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Breakfast Bites - US Govt Shutdown chatter

Breakfast Bites - US Govt Shutdown chatter

China FDI Falls; German CB runs at loss; Aramco's new find; New Weight Loss drug contender

Ayesha Tariq
February 26, 2024

Rise and shine everyone and Happy Monday.

Today we have new home sales and a 5-year note auction. We have a busy week going into month end with US PCE Inflation data on Thursday 29 Feb, and US housing data throughout the week. Japan will report inflation data later this evening / early tomorrow morning and Euro ARea inflation numbers are also due on Thursday.

We have 12 Fed Speakers this week!

Discussions of a government shutdown are picking up as we head into the March 1 deadline for a partial shutdown and the March 8 deadline for a full shutdown. President Biden noted that a meeting with Congressional leaders on Tuesday, Feb 27th to discuss Ukraine and the government shutdown.

Only Japanese equities rose in early Asian trading (Nikkei + 0.5% to a fresh record ATH); The Nikkei had a holiday on Friday and also noteworthy over the weekend was confirmation from Berkshire Hathaway that it had further increased holdings in its 5 Japanese trading companies to ~9%. (Marubeni +5%, Mitsui +3%, Mitsubishi +2%, Sumitomo +1.3%, Itochu +1%).

European indices opened mixed with a downward bias that became dominant as the session wore on; better-performing sectors include communication services and technology; sectors leading the way lower include materials and energy; the oil and gas sub-sector was under pressure following a drop in crude prices.

China’s Foreign Direct Investment Falls

In January 2024, foreign direct investment (FDI) into China decreased by -11.7% from the previous year, totaling CNY 112.71 billion or approximately $15.66 billion. It should come as no surprise after the USD bond defaults from the property developers. China’s lack of government support has created a crisis of confidence, not just from citizens but foreign investors as well. This is also weighing on the currency.

Germany’s Bundesbank Operates at Loss

The German central bank utilized €19.2 billion from its provisions and €3.1 billion from its reserves last year to cover losses incurred from rising interest costs. It is anticipated that the Bundesbank will face another substantial loss this year, surpassing its remaining €700 million in reserves.

This situation poses a challenge for the nation's esteemed financial institution, particularly in light of the European Central Bank's bond-purchasing initiative, which was met with resistance from officials at the Bundesbank. The losses are attributed to the discrepancy between the higher interest rates paid to commercial banks and the yields from its extensive collection of government bonds. The bank intends to defer any deficits, planning to balance them against future earnings, similar to its approach in the 1970s.

Chart of the Day

While Germany languishes with weak manufacturing data, the stronger PMI data coming out of France may have changed the outlook for the ECB. “Swap contracts show less than four 25 basis-point cuts are priced through the end of 2024, down from as many as seven at the end of last year.”