The market woke up in a bad mood again, although today’s mood is darker than it has been. It appears the market is once again listening to the discredited ratings agencies as S&P murmured about potential downgrades in Europe, France being the largest target. It also appears the market did not like what JP Morgan had to say about its earnings.
Well, maybe the market did not like the earnings, but it has to consider the reality that loan revenue is increasing for the big bank. In the longer term, this is the new reality for banks as they move away from their proprietary trading activities.
Chief Executive Jamie Dimon [JP Morgan] said loan demand was improving.” As the economy continues to recover, we are gratified to see signs of improvement in loan demand and credit quality,” he said in a statement on Friday.
The market is also swallowing an Italian short-term bond sale that failed to reach its monetary target, but it did succeed in lowering its three-year yield below 5%.
Italy’s cost of borrowing has fallen at the government’s latest bond auction, though some analysts were disappointed by the level of demand. The interest rate on the government’s benchmark three-year bond fell to 4.83% from 5.62%.
Underneath all of the above is the data out of China that many see as bad news. I am not one of those. Global trade has been in China’s favor for some time, as its managed currency and its cheap labor supported its export driven economy. By design, that is all changing as China moves through its plans to make its economy a more domestic-consumption economy. Two of those changes are building a stronger middle class (higher wages) and a more flexible currency (an appreciating yuan). So, the “bad news” is actually good news, if you believe the Chinese engineers can pull of the transition without damaging the economy.
Data this week showed Chinese exports growing at their weakest pace in more than two years in December, helping shrink China’s 2011 trade surplus to a three-year low of $155 billion.
Consider this … If China’s trade surplus is dropping, who is the beneficiary? Well, the U.S. has the largest trade deficit in the world, and it is China’s largest trading partner by far, and the European economy is slowing. If demand increases at all, some economy has to pick up the slack …
On another note altogether … As we all know, the market has changed considerably with the advent of computers and the Internet. It has become more sophisticated, it has created ever more exotic trading derivatives, and it has fostered and integrated high-frequency trading with “seek and hunt” capabilities. Just so you know, your trading competition is getting better as well.
Many traders nowadays are recruited as university graduates with top marks from Oxford, Cambridge, Harvard and M.I.T., whereas 30 years ago aspiring youngsters with few, if any, academic qualifications often started as back office clerks and worked their way up to the trading floor.
If you are not using sophisticated software to find and confirm trades, you had better start.
Trade in the day – Invest in your life …
