look through’ this development. They argued the impact would be temporary, with inflation quick to rebound. This view has been broadly correct- inflation in developed economies is close to a trough and should rise by early 2016 thanks to favourable base effects. That said, the global economy is clearly more deflationary than policymakers anticipated at the start of the year. Meanwhile, China’s slump has caused a broader EM downturn, which is weighing heavily on...

September, 08 2015 by lsr team

China’s economic transformation is a game-changer for the world economy. Recent market jitters have shown that investors have now begun to acknowledge the sharp growth slowdown we forecast. Yet confusion and uncertainty abound as most regard China’s economy and politics a black box. China’s equity market crash, the authorities’ panic intervention and the growth slowdown have undermined confidence in China’s economy and policymaking. But it seems investors’ own fear is now preventing them from seeing the big picture and important change...

August, 24 2015 by lsr team

The yuan devaluation has set in motion a chain of events that ultimately resulted in the current selloff in global risk assets. Emerging markets, already underperforming for much of the past few years, took the first hit. The liquidation is now spreading to developed markets, with most equity indices down more than 10% in under a week. Market volatility should not be a surprise at this stage of the cycle. As the chart above shows, rich valuations tend to correlate with deeper and more frequent market gyrations. What is it then that explains the violence in market moves t...

August, 24 2015 by lsr team

The recent devaluation of the yuan appears to have been the main reason why expectations of a Fed rate rise been pushed back. As recently as mid-June a hike of 25bp by the end of 2015 was fully priced in, but that has now been pushed back to Q1 2016. Given the increasing FX uncertainty and global deflation, we think there is a significant risk that investors could perceive an earlier-than-expected rise in Fed rates as a policy mistake. There is already some evidence of this concern, with long-term breakeven inflation rates falling to post-crisis lows as two-year yields h...

August, 19 2015 by lsr team

China’s decision to devalue the yuan last week may have been a surprise in terms of timing and mechanics, but we have been expecting a decline in the currency for some time. The size of the drop falls short of what would be needed to declare a currency war, but the risks of one happening at some point have increased. Our asset allocation (AA) stance remains skewed towards developed equities, but we tone down our bullishness slightly this month. Meanwhile, we would like to highlight the strong performance of our AA model portfolio (+8.6%) versus the benchmark (-0.9%...

August, 06 2015 by lsr team

Last Friday’s monthly GDP data reveal that the Canadian economy has not recovered from the oil price shock as quickly as the Bank of Canada had hoped. Output contracted for the fifth month in a row since January and it is highly likely that the economy fell into a technical recession in 2015 H1 for the first time since 2000Q4, when the US subprime crisis shook the world. Despite the disappointing H1 data, we believe that growth will rebound in H2 as the impact of the US recovery kicks in. However, while we remain constructive in the near-term outlook of Canada&rsqu...

July, 09 2015 by lsr team

The Greek No vote and the Chinese stock rout are key setbacks to investor sentiment. With the Greek public voting NO in the referendum and the subsequent reaction of several influential political leaders on the creditors side, the tone has now shifted towards containing the contagion if a deal cannot be reached. While a deal is still our base case (albeit with reduced conviction), we deem it prudent to reduce portfolio risk given the increasing uncertainty regarding the direction of the Greek negotiations. We regard contagion risks as manageable and intend to ramp up our ex...