Monday, March 2, 2026

BOTTOM LINE: The ISM manufacturing index declined by somewhat less than expected in February. The composition of the report was mixed, with decreases in the new orders and production components and an increase in the employment component. The prices paid component rose to the highest level since 2022 and qualitative commentary in the report suggested that tariffs continue to apply upward pressure on costs. The S&P Global manufacturing PMI was revised up in the February final reading. US MAP: I... ---

Bottom line: The seasonally adjusted HSBC India manufacturing purchasing managers’ index (PMI) increased to a four-month high of 56.9 in February from 55.4 in January, mainly driven by an increase in the output index. However, the pace of increase in new export orders declined to a 17-month low. Among price-related sub-indices, the input price index remained unchanged at 52.1 in February, although firms reported higher costs for labour, materials and transportation, while the output price index ... ---

The main purpose of the Gavekal Daily is to fine-tune the investment scenarios we lay out in Ideas pieces, chartbooks, webinars, client meetings and in-person seminars. As new economic and corporate data get released, as elections occur, or as geopolitical developments erupt, a fine-tuning—or sometimes even a change—of views can prove necessary. Take the past year as an example: with easy fiscal and monetary policies around the world, with China relaxing its push to de-Westernize its supply cha... ---

China's government is expected to lower its 2026 GDP growth target to 4.5-5% at the upcoming Two Sessions, with a focus on income support for low-income households and service expansion to boost consumption. Lunar New Year travel data showed encouraging volume growth (5-6%), though per capita spending remains depressed at 10% below 2019 levels, revealing persistent consumer weakness despite the tourism rebound. The PBOC is actively managing currency appreciation by reducing FX forward requirements and applying record counter-cyclical adjustments to slow the yuan's rapid 1.6% monthly surge, balancing its fundamental strength against disruptive appreciation. ---

Economic growth is decelerating sharply with weakening employment and consumer stress, yet markets are rotating into value and hard assets (gold, commodities, miners) while financial stress signals emerge—a pattern echoing post-dot-com dynamics. Multiple inflationary pressures are converging in 2026, including rising electricity demand from AI, a weakening dollar, and increased fiscal spending, positioning hard assets and commodities for multi-year outperformance in a shift away from financialization toward physical-asset-driven returns. ---

Mexico's cartels have evolved into sophisticated paramilitary enterprises deeply embedded in the economy, with past decapitation strategies consistently triggering greater violence and fragmentation rather than dismantling criminal power. The dominant groups—Sinaloa Cartel and CJNG—operate distinctly across regions, complicating government response efforts while mutual U.S.-Mexico blame over drug demand and gun supply exacerbates the challenge. President Sheinbaum faces an intractable dilemma: any aggressive action risks destabilizing turf wars, while U.S. intervention threats could further inflame violence, suggesting sustained instability is likely given deep economic, political, and social entrenchment on both sides of the border. ---

The U.S. is pivoting from ineffective direct economic pressure on China toward resource-centric geopolitics, with the Middle East—particularly Iran—becoming a central battleground. Iran's strategic importance stems from its substantial energy reserves, critical mineral deposits, and deepening trade ties with China (especially in RMB-denominated transactions), which threaten both American energy market influence and petrodollar dominance. As competition for critical minerals intensifies, the U.S. military buildup in the region signals a rising likelihood of using force to secure supply chains and maintain geopolitical leverage. ---

China's equity markets are positioned for sustained recovery driven by macroeconomic tailwinds (lowest rates among major economies, record trade surplus, easing deflation), structural improvements (record dividend payouts and buybacks now exceeding savings interest rates, signaling a shift toward shareholder-friendly policies), and attractive valuations below long-term averages with major indices approaching 18-year breakout levels. Accumulated household savings and declining volatility create favorable conditions for domestic capital rotation into equities, potentially ending years of Chinese market underperformance.