Rise and shine everyone. Happy Monday!

We’ve had two big news stories over the weekend - Japan is no longer in recession and China is no longer in deflation.

But perhaps the more exciting news on everyone’s mind is Bitcoin crossing $71,000. Risk-on and speculation are the themes of the day!

And finally, tomorrow (Tuesday) is US CPI Inflation day. With last month’s number coming in hotter than expected, particularly at the Supercore level, all eyes will be on the data to determine if this is forming a re-acceleration trend.

Last week’s equity market’s close was less than stellar, with all three broad market indices in the red for the weekly close. US equity futures are slightly under pressure this morning as well, as the Nikkei sells off on the rate hike bets, after Japan’s positive GDP growth number.

US Treasury yields are trading lower on the long end while the short end remains firm. The US Dollar Index, Gold, and Crude Oil are relatively flat.

A quick announcement: We’re moving Breakfast Bites to a 3-day-a-week schedule - Monday, Wednesday, and Friday, so we’ll be covering two days of news and data in each edition.

Big Stories

Japan’s final GDP could change everything

Japan’s final Q4, 2023 GDP came out positive. The first reading that came out on Feb 15 put Japan in a technical recession when the GDP growth showed -0.1% QoQ after the third quarter’s -0.8% QoQ. Well, today’s final number shows a QoQ growth of +0.1%.

Now this could confirm a change to the negative interest rate policy. The initial reaction was a rise in yields and a decline in equities, as traders placed even more bets on a change in policy this month.

The nuance here though is looking underneath the hood. The big change came from quarterly capital expenditure numbers at +2% from -0.6% in Q3. But, the quarterly Private Consumption growth remained unchanged at -0.3%. This is the number that the BoJ looking at because they are adamant about boosting consumption so inflation remains entrenched and doesn’t turn back to deflation once they start hiking.

China sees inflation turnaround

Inflation in China saw a pop in February, coming in positive after four straight months of deflation. Improving food inflation and increase in services prices due to the Lunar New Year holiday spending drove this. A big change came in fresh vegetable prices which rose +2.9% YoY in February from -12.7% YoY.

PPI however, still came in further negative at -2.7% vs. 2.5% prior. This could signal that this pop may be temporary.

NBS commented that producer prices in the upstream sector, such as ferrous metals and cement, fell on weak demand due to paused construction projects amid the Lunar New Year holiday period.

Stocks were positive including the Hang Seng, and Copper has been signaling positive momentum.

Fed’s BTFP Expires Today

• The Federal Reserve's Bank Term Funding Program (BTFP) ends on March 11, following its role in stabilizing markets after Silicon Valley Bank and Signature Bank collapses.

• BTFP, created to prevent a financial crisis from spreading, provided liquidity to banks for depositor needs.

• Federal Reserve announced the program will issue loans until March 11, then banks can use the discount window for liquidity in stress periods.

• The Fed hiked rates for new BTFP loans in January to ensure that rates are at least equal to the interest on reserve balances on the loan day.

• Immediate pricing change ends an arbitrage that benefited U.S. banks due to expected rate cuts in 2024.

• No other program terms have been altered.

Chart of the Day

An interesting study done by Goldman shows that since late 2022, the S&P 500 has been driven more by micro factors (i.e., stock fundamentals instead of macro factors.

Much of 2022 was driven by the fear of the Fed hiking and recession fears.

The peak was Oct 2023 at 79% but, continues to be micro-driven at 71%.

Other Stories

• China Housing Min: Commercial banks have approved over CNY200B of loans for housing projects as of Feb, under the coordinated mechanism; Will improve home sales in an orderly and forceful way

• NVIDIA [NVDA]: Has been sued by 3 authors who said the co. used their books without permission to train NeMo AI platform - This is not good news for AI in general. It could set a precedent wherein more creators come forth and claim copyright issues.

• President Biden commented on the campaign trail over the weekend that he believed the Fed would lower interest rates but nothing was a guarantee.

• ECB's Kazimir (Slovakia, hawk) commented that cutting rates now would be premature; Confidence to cut rates would come in June when threshold was achieved. Needed more hard evidence that confidence threshold would be reached. Preferred smooth and steady easing. Inflation was slowing but not yet there; disinflation process remained fragile.

• Saudi oil giant Aramco on Sunday reported it made $121 billion in profit last year, down from its 2022 record due to lower energy prices.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)