BOJ’s Kuroda Squashes Speculation on Higher Rates This Year Bank of Japan Gov. Haruhiko Kuroda continued his efforts Tuesday to cool recent speculation that the bank will raise rates this year, indicating that the Japanese central bank wasn’t ready to join a global wave of unwinding led by the Federal Reserve.
Trucking companies are coping with a question they haven’t faced in years:
How much will it cost them to handle all the freight demand coming their way? U.S. truckers are seeing the strongest push for shipping capacity in years and raising rates at a fast pace, but WSJ Logistics Report’s Brian Baskin and Jennifer Smith write that it’s an open question whether the companies or their drivers will reap the windfall. Shippers already are paying premium rates. DAT Solutions say spot-market pricing has been growing at a double-digit pace, and contract prices are on a steep upward curve as customers try to lock in trucks in a strong economy. That should translate into bigger profits as trucking companies report fourth-quarter results over the coming weeks. Trucking company-costs are also surging, however, as companies look to bring in drivers and step up their orders for big rigs to handle the loads. With the U.S. labor market tight, hiring drivers has never been more expensive, but freight volumes show it’s also more urgent than ever. (WSJ)
How JPMorgan Will Spend a Big Chunk of Its Tax Windfall JPMorgan Chase is unrolling a $20 billion, five-year investment across its businesses based on benefits from recent tax-law changes, a softer regulatory environment and its overall growth.
The largest U.S. bank by assets is planning to open up to 400 branches in new markets across the country, grow its home lending to lower-income consumers and boost wages for some retail-banking employees, among other changes, Chief Executive James Dimon said in an interview. (…)
The bank’s effective tax rate will be about 19% this year and 20% over the near term, down from 35% previously, finance chief Marianne Lake said during an earnings call earlier in January.
Mr. Dimon said during the same call that the bank could have roughly $3.6 billion in additional net income in 2018 as a result of the tax overhaul. (…)
JPMorgan said it would boost wages for 22,000 lower-paid, full- and part-time U.S. employees largely in branches and customer service centers. Wages will increase to between $15 to $18 an hour, starting Feb. 25, up from $12 to $16.50 an hour. This is the second time the bank has boosted wages in the past two years; the most recent raise follows a number of large banks’ increases announced in December.
JPMorgan is also giving eligible lower-paid employees an annual award of $750 later in January, which it has done in prior years. Bank of America Corp. and U.S. Bancorp , among other large companies in other sectors, previously announced $1,000 one-time bonuses to many employees.
And for employees making less than $60,000, JPMorgan will reduce medical-plan deductibles by $750 a year.
The bank said it also plans to boost its philanthropic giving by 40% to $1.75 billion over five years, aiming to drive economic growth in local communities.
As U.S. Fires Trade Shot at China, Multinationals Caught in Crossfire
(…) From the vantage point of the Chinese leadership in Beijing, U.S. capitalism and democracy are digging their own graves, while Donald Trump is trashing America’s global reputation. A recent Gallup poll shows U.S. leadership approval ratings around the world plunging to about the same level as China’s.
Mr. Xi sees a historic opportunity to ditch the U.S. template and advance the Chinese development model as a credible alternative. His signature Belt and Road initiative to join East Asia and Europe with transport and energy infrastructure is a sign of confidence that China has the ability to reshape the global trade and investment environment.
The capitalist system “is rife with abuse,” a People’s Daily editorial opined. “A new international order is waiting to spring forth.” (…)
The dream of convergence is over; Robert Lighthizer, the hawkish U.S. trade representative, no longer bothers to try to negotiate market opening concessions from China. His report reflects a conviction that the two economies are now fundamentally divergent—essentially playing by a different set of rules, one open the other neo-mercantilist.
This week’s announcement of tariffs and quotas on U.S. imports of solar panels and washing machines marks the start of an effort by Mr. Lighthizer to focus on trade enforcement rather than compromise. This isn’t bluster, as some still think; it represents a profound shift. China and the U.S. are on a collision course. (…)
(…) Solar-industry leaders said tariffs will slow growth in solar-panel installations and the jobs they create, which are more plentiful than in solar-cell manufacturing, a relatively small industry in the U.S.
