Daily Agenda: Central Banks in the Spotlight Again

Markets brace for BOJ, Fed meetings; Chinese data disappoints; Starwood gets new bid; populism surges in Germany; millions march in Brazilian protests; Egypt devalues.


Kiyoshi Ota

Investors return from a weekend in which populist political campaigns and terror attacks dominated headlines. Announcements following meetings from the Bank of Japan tomorrow and the Federal Reserve on Wednesday, not to mention commentary by China’s top banker last Saturday (see below) and the European Central Bank’s easing last week, brings central bank monetary policy to the forefront of market narratives. With increasingly divergent growth signals between the U.S. and other developed economies, many analysts are anticipating depening policy divergence to shape the global market equilibrium.

Zhou downplays concerns as China data falls short. Retail sales and factory output data released over the weekend by China’s National Bureau of Statistic fell short of consensus analyst forecasts. Retail sales rose 10.2 percent year-over-year versus expectations for a 10.8 percent expansion, following 11.1 percent in January. Separately, factory output grew 5.4 percent versus the same month last year. During a press conference in conjunction with the national legislature meeting in Beijing on Saturday, People’s Bank of China Governor Zhou Xiaochuan dismissed concerns that excessive stimulus will be required to meet growth targets, reiterating that flexible and adjustable monetary policy could do the job. One bright spot among the weekend’s data was stronger-than-forecast urban fixed-investment figures for January.

Refugee crisis costs Merkel in German elections. The Christian Democratic Union, the political party of German Chancellor Angela Merkel, fared worse than anticipated in regional legislature elections in three states over the weekend, including the party’s worst post-World War II showing in Baden-Wuerttemberg. The populist, anti-immigrant Alternative for Germany party had its best showing yet, winning over 20 percent of the popular vote in Saxony-Anhalt.

New bid emerges for Starwood. Management of Starwood Hotels & Resorts Worldwide announced on Monday that the Stamford, Connecticut-based hospitality company has received a $76 per share unsolicited bid. The proposed acquisition, led by Chinese firm Anbang Insurance Group, throws a last-minute monkey wrench into the $12.2 billion purchase by Marriott International that had already received board approval at both firms.

Millions join Brazilian protests. The total number of people who joined street protests in Brazilian cities, including Sao Paulo, over the weekend exceeded three million by some estimates, setting records for scale, as voters expressed frustration over the ongoing Petrobras scandal. The political landscape in South America’s largest economy is facing extraordinary upheaval with President Dilma Rousseff facing possible impeachment and the recent arrest of former President Luiz Inácio Lula da Silva casting a shadow over the political and business establishment in the nation.

Chinese developer buys property portfolio from Citic. On Monday a $4.8 billion deal was announced in which China Overseas Land & Investment will acquire a residential property portfolio from Citic spanning more than 20 major Chinese cities. After the transaction Citic will hold 10 percent of China Overseas. Some analysts note that Citic’s portfolio will bring exposure to less-rapidly growing interior cities which represents new and more challenging markets for Chine Overseas.

Italian Bank on the block. Shares in Banca Monte dei Paschi di Siena, one of the oldest continually operated banks in the world, surged in trading on Monday after media outlets reported on pressure by the Italian government and the European Central Bank to find a buyer. Paschi, Italy’s third-largest lender by assets, has struggled to rein in risk in recent years. The Italian banking system has become a major focus for ECB regulators in recent quarters with non-performing loan ratios that some analysts estimate exceed 15 percent.

Egypt devalues. On Monday, the Central Bank of Egypt released roughly $200 million into the financial system, at a 13 percent lower value than the previous exchange rate, triggering a surge in equities that lifted the Benchmark EGX 30 index by more than 4 percent intraday. Policymakers in Cairo have acted in response to declining foreign currency reserves as international trade came under pressure from lack of dollars after foreign investment was interrupted by the 2011 regime change.