Apparently, President Xi
Is not very happy to see
That stocks made in China
Have lost all their shine-a
So, feels he must buy by decree
 
The upshot is two trillion yuan
Is what he will spend, whereupon
He’ll then get to claim
Twas others to blame
Though it’s his ideas that keep on
 
Last night the BOJ meeting was the non-event that was widely expected.  There was no change in policy and when looking at their forecasts, if anything they lowered their inflation views a touch for next year, thus reducing the chance of a policy change even more.  The follow-on commentary was not very inciteful either, explaining that they are prepared to take additional easing measures if necessary but uncertainties on the price outlook are high.  In other words, we still don’t know how to achieve our goal of sustainable 2% inflation so we’re going to watch a bit longer.
 
The punditry has decided that Ueda-san is going to adjust policy at the April meeting after the spring wage negotiations have been completed, but personally, i don’t believe he feels a compelling need to do anything absent a major decline in the yen from current levels.  After all, the economy is still ticking over nicely and the stock market has been rallying consistently for a year and is back at 34-year highs, approaching the 1989 bubble peak.  However, if USD/JPY were to trade back above 150 again and start to move more quickly, I suspect that might be the catalyst the BOJ and Ueda-san need to change their tune.
 
Arguably, of far more interest last night was the news that China is now considering a support package for the stock market there!  (For a communist country, it is quite ironic how much Xi Jinping cares about the most capitalistic institution there is, the stock market.)  The headline number is CNY 2 trillion (~$278 billion) which will be sourced from Chinese state-owned companies (SOEs) overseas and ostensibly will flow into the offshore market for Chinese shares as well as the Hang Seng in Hong Kong.  The below chart, courtesy of Weston Nakamura’s excellent substack is quite explanatory as to why Xi may be feeling some pressure.

 

The dramatic widening of the spread between Hong Kong and Japanese shares has been remarkable in the first three weeks of 2024, a substantial acceleration of what we have seen since November of last year.  My sense is Xi is taking it personally that the world is dismissing China as a serious global player as evidenced by the fact that nobody wants to invest there at all.  Obviously, there are sanction and tariff issues as well as a comprehensive effort by many western companies to reduce their reliance on China as part of their individual supply chains, but I guess this has become too much to bear for President Xi. 

While this mooted number is twice as large as the previous discussions, it remains to be seen if it will be effective beyond the knee-jerk response by the Hang Seng today (+2.6%).  After all, the Chinese property market is still a disaster, and all the other problems remain intact.  Chinese share prices have been falling for 3 years now, and my sense is it will take real policy changes rather than a buying spree by SOEs to change any views.  Perhaps communist-based stock markets are an oxymoron after all.

Away from those two stories though, not very much is ongoing.  Mainland Chinese shares also rose, but far less, just 0.4%, while Japanese shares were essentially unchanged on the day after the BOJ’s meeting.  In Europe, equity markets are a touch softer, although only about -0.2% or so across the board and after yet another positive day in the US yesterday, US futures are pointing slightly higher at this hour (7:45), about 0.2%.

In the bond market, yesterday’s price action is being reversed with yields across the US (+2bps) and Europe (+2bps across virtually all nations) backing up a bit.  As there continues to be a lack of data on which to trade, this price action seems almost like a classic risk-on take, with equities higher, the dollar softer, and bonds falling in price as well.  However, given that the movement is just 2bps, I would not get excited about any new information here.

In the commodity markets, oil (-0.75%) is slipping a bit this morning, but has been performing pretty well over the past week on the back of the ongoing tensions in the Middle East.  However, we are seeing positive price action in the metals space this morning with gold (+0.2%) and copper (+0.5%) both pushing a bit higher.

Finally, the dollar is mixed this morning, with no consistency across either the G10 or EMG blocs.  CNY (+0.3%) has rallied on the strength of the financing package while ZAR (+0.8%) is benefitting from the metals complex rally, as is CLP (+0.35%) and AUD (+0.25%).  However, the euro (-0.2%) is sliding along with several EMG currencies, notably PLN (-0.75%) and MXN (-0.5%), as idiosyncratic stories drive markets this morning rather than a broad dollar narrative.

The only marginal piece of data this morning is the Richmond Fed Manufacturing Index (exp -11), yet another manufacturing index that has been performing quite poorly.  Interestingly, there was a Twitter (X?) thread this morning from Anna Wong (@annaeconomist), a senior economist at Bloomberg, describing some potential reasons as to why the Initial Claims data, which has been running far lower than the recessionistas expect due to eligibility issues and the fact that UI pays so little, people would rather driver for Uber than collect.  This is another indirect sign that the economy is not nearly as positive as many, especially the soft-landing proponents and equity bulls, would have you believe.  Food for thought.

As to the rest of the day, given the lack of other data as well as the anticipation of the Thursday and Friday info on GDP and PCE, I anticipate a quiet session overall.  Momentum remains higher in stocks, but bonds are uncertain, and the dollar is mixed.  Don’t look for too much movement in either direction here today.

Good luck

Adf