South Korean and U.S. washing-machine makers meanwhile tussled over whether the trade restrictions will help or hurt domestic jobs, with foreign manufacturers arguing that they will hamstring their efforts to build more appliances at new plants in America. (…)
But the most immediate impact of Mr. Trump opening the door to tariffs may be spurring retaliation by trade partners, as well as inviting more U.S. companies to seek help, said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics in Washington. That, in turn, could trigger additional trade skirmishes and fallout for U.S. workers and consumers. (…)
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No Trade War With China—Yet Solar and washing-machine tariffs won’t ignite a trade war. Broader action on intellectual property might.
(…) China is the world’s largest solar-cell producer but already faced steep U.S. tariffs that reduced its share of panel imports to just 11% in the first 11 months of 2017, down from nearly 60% as recently as 2011. Chinese firms producing in places such as Malaysia would get hit under the new tariffs, but Chinese workers wouldn’t feel the pain directly. The washing-machine tariffs, meanwhile, will mostly hit Korean manufacturers such as Samsung and LG Electronics. Monday’s action fits a pattern of focusing on high-visibility sectors that play well with Mr. Trump’s base but won’t hit China where it hurts. (…)
SENTIMENT WATCH
- More managers think this market rally will last through 2019 and beyond. (The Daily Shot)
Source: BofAML
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The public is also extremely optimistic. (The Daily Shot)
Source: @business; Read full article
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the money is flowing into US equity funds like never before since the dotcom bubble (FT)
It Has Been a Near-Perfect Investing Environment. But It May End Soon. For two decades, government bonds have provided what amounts to free insurance against stock-market struggles. But that’s a historical anomaly.
(…) From the start of 2000 to the end of last year, holding the latest 10-year Treasury and reinvesting coupons returned 155%, the S&P 500 with dividends 158%, while a 60-40 equity-bond portfolio beat both.
But the magic can’t continue forever. If the link between equity and bond prices were to return to what once counted as normal, the magic disappears—and there are good reasons to fear that could happen soon.
The danger is that bond yields rise without any corresponding strength in the real economy to protect profits and stock prices. The two most obvious causes would be the return of inflation or a shift of stance by the Federal Reserve to stop protecting investors from losses. (…)
It’s too soon to be sure that inflation is awake again after lying dormant for a decade, but there are signs that the tight U.S. jobs market is leading to higher wages. Technological advances such as online shopping still weigh on prices, but with little spare capacity, inflation should pick up. If investors switch focus from the economy to inflation, the nightmare would be higher bond yields and lower share prices.
The final risk is the Fed. (…)
…And the ECB (chart from Jeffrey Gundlach):
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KKR’s chief investment officer, Henry McVey via the FT’s John Authers:
As we are poised to enter the 104th month of economic expansion amidst the second longest bull market on record in the United States, it is definitely harder to get ‘what you want’ when it comes to uncovering new and compelling investment opportunities. Credit spreads are tight, margins are elevated, volatility is low, and valuations are full in many instances. We are also adding stimulus to the U.S. economy at a time when it probably is not needed. The good news, however, is that our work shows that investors can still ‘get what they need’ in order to generate returns in excess of their liabilities. A major underpinning to our global macro and asset allocation viewpoint in 2018 is that the current investing environment in many ways increasingly feels like the late 1990s. Specifically, across many of the asset classes in which we invest on a global basis, it appears to us that overly optimistic investors are currently overpaying for growth and simplicity in many instances, while at the same time ignoring stories with complexity, uncertainty, and/or cyclicality.
[M]aybe most importantly for long-term investors, were the current inverse relationship between stocks and bonds to break down (i.e., stocks sell off and bond prices decline, not appreciate) amidst stronger growth and less accommodative central bank policy, we believe that this shift in correlations could create a major dislocation that could catch many investors off-guard. This view is not our base case in the first half of 2018, but . . . it is one to which long-term investors should pay attention, particularly if the Fed is forced to accelerate its pace of tightening into a low unemployment, capex-constrained backdrop in the United States in late 2018 and/or early 2019.