☀️☕️ Climate Action Reaction

📝 Focus

• Climate Action Reaction

📊 In the Markets

• S&P holds over 5K; Inflation pressures; Fed patience

• Nikkei All Time in reach

• China Dragon Monday

📖 MoneyFitt Explains

• 🎓 Blue Chips

💸 Personal Finance Corner

• Estate Planning: What Is a Trust Fund and Why Set One Up?

📝 Focus

Climate Action Reaction

Major investment management firms, including BlackRock (US), JPMorgan, State Street, and, on Friday, bond specialist PIMCO, withdrew from the Climate Action 100+ Investor Coalition, raising concerns about the future of corporate climate activism. 

This coalition of over 700 investors managing $60 trillion globally was created to engage with the world's largest greenhouse gas emitters as substantial shareholders, i.e. not as crazed “radical protesters” but as the actual owners (and creditors) of those companies. The departure of over $14tn in voting power makes influencing shareholder proposals for carbon-emitting companies more challenging. (BlackRock transferred its membership to its international arm, cutting its involvement by 2/3rds.)

The withdrawals were ostensibly prompted by the coalition's Phase 2 strategy of pushing not only for disclosures but for emissions reductions, with the firms citing concerns over autonomy and independence in climate engagement. None cited growing pressure from Republican politicians, but critics swiftly condemned the move as yielding to US climate change deniers.

..... ▷ In Climate Action 100+ Phase Two, investors are urged to drive corporate climate action through to 2030. 

The focus moves from corporate climate-related disclosure to the implementation of corporate climate transition plans, including engagement with policymakers.

This ambitious phase builds upon the success of the initiative’s first five years, with 75% of Climate Action 100+ focus companies now committed to net zero.

..... ▷ Of course, those firms themselves don’t actually “own” those greenhouse gas emitting companies either. 

The money belongs to the end investors who pay these asset management giants to manage their money based on their needs and requirements. 

Critics emphasise that climate risk is financial risk. California's CalPERS is standing by the coalition, while NYC Comptroller Brad Lander says they will be considering the firms' actions in future investment allocations. 

Lander, who oversees NYC public pension funds, denounced the decision, accusing firms like BlackRock, JPMorgan, and State Street of bowing to climate deniers, failing in their fiduciary duties “and putting trillions of dollars of their clients’ assets at risk."

📊 In the Markets

US Stocks declined on Friday, led by the Nasdaq, as a higher-than-expected producer prices report that was the largest increase since August 2023 further dampened hopes for imminent interest rate cuts by the Fed, despite earlier hopes fueled by weak January retail sales. 

In January, producer prices rose 0.3%, driven by a 0.6% increase in services costs, signalling potential inflationary pressures after months of cooling, leading to rises in both Treasury yields and the dollar. 

Portfolio management fees (!!) also soared by 5.5%, likely influenced by higher stock market prices. 

This uptick follows the stronger-than-expected rise in consumer prices earlier last week, which prompted traders to start easing back expectations of Federal Reserve interest rate cuts even out in June, having only two months ago been confidently pricing in cuts in March.

The risk of higher readings in the personal consumption expenditures (PCE) price indexes, which is the Fed’s target inflation measure, looms with January data released on Thursday next week (29th February - a leap year!)

Fed talking heads continue to express caution, with the Atlanta Fed’s Raphael Bostic awaiting more evidence of easing inflation pressures and the SF Fed’s Mary Daly saying that “there is more work to do… We will need to resist the temptation to act quickly when patience is needed.”

The S&P 500 and Nasdaq both closed lower, with blue chip🎓 megacap stocks like Meta dragging down the market. Going the other way, semiconductor equipment maker Applied Materials surged 6% after logging adjusted earnings of $2.13 a share for the January quarter, compared with the consensus estimate of $1.90, and forecasting robust second-quarter revenue driven by demand for AI-related chips. 

Net net, the S&P 500 did close above 5,000 for the fourth time this year. 

Nikkei All Time in reach

Japan's Nikkei 225 continues to edge closer and closer to its all-time peak reached on December 29th 1989, despite facing economic challenges including a technical recession and losing its spot as the third-largest global economy to Germany. 

This economic slowdown may prolong Japan's ultra-loose monetary policy, which tends to be market-positive and also what's sending the JPY through the 150 mark vs the USD, giving Japan’s exporters a boost.

It's a reversal of the bullish JPY trade at the end of last year when a JPY interest rate hike seemed imminent, and expectations were that the Fed would be cutting as soon as March!

Markets like low rates and exporters like weak currencies... but higher rates could also trigger a tsunami of cash returning to Japanese shores… (MFM: A Yen Tsunami and a Big Mac.)

China Reopens Monday

On Friday, Hong Kong's Hang Seng index surged 2.4%, while mainland Chinese markets remained closed for the Chinese New Year holidays until Monday.

Over the weekend, China's central bank kept its key policy rate unchanged at 2.50%, as expected. Beijing wants to support the economy amid mounting deflationary pressures, but aggressive monetary moves could trigger currency depreciation and capital outflows, so the PBOC is prioritising a stable yuan by limiting negative interest rate differentials with the US dollar. 

However, some investors still speculate that there will be further easing measures to bolster the world's second-largest economy, especially after a recent deep cut to bank reserves.

Meanwhile, China's Year of the Dragon saw a surge in consumer spending and travel during the long holiday, with 474mn domestic trips recorded, up 34% year-on-year and 19% from 2019. This holiday period, the first unaffected by pandemic measures, is a crucial gauge of consumer sentiment. 

Policymakers are banking on domestic demand to revitalise the economy amid a property crisis and weak investor confidence. Tourists spent Rmb633bn ($89bn), up 47% from the previous year and 8% from 2019. 

Overseas travel to destinations like Singapore, Malaysia and Thailand also increased, with Singapore and Malaysia recently offering visa-free travel to most Chinese citizens.