The VP Research Blog

A blog about financial markets and the VP investing framework

UK Gilts Overvalued

UK gilts are overvalued, currently yielding only 1%. The UK has seen a boom in consumer credit in recent years, with rates around 10% YoY in the main categories of consumer lending (top chart). Rising inflation has pinched wages, with the result real wages are now...

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China Broad Credit Growth Slows to Zero

The recent tightening of credit we have seen in China is primarily aimed at clamping down on shadow financing. Wealth management products have rapidly grown in size, from only 8% of total banking deposits in 2012 to over 20% today. The top chart shows China’s banks’...

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German Stocks Vulnerable

The DAX index is near all-time highs, and German stocks are rallying in line with other European markets. While the economic news has been good, our leading indicators for Germany are much less rosy than we would expect given stock prices. There is a big divergence,...

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Flatter Yield Curves a Headwind for Risk Assets

The US and global yield curves steepened briefly last summer and steepened further after Trump’s election, but it has been rolling over almost all year. This has a negative read through to growth and key risk assets. The yield curve is one of the key things we track...

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EUR: Tactically Overbought; Macro Headwinds

Macro headwinds are building up for long EURUSD positions in addition to signs that EURUSD is becoming very overbought technically. A few weeks ago we noted that EURUSD sentiment was one of the most bullish (contrarian indicator) among the 50 major FX pairs we track....

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No Turnaround in Sight for C&I Lending

We are seeing multiple signs of a slowdown in lending in the US, as discussed in our recent thematic US Banks Stocks: Exposed to the End of the Credit Cycle. The top chart shows a coincident relationship between sales-to-inventory ratios and C&I lending. As...

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Capital Leak from China Stemmed for Now

China’s FX reserves stabilized for the third month running, in a sign that China has made some serious headway in tightening capital controls. The top chart shows that PBoC selling of FX reserves has not been significant since January this year. The bottom-left chart...

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BoJ Underscores Support for USDJPY

Data and policy continue to line up for a weaker JPY. Kuroda has re-iterated his commitment to stimulus, stating, “it’s premature to discuss in an exact way about exit strategy”. Kuroda continues his battle against the deflation mindset; and, as the top chart shows,...

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