May, 30 2017 by lsr team

Christopher Granville explains why there needs to be a Brexit Plan B.
Highlights:
- UK Brexit negotiation process creates economic risk
- The UK government may or may not be able to deliver ‘Plan A’
- Businesses need a credible Plan B before the end of 2017
- Failure to set out the alternative will see investment collapse

February, 10 2017 by lsr team

- Trade dispute with US to peak in 12 months - Trump deal could be 45% tariff on "non-essential" goods - Chinese trade surplus to fall from 2018 - RMB policy will be undermined - FDI will decline and then retreat

November, 18 2016 by lsr team

Trump's policies are clearly inspired by Ronald Reagan in the 1980s. Reagan introduced substantial tax cuts and trickle-down economics, but Reaganomics conflicts with Trump's desire to close the US trade deficit.

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, 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...

July, 07 2016 by lsr team

Last quarter we warned that, although growth was likely to remain positive during our 2-year forecast horizon, the end of the cycle was now in sight. Since then the Brexit vote has dragged forward the debilitating effect of final demand uncertainty on investment that we would normally associate with the very late cycle. As a result we expect a technical recession during H2 2016. To find out more about Brexit’s impact on the UK economy, click above the watch the video or below for our latest UK Outlook report.  

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, 09 2016 by lsr team

The RBA kept the cash rate at 1.75% following last month’s 25 basis point cut, signalling a wait-and-see stance is appropriate as the economy reaches an inflexion point. Real GDP jumped 1.1% q/q in Q1, taking the annual rate of growth above 3%. However, this positive GDP surprise failed to impress investors. Gains in yields, equities and the AUD on the news proved short-lived, confirming the market’s recognition that the glass looks half-empty for Australia’s economy.. Click above to watch the full video.

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, 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, 21 2016 by lsr team

Charles Dumas, director of Lombard Street Research, discusses the EU referendum’s impact on the UK unemployment numbers, and Bank of Japan Governor Haruhiko Kuroda’s latest comments on monetary easing. He says the Bank of Japan has no control over the currency market and that people have an exaggerated understanding of the power of central banks. Click here to download and listen to the Bloomberg podcast or below to read his la...

April, 15 2016 by lsr team

Welcome to our LSR Weekly View. In this video, our senior economist, Freya Beamish discusses Japan's monetary policy following the recent yen strength .These key issues are also covered in our latest LSR View. Click above to watch the full video or below to read the full report.  

April, 07 2016 by lsr team

We held a client seminar on the economic impact of Brexit in June 2015 – as always at LSR we like to be well ahead of the curve! As we stated then, the longer term implications of a vote to leave are likely to be small in either direction. However, since the middle of last year our concerns about the immediate impact of the referendum have been amplified by the declining household savings rate. With consumer demand closer to the end of its own cycle, any investment disruption will be keenly felt. Our senior economist, Richard Batley discusses Brexit and its impact...

February, 25 2016 by lsr team

We held a client seminar on the economic impact of Brexit in June 2015 – as always at LSR we like to be well ahead of the curve! As we stated then, the longer-term implications of a vote to leave are likely to be small in either direction. However, since the middle of last year our concerns about the immediate impact of the referendum have been amplified by the declining household savings rate. With consumer demand closer to the end of its own cycle any investment disruption will be keenly felt. To what extent sterling will contin...

February, 17 2016 by lsr team

Beijing has pledged to embark on the necessary reforms to lower debt levels in the economy. Yet the latest money and credit numbers show that Chinese banks expanded their loan books at a record pace at the start of 2016. In January, Chinese banks extended a whopping RMB2.5 trillion in new loans, or 4% of GDP. On a seasonally adjusted basis, RMB 1.6 trillion new loans were extended. Given that local government bond issuance has come to a halt ahead of a new debt swap programme, local government financing companies might have taken out bridge loans from banks to refinance...

February, 15 2016 by lsr team

The UK cycle is rapidly maturing. We have stressed before that uncertainty over Brexit is likely to add a burden to the end of the cycle, dampening investment intentions just when consumption bottlenecks would otherwise have driven up capex. As with the Scottish referendum, polls have narrowed. The latest poll of polls put those who want to remain in the EU on 51%, with those who wish to leave on 49%. Many of those who expect an exit presumably think it would be a good thing. But in the short term, uncertainty over how Brexit would affect trade and capital flows will tak...

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, 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,...

January, 08 2016 by lsr team

While it is always dangerous to extrapolate from the recent past, the consensus expects 2016 to look remarkably like 2015. The issues that have dominated market commentary over the past 12 months – EM weakness, global deflation and central bank divergence – remain the sellside’s favourite 2016 themes. There is also a surprising amount of agreement about what will happen. Growth will move sideways, inflation will remain too low and the divergence trade has further to run. T...

January, 04 2016 by lsr team

Happy New Year! Having sifted through various sell-side reports, we conclude that our emerging market view is more on the bearish side. While we have a constructive stance on some EMs, India and Mexico in particular, our general tone is still one of caution. For more details, please request a copy of our year-ahead piece -2016: Don’t panic, yet! In today’s note, we address three key questions: 1) Why are we more bearish than consensus on EMs? 2) What would make us more optimistic? 3) What would make us more negative? Click below to find out more.

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, 24 2015 by lsr team

Beginning in the early 1970s, Japan embarked on a long quest to reform its financial sector. Liberalisation in one area brought unintended consequences in others. Excessive leverage and regulations that failed to keep up with changes inevitably led to a crisis. Today, China has come to a point where financial reform is critical. While China does not have Japan’s luxury to pursue financial reform gradually, Japan’s experience however could shed some light. We visit Japan’s story and look at its implications and what China could do to avoid Japan’s...

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...

September, 30 2015 by lsr team

We were delighted to have Charles Goodhart, Professor of London School of Economics and a former Chief Advisor at the Bank of England as our guest speaker at LSR's September conference in London. Professor Goodhart shared his recent in-depth analysis for Morgan Stanley of the impact of future demographic trends on global saving and investment rates and the balance between them. The past three decades saw a profound positive shock to the global labour force but we are now on the cusp of a sharp reversal. Charles discussed with enviable eloquence how demographic changes a...

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...

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...

June, 18 2015 by lsr team

The Greek central bank reported on Wednesday that €30bn deposits were pulled out of Greek banks between October 2014 and April 2015 and warned that Greece is likely to default and exit from the eurozone if it fails to reach a deal with lenders. Prior to that, we’ve also seen a massive sell-off in Bunds, triggered by modest inflation in the eurozone and markets’ refusal to believe that the QE programme will be implemented in full. While a Grexit isn’t our central scenario, we believe that the markets may be too complacent about the impact of a Greek...

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...