Again, we’ll get a trade deal between the US and China but the question remains what happens with the tariffs AND does the actual deal have real teeth. As the Chinese finished up its National Congress get together this week they passed a law covering foreign investment in the hopes of satisfying US demands. Well, two business associations in the US and Europe were not fully impressed. The Chairman of the American Chamber of Commerce in China said “The last minute efforts are appreciated, but the changes shouldn’t have been controversial in the first place and only address a small slice of the overall set of concerns our members have about the uneven playing field foreign companies encounter in China.”
The European Union Chamber of Commerce in China in response to a clause that says the Chinese can retaliate against any country which stops Chinese investment on a “discriminatory bans” they said “This clause allows for political issues to influence investor-state relations, and gives China power to take unilateral action against trading and investment partners based on a principle of perceived negative reciprocity.”
Self introspection remains missing in the personality and process of BoJ Governor Haruhiko Kuroda. With last night’s rate decision to keep everything as is as expected, he still will not back down from the obsession with achieving 2% inflation. “The 2% target is something that the Bank of Japan’s policy board has decided by itself. We think that making this a reality is necessary to achieve the BoJ’s mission of price stability.” With inflation not far from zero on average over the past 30 years, they’ve already achieved price stability but of course they’ve tortured those two words to mean rising by 2% per annum. The BoJ also lowered their assessment of the Japanese economy as growth slows.
What’s interesting is that the Japanese government is telling Kuroda to back off from the 2% target. Finance Minister Taro Aso today said that “things could go wrong” with this continued insistence of getting to 2%. He also made the most important point to be made and should be a message to every single central banker everywhere who believes in 2% inflation being the best path. “No citizen is angry because haven’t hit 2% target.” The bond market is also not angry that they haven’t.
JGB yields got a touch less negative. The 10 yr went from -.04% to -.034%. Japanese banks are rallying but still remain 19% below last September’s level before the global market selloff. The yen is unchanged and the Nikkei rallied by .8%.
The ECB, also obsessing with seeing higher inflation to the dismay of its citizenry and bond markets, saw the final February CPI read left unchanged with the initial. Headline CPI rose 1.5% y/o/y while the core rate was higher by 1%. What’s interesting is that since June 2014 when rates went negative, the average CPI print was also 1%. Price stability I’d call that. In the mean time, the equity of the banks fell by 40%. As the number was as expected, the euro is little changed as are European bond yields. Stock bourses are rallying maybe due to the news below.
If there was an area of particular weakness in the Euro area over the past 6 months it was in the auto sector. In February, auto sales y/o/y for the 6th month in a row but the decline of 1% was the least of them. Positively, they rose y/o/y in Germany, France and the UK. Maybe that the whole emissions issue that delayed shipments is now in the past, we can start to see a lift in some of the European data. Already we’ve seen some better January IP figures out of the region. Growth though still won’t be much above 1% this year if sustained. BMW is up by 1.3%, Daimler by 1.4% and Volkswagen by 1.7%.