Today belongs to China

March 23: From mining projects, to the rise of the renminbi, to the Chinese-led development bank, the economic winds are shifting

MORNING-PLAYBOOK-STORYStart this week by looking east.

This morning, Canada becomes the latest offshore trading hub for the Chinese yuan (also called the renminbi), as officials from both countries sign an agreement to help the currency flow more freely. The move mirrors clearing arrangements in London and other European cities, as financial hubs compete to be centres for Chinese business.

It’s not the only sign this week of shifting political winds. Last week, the U.S. was caught in a diplomatic snafu as European countries signed on to the Asian Infrastructure Investment Bank, often seen as a Chinese rival to the D.C.-based World Bank. More on that below.

Last week was dominated by the diverging paths of the U.S. dollar, which was strengthening in the lead-up to the Fed’s latest interest rate announcement, and the weakening of the euro after the European Central Bank began its massive asset-buying program designed to ease lending. At the end of the week, markets also hit new heights, with the tech-heavy Nasdaq hitting a 15-year record, and the industrial-heavy FTSE 100 hitting an all-time record. The TSX/S&P Composite Index ticked up almost 70 points, and the loonie gained almost a cent. This morning, oil is holding above $45 so far.

As always, there’s plenty to watch in matters related to Greece. Today, German Chancellor Angela Merkel has a hectic day, starting it off in Berlin with Greek Prime Minister Alexis Tsipras as they attempt to iron out a messy ongoing cash crunch, plus general bad feelings. Not much has changed in the negotiations, except that Tsipras has told Merkel the country simply can’t meet its debt payments without access to its EU bailout, something that has long been clear, even as the Greek government evasively claimed it did have the money.

There will also be home sales numbers in the U.S. today, and consumer confidence in the eurozone. Other things to watch this week are a speech by Bank of Canada Governor Stephen Poloz in the U.K. on Thursday, as well as budgets for Quebec and Alberta the same day. We’ll also see inflation numbers in the U.S. tomorrow, manufacturing for China, GDP in the U.S. on Friday, as well as another speech from Federal Reserve Chair Janet Yellen. This week could also be another tumultuous one for Brazil, which has been rocked by corruptions scandals and mass protests; the country announces its latest GDP numbers on Friday.

The Chinese Ivanhoe. This morning, a Hong Kong-based gold and copper mining company announced it had bought a $105-million stake—almost 10 per cent—in the Canadian mining company Ivanhoe, under Robert Friedland. Bloomberg reported the money will go towards copper mines in the Democratic Republic of Congo, and a platinum mine in South Africa, as part of a bigger investment by Zijn Mining in African mines.

When Canada met the renminbiThe agreement today means the Canadian dollar can be directly converted into renminbi, also called yuan, instead of first going through the U.S. dollar. The move is expected to reduce transaction costs for trade, as well as reduce the time that transactions need to take place, and will be the first hub in North America. But the agreement is also a political move, and recognition of the trade links between the two countries and, particularly, B.C., where more than 40 per cent of trade is with China. Iain Marlow at the Globe makes a good point about how, previously, there had been some tension over whether the hub should be located in Toronto, due to its status as a financial centre, or Vancouver, due to trade links. Interestingly, you can see some of the same questions in Europe, as London and Frankfurt vie to be renminbi trading centres: London has the financial infrastructure, but Germany has the trade. The Chinese currency, far from other major currencies, is still tightly controlled by the People’s Bank of China, and there are still many restrictions on access to the offshore renminbi, which is distinct from the onshore currency, and faces barriers to re-entering mainland China once it is taken offshore. Nonetheless, the ascent of the currency lately has been swift: In January, the yuan became the fifth-most-used global currency, surpassing both the loonie and the Australian dollar.

When Europe met China’s development bank. A good chunk of Europe jumped on the China train last week—or, at least, the Chinese-led development bank—despite loud displeasure from Washington. The Asian Infrastructure Investment Bank, which was formed last year, gained major credence as the U.K., along with countries, including Germany, France, Switzerland and Italy, applied to be members, and the IMF said it would be “delighted” to co-operate with the bank. But Washington, which considers the bank a rival to the World Bank, was not happy, admonishing Britain for pledging to participate, and saying the new bank could lack the credibility, transparency and values of Western-led institutions. However, that resolve seemed to soften somewhat over the weekend, as the U.S. suggested the new bank could co-finance projects with the World Bank, and it might strengthen world financial systems. So far, Canada has not applied to join the development bank. (You will hear about it when and if we do.)

When it comes to inflation and retail, gas prices are the common denominator. On Friday, Statistics Canada released both inflation numbers (for February) and retail sales (for January), and the main theme was, of course, oil. Inflation increased by one per cent year-to-year, staying steady from the previous month. Transportation was the only sector where prices decreased, flattening out the impact of the increasing cost of food and housing (alcohol and tobacco had the biggest gain.) The core inflation rate, which excludes more volatile sectors such as transport, alcohol and fruits and vegetables, was at 2.1 per cent, versus 2.2 per cent the previous month. (As your food prices have increased, it’s worth noting you’re probably getting even less for your money, as this CBC Marketplace investigation discovered.) Retail sales saw broad-based declines in January, falling by 1.7 per cent over all. Gas saw the strongest losses, with gas stations seeing a drop of 8.8 per cent, and, perhaps not surprising, the biggest decline in retail sales was at the heart of the energy industry: in Alberta.

Need to know:
TSX: 14,942.41 (+68.48), Friday
Loonie: 79.50 (+0.92), Friday
Oil (WTI): $45.68, Monday (6:45 a.m.)

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