June, 16 2017 by lsr team

Steve Blitz, Chief US Economist talks about how:
-  Inflation eludes Yellen yet again, nevertheless she continues to chase it
-  But core inflation down means Fed funds rate now normal – inflation is for 2018
-  2017 outlook has changed: balance sheet reduction in Sept, no rate hike until Dec

June, 02 2017 by lsr team

Ken Wattret, Chief European Economist, talks about our latest Europe Watch publication Economics: ECB meeting – what to expect 
- Upbeat on growth, cautious on core inflation; financial conditions a concern
-  Easing bias  should go but probably stays for now; exit discussion more likely Politics: Italian elections draw near; May’s wobbles 
-  A risky autumn election in Italy is looking more likely
-  PM May still in pole position but weakened by a poor campaign Markets: Dancing round the May pol...

April, 12 2017 by lsr team

Jonathan Fenby, Managing Director, European Political Research, and Ken Wattret, Managing Director, Global Macro, discuss and answer your questions on this issue including:
- The probable result and the market reaction to either a Le Pen or Macron victory
- The economic outlook in either outcome
- The reform agenda needed to improve growth and encourage investors
- The reform that each candidate would be able to deliver
- Why both Macron and Le Pen would both have difficulty leading the French government
- How investors should posit...

March, 24 2017 by lsr team

We believe investors have stopped worrying about secular stagnation but are convinced the ‘new neutral’ will keep bond yields at very low levels. While the global economy looks structurally deflationary, there is still a cycle in inflation and interest rates. And the major economies may not be as rate sensitive as everyone assumes.

March, 17 2017 by lsr team

- Chair Yellen dampens market’s policy trajectory - she has to, we don’t
- February retail sales weakened by tax refund delays; underlying demand strong
- CPI details indicate a change - rising prices for discretionary goods

March, 09 2017 by lsr team

Xi Jinping promised in November 2015, that the economy would grow at 6.5% through to 2020. This was necessary, he said, to fulfill a promise by his predecessor, Hu Jintao, to double the 2010 GDP and per capita income by the end of the decade. However, over the past year, there have been several signs that Xi might be willing to back away from this pledge. After recent conversations in Beijing, we believe:
• Policymakers will accept growth below 6.5% from next year. 
• The change responds to a wide-scale recognition that the current rapid pace of...

February, 24 2017 by lsr team

Jonathan Fenby sets out 12 reasons why China feels good: 1. China’s economy is ticking over on a cyclical reflation path with sharp PPI recovery coming through.
2. Though it will get worse in absolute terms, the debt problem has been diffused for now by shifting it away from banks and local governments.
3. Currency outflows have moderated for the time being. The housing sector is heading for a correction not a meltdown.
4. Preparations for the Communist Party Congress in late 2017 seem to be on track with no challenge to Xi as he moves into his...

October, 21 2016 by lsr team

Some claim a US recession is ‘overdue’, but leading indicators are edging higher and we are not seeing the macro imbalances typically associated with major downturns. Rising bond yields and a correction in equity markets provide the clearest 2017 threats, while corporate indebtedness could compound these risks.

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.

October, 07 2016 by lsr team

We think that an ECB taper is increasingly likely in 2017. But the bank’s immediate problem is how to overcome a scarcity of bonds available for purchase in order to complete the current programme. The ECB needs to be able to credibly declare victory before it heads for the exit.

September, 30 2016 by lsr team

Events such as Brexit throw a spanner in the works of economic models and analysts are left with a wide range of plausible inputs. At the worst extreme, fear of Brexit becomes self-fulling and weighs on spending decisions, in turn crimping consumers’ style. Over-gloomy estimates prompt businesses to delay expansion plans. Firms make their capital spending projections based on these forecasts and they have not been in short supply. Undoubtedly, capex plans will be adversely affected by the uncertainty hanging over them. While a wide range of business sentiment indicato...

September, 16 2016 by lsr team

Emerging market growth has been on a downward trend for just over half a decade. The slowdown probably bottomed out at the end of last year. On an aggregate basis, the advance in EM annual real GDP accelerated to 3.9% in Q2 from 2.4% in Q3 2015. Is this the start of a sustained rebound in EM growth? Click above to watch the full video or below for our latest report on emerging markets.

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.

