Another global step for China’s yuan
JPMorgan gets appointed the first non-Chinese yuan-clearing bank, the Bank of Japan is reportedly keeping Haruhiko Kuroda at the helm, and U.S. CPI looms large. Here are some of the things people in markets are talking about.
BOJ May Stay the Course
(Bloomberg)-As its global peers navigate back to normal monetary policy, the Bank of Japan looks set to stay the course for now, with Haruhiko Kuroda at the helm for another term. The government wants him to return as governor, a senior government official told Bloomberg, adding that nothing has been finalized. Reports that Kuroda will be joined by Masayoshi Amamiya and Etsuro Honda as deputy governors add weight to the steady-as-she-goes view. But while analysts agree that Kuroda’s reappointment is likely to mean the BOJ’s radical easing continues in the short term, many analysts still expect future adjustments as the central bank tries to navigate the road ahead.
CNY + JPM
The People’s Bank of China appointed JPMorgan Chase Bank N.A. as a yuan-clearing bank in the U.S., the first non-Chinese lender for such a role globally and a further step to promote international use of the currency. The arrangement is made under the auspices U.S.-China strategic economic dialogue and in conjunction with the U.S. Federal Reserve, according to a statement posted on the People’s Bank of China website on Tuesday. Bank of China Ltd.’s New York branch already conducts such business in the U.S. and other Chinese lenders clear yuan payments in a number of countries.
Resistance to Trump Tariffs
Republican lawmakers cautioned President Donald Trump in a White House meetingagainst levying tariffs on steel and aluminum imports, warning that it would raise prices of the metals and potentially cost the U.S. jobs in other industries including car manufacturing. “Part of the options would be tariffs,” Trump said at the beginning of the meeting with members of Congress from both parties. “I want to keep prices down but I want to make sure that we have a steel industry.”
All Eyes on CPI
Wednesday’s report on the U.S. consumer price index will be the most closely watched in recent memory, with investors seeking to understand the recent plunges in stocks and bonds. Jittery financial markets could convulse on any sign that inflation is exceeding expectations at a rate that may spur the Federal Reserve to quicken its plans for tightening. The threat of higher interest rates after strong job and wage figures on Feb. 2 sent Treasury yields spiking and started a rout in equities that pushed them into the first correction in two years. Bonds and stocks have been in a tug-of-war since, as battered equity investors seek the haven of fixed income, driving yields back down. Core CPI, which excludes food and energy, rose 1.7 percent in January from a year earlier, compared with 1.8 percent in December, according to the median projection of economists ahead of the Labor Department data.
Lunar new year celebrations for the Year of the Dog are set to kick off, affecting China, Hong Kong, Taiwan, Singapore, Malaysia and Indonesia. Chinese mainland markets are closed Feb. 15-21. It’s set to be a banner day for data out of Asia, with GDP readings for Japan (preliminary) and Singapore (final) due within 10 minutes of each other Wednesday morning, followed by Malaysian GDP in the afternoon. Thailand is expected to keep its benchmark interest rate on hold at 1.5 percent. The European session brings GDP for the euro area and Germany (CPI too). Across the Atlantic, the U.S. releases retail sales figures in addition to the all-important CPI print.
And finally, here’s what David’s interested in this morning
When I look at the chart below, those old, everything-must-go TV mattress commercials come to mind. As investors start to pick up the pieces from recent down leg, it’s become apparent how bargain-basement cheap even the most favored equity markets have suddenly become. Take Japan, which had already been a consistent top pick among fund managers and strategists. When everything was getting tossed out the window, the Nikkei 225 took the biggest hit globally after Venezuela, Argentina and Hong Kong. Valuations went from about 20 times forward earnings to just above 17 within the span of about 2 weeks. If you believe the simple, straightforward earnings optimism analysts have repeatedly come back to, those multiples are happy-hour prices.
In case you missed it (and you probably have), Japan’s current earnings season has been generally solid as predicted. About 75 percent of Nikkei 225 companies have reported higher-than-expected revenues, with about 65 percent beating on the bottom-line. Some of the busiest reporting days were right at the height of the recent market rout so most results kind of got glossed over. Have a look if you haven’t already.