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Equity investors, brace yourselves

Traders brace themselves after Friday’s U.S. equities plunge, North and South Korea make a bet on sports diplomacy, and Yellen leaves the Fed with comments unlikely to help investors stay calm. Here are some of the things people in markets are talking about.

Equity Investors and Bond Bulls Rattled

(Bloomberg)-Traders are anticipating heavy declines for Asian stocks after U.S. shares posted their worst plunge since June 2016 on Friday. Bond bulls and equity investors were rattled by strong jobs data that increased the likelihood the Federal Reserve will lift rates next month, and the selling accelerated after Dallas Fed President Robert Kaplan suggested more than three hikes may be necessary this year. The 10-year Treasury yield popped above 2.85 percent for the first time since January 2014, while the U.S. dollar rose against all G-10 counterparts, with the kiwi and Aussie down more than 1.3 percent. Oil dropped and the Bloomberg Commodity Index capped its biggest weekly slide in two months. Europe’s bond selloff also deepened, and equities across the continent fell for a fifth straight day.

End of the Yellen Era

Jerome Powell will be sworn in as the new chair of the U.S. Federal Reserve Monday in Washington. In an interview that aired over the weekend, outgoing Chair Janet Yellen said U.S. stocks and commercial real estate prices are elevated but stopped short of saying those markets are in a bubble. “Well, I don’t want to say too high. But I do want to say high,” Yellen told CBS’s “Sunday Morning.” She also argued that the financial system is now “much better capitalized” than it was entering the global financial crisis a decade ago. As Powell prepares to take over, some of his colleagues are publicly agitating for a radical rethink of the central bank’s 2 percent inflation target.

North and South Korea Set Tensions Aside

North and South Korea briefly set aside months of friction over Pyongyang’s nuclear and missile advancements on Sunday, as women ice hockey players from the two countries played as a unified team in a friendly match against Sweden. Tensions remain high ahead of the Winter Olympics, which open this Friday in Pyeongchang, South Korea: on Sunday, North Korea denounced Trump’s recent state of the union speech as the “height of arrogance” and criticized the U.S. for trying to create division on the Korean peninsular. Meanwhile North Korea received almost $200 million between January and September 2017 from exports of coal, iron, steel and other commodities banned under UN Security Council resolutions meant to crack down on Pyongyang’s nuclear ambitions, Bloomberg News reported Sunday.

Tesla’s Australian Power Plan

Solar panels and Tesla Inc. batteries will be rolled out to at least 50,000 South Australian homes to form what the state government says will be the world’s largest virtual power plant. Beginning with a trial of 1,100 public housing properties, the project will be expanded to another 24,000 public housing properties, the government said Sunday ahead of a state election. Then a similar deal will be offered to all South Australian households, with a plan for at least 50,000 to participate in the next four years. The news comes just days after Tesla’s plan for a major expansion of its solar division at U.S. home-improvement chain Home Depot Inc. was announced.

Coming Up…

February’s already-relentless pace won’t be taking much of a break on Monday as the month’s first full week gets going. The day will bring reports on South Korean trade, Australian job ads, PMIs for Singapore and Hong Kong, as well as Indonesian GDP. Asia’s earnings seasons will also heat up, with reports expected from Mitsubishi, Panasonic, Suzuki, Tata Motors and SK Telecom. And the Seoul High Court is set to rule on appeals by both prosecutors and Samsung Electronics heir Jay Y. Lee on his five-year prison term for bribery. The European day will bring ECB President Mario Draghi presenting his annual report to the European Parliament, as well as Turkish inflation and euro area services PMI.


And finally, here’s what David’s interested in this morning


Maybe Rick Astley’s 1987 hit “Never Gonna Give You Up” was blasting through the decades-old halls of the Bank of Japan building during the bubble years. And on Friday, the bank again evoked that battle cry and stepped in to stem the bleeding in Japanese government bonds. Late last week, as yields on the 10-year JGB broke through 0.1 percent, the bank offered to buy an unlimited amount of bonds to cap the selloff and reassert its control over the bond market. The last time it did that was last summer under similar circumstances.

The difference though between now and then is there’s a more synchronized uptick in bond yields particularly in Europe and a bear steepening of curves globally. And I’m guessing the BOJ might be forced into action more frequently in the coming weeks. The sustainability of doing so is for another conversation. What’s clear at this point is that the JGB market will remain anchored and Governor Kuroda is…

Never gonna give you up, never gonna let you down,
Never gonna run around and desert you, never gonna make you cry,
Never gonna say goodbye, never gonna tell a lie and hurt you

A timely message as the bond bears loom large on the horizon.

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