July, 22 2016 by lsr team

Our preliminary estimates show that Chinese GDP growth stabilised at 6% in Q2. Domestic demand growth slowed to 5% in Q2, but offset by net trade. With the improvement in activity momentum largely a result of policy stimulus, it is highly questionable whether the government’s growth target can be achieved without fresh stimulus to boost investment. More worryingly, despite the recent stabilisation in industrial profits, private fixed asset investment growth has remained weak. With the outlook of domestic demand souring, companies are under pressure to deleverage an...

June, 08 2016 by lsr team

The housing market has long played a central role in discussions about secular stagnation in the US. This is hardly surprising given it was the collapse in American house prices that brought so much destruction in 2008. Credit was tight, job/income prospects were poor, would–be homebuyers had reassessed potential long-term capital gains and there was a substantial overhang of unsold homes/foreclosures. An intense and long-lasting squeeze on housing investment explained why the economy had failed to bounce back as quickly as in previous recessions.   Since...

June, 02 2016 by lsr team

China’s rebalancing started only in 2015, with recent numbers showing significant progress in rebalancing from excessive saving and capex towards more consumer spending. Capex in 2015 fell by 1.8% of GDP, while gross savings dropped by 1%. This is the first concrete evidence of genuine rebalancing, but still remains small in relation to what is needed. Our Chief Economist, Charles Dumas explains how further rebalancing can be achieved through explicit yuan devaluation against the dollar and other major currencies. Click above to watch the full video. &...

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!  

May, 16 2016 by lsr team

Depending on who you believe, Brexit would either cause a crisis on a par to what happened in 2008, or herald the start of a British economic renaissance, an era of free trade and rapid deregulation. The truth, of course, is that nobody really knows what will happen because the outcome depends on what policies and institutional arrangements are put in place following the referendum. The only thing we know for sure is that this situation is causing considerable uncertainty and a Brexit vote would compound any short-term damage that is doing to the UK economy. While Brexit...

May, 12 2016 by lsr team

Following a surge in new loans earlier this year, investors are concerned again about the sustainability of China’s debt. Severe producer price deflation and decimated profits show just how unproductive investment has been. The good news is that China’s total non-financial debt is still low compared to most advanced countries. However, China’s refusal to tackle zombie companies has caused a massive slowdown in productivity, compromising China’s ability to grow its way out of the debt problem…

April, 29 2016 by lsr team

Investor sentiment has started to perk up recently on the back of a series of strong data. On our preliminary estimate, Chinese GDP expanded 7.1% at an annualised rate in Q1. That is up from 5.5% in Q4 and is the fastest pace in almost two years. China’s economy has re-gained strength thanks to Beijing’s orchestrated policy stimulus. But how much longer can Beijing go on creating debt at a breakneck pace to generate growth? Click above to watch the full video.

April, 15 2016 by lsr team

Investor sentiment has started to perk up recently on the back of a series of strong data. With exports popping almost 20% year on year in March, heavily distorted by the Chinese New Year, a local journalist has asked if a U-shaped recovery in the economy was on the cards. Unfortunately, we are just at the beginning of yet another mini-cycle of the sort we have been through over the past couple of years. On our preliminary estimate, Chinese GDP expanded 7.1% at an annualised rate in Q1. That is up from 5.5% in Q4 and is the fastest pace in almost two years. What is the m...

March, 15 2016 by lsr team

The Bank of Japan left monetary policy unchanged today. The effect of negative interest rates on the currency in January was the opposite of that intended: the central bank’s aggressive adoption of negative deposit rates merely fuelled global angst at a critical juncture, driving repatriation flows into Japan and pushing up the currency. The ECB’s policy easing last week had a more beneficial effect on asset prices but has again left the currency unchanged, reinforcing the message for the BoJ. For Japan, where currency moves dominate the equity market, it’...

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, 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...

January, 11 2016 by lsr team

The stock market is fixated on China, as the deep convictions of the China bulls are progressively and painfully eviscerated. But their inability until recently to see the flaws in China’s post-crisis recovery is fomenting a new delusion: that China’s slowdown, and stock-market angst, will necessarily pull down the rest of the world’s economies and stock markets. In other words, the obsession with China has taken on a new form rather than faded, as it should have done: China is clearly important, but it is not all-important. Click below to find out how...

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, 30 2015 by lsr team

With economists across the City busy finalising their big what-will-happen in 2016 publications, LSR likes to revisit what we wrote 12 months ago and see how those views panned out. This is useful not only because it highlights our successes but also it provides a way to explain our clients what we got wrong. Of course, this breaks one of the golden rules of sell-side economics – never admit when you’re wrong - but we believe it is a way of providing intellectual consistency. Clients can usually forgive economists for changing their mind, as long as they can exp...

