December, 21 2016 by lsr team

Highlights
- EMs to benefit from US and Chinese reflation in 2017
- But global macro ‘push’ factors set to recede thereafter
- Mature US recovery at risk from tighter monetary conditions
- Beijing’s debt-RMB dilemma pressing as the mini-cycle turns
- Global search for yield to persist, albeit tempered
- Lift-off growth phase elusive for North Asia’s exporters
- Clogged rate and FX channels leave fiscal stimulus option

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.

September, 02 2016 by lsr team

It’s our concern that inflation in the US will eventually outpace market expectations in 2017, as sturdy demand plays out against a weakened supply side and wages and inflation spur each other along. However, for now, real wage growth may even moderate in the US, as wage negotiations typically reflect inflation 6 quarters previously. In this video, we outline what is holding down the long end of the curve in the US and highlight a tactical trade from our strategists before these deeper themes play out. Is it Draghi that holds the key?

May, 26 2016 by lsr team

The surprise rise in the yen and the less surprising rise in the euro this year have removed Ms. Yellen’s international concerns about why she should not be hiking interest rates. Specifically, a dollar spike now seems least of our concerns… Our Chief Economist, Charles Dumas talks us through the domestic conditions in the US and Euro area and the risks of rising bond yields by next year. These issues will be further discussed in our upcoming LSR View, stay tuned!  

January, 25 2016 by lsr team

Markets are jittery and the latest manufacturing data, both from the US and the wider global economy, are doing nothing to restore confidence. Last week’s plunge in the Empire State index confirms a trend that has been apparent for some time – global industry is struggling. Since manufacturing has often been reliable guidance to near-term macro trends, investors are understandably worried. It is no coincidence, for example, that industrial data play a dominant role in the OECD’s leading indicators. So why are manufacturers struggling? More importantly,...

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...

June, 22 2015 by lsr team

China’s economy is losing steam fast under the burden of local government and corporate debt. According to our estimates, non-financial debt including shadow banking reached 240% of GDP in 2014, while real GDP growth averaged just under 5%. Beijing’s local government debt bailout plan buys time, but we estimate that a proper clean-up could mean government debt rising to as high as 105% of GDP. Click below for our exclusive report on ‘’Defusing China’s debt bomb” to find out if Beijing can afford to clean up past excesses, whether its d...