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, 11 2015 by lsr team

While markets are fixated on the prospects for emerging markets and whether China’s slowdown will drag down the world economy, a crisis has been brewing in Germany that, according to some commentators, could end Angela Merkel’s reign and reignite the euro crisis. This is probably an exaggeration. Still, it is true that the country’s huge influx of refugees –whom Ms Merkel welcome with open arms –is causing widespread public consternation and undermining the government’s authority. This is a pity because the chancellor’s approach to...

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...

September, 07 2015 by lsr team

Financial markets are right to be obsessed with China’s prospects. But they may be plain wrong to assume that the current Chinese slowdown is bad for global prospects: either of stock markets or the economy. On the contrary, China’s grotesque economic distortions have been major contributors to the sluggishness of world growth. Their correction should benefit most of us, not just China itself. China’s excessive, wasteful capex now being curbed, have been a major cause of weak recovery. The widespread assumption that reducing these excesses will be bad f...

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, 24 2015 by lsr team

In his latest round-the-world trip over the past couple of weeks, our Chairman, Charles Dumas visited Beijing, Shanghai, Los Angeles, Portland, Seattle and San Francisco. A frequently recurring question was how the current US recovery might be blighted by huge Chinese adjustments, just when it appears to be getting properly established. He remains bullish on US stocks for the next year or so but is warning that we expect Chinese problems and USD strength to hamper stocks in the medium-term.    Click below to find out more about Charles’ latest views on th...

July, 20 2015 by lsr team

While China’s official Q2 real GDP growth beat market expectations, our estimates showed that the economy expanded at an even stronger pace in Q2 with real GDP growing at a quarterly annualised rate of 7.3%.  But the economy is far from staging a decisive turnaround. The equity market collapse will reverberate throughout the economy in H2 and consequently threatens to derail reforms. Our central muddle-through scenario is for growth of around 4-5%, with risks on the downside. To find out more on why we think China’s growth is unlikely to rebound and...

July, 15 2015 by lsr team

The recent fall in oil prices has been attributed to a combination of faltering Chinese growth and the prospect of a suspension of Iranian sanctions following the recent Iran nuclear deal. Our analysis, however suggests otherwise. As our own Chinese real GDP series shows, Chinese growth has already been very weak for around a year; furthermore oil market analysts have pointed out that, even in the event of a full suspension of sanctions, Iran will not be in a position to have a material impact on global supply for many years. So what are the driving forces behind the retrea...

July, 06 2015 by lsr team

The People’s Bank of China (PBoC) simultaneously cut its benchmark lending rate and reserve requirement ratio a week ago in response to the country’s slowing economy and sharp fluctuations in the stock market. This is no surprise to us as we’ve been expecting the PBoC to keep easing policy through further lending rate cuts, more mortgage credit easing, implicit support for the equity market and sharp RRR reductions to help with the cleansing of banks’ balance sheets. According to our estimates, China’s real GDP fell 0.2% in Q1...

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...

June, 17 2015 by lsr team

Following the surprise result of the UK general election, sterling markets are still faced with the prospect of political uncertainty.  An in/out EU referendum has to be held before the end of 2017, and most likely will be in late-2016.  The prospect of another fiscal rule intended to lock-in budget surpluses could have the effect of introducing a politically-motivated volatility. In the meantime, the UK economy is shaping up to enjoy a period of stable, non-debt dependent growth led by the consumer sector.  LSR’s Richard Batley introduced the sem...

June, 12 2015 by lsr team

The strong May data showing 17.9 million annual rate of car sales and 0.7% bounce in retail sales. In other words, US consumers are using their gasoline windfalls to buy new cars and using them to drive to the mall. Since before the Q1 soft-patch we have highlighted the likelihood of a consumer-led acceleration in growth during the second half of 2015 - this now seems to be underway. By the time school starts again in September there should be enough confirmation of this acceleration to push the Fed over the line to its first rate hike. In the meantime,...

June, 11 2015 by lsr team

One of our senior economists, Richard Batley has just come back from a client trip to the US.  Five days of visits to investment managers up and down the East Coast should serve to dispel any doubts that Chinese equity volatility is front and center of almost all investors’ minds.  At nearly every meeting we were asked: Should we buy or sell Chinese equities? It’s an important question and deserves a detailed answer.  Critical to this investment decision is understanding why China’s slumping growth and booming equity market, that appear...