It seems the market has been waking up in a bad mood the last few days. Again, I say, I am impressed that it has not rolled itself into a ball and rolled down the nearest hill. Well Friday is a big day after all, so maybe it is waiting to see what comes about then …
A recent rise in loans to businesses is spurring hope that U.S. bank earnings reports, which begin on Friday, will show the outlook for this economically critical industry is better than battered stock prices and weak investment banking volumes suggest.
A recent rise in loans to businesses you say? That is rather vague, don’t you think? Perhaps you could give me some numbers to exemplify what you mean …
Loans to commercial and industrial businesses by large banks grew 5.2 percent in the fourth quarter through December 28, according to Federal Reserve data. That is more than a 20 percent annualized rate and an acceleration from the 3.1 percent and 3.4 percent increases in the two previous quarters.
Well, that is explicit, but what is it telling us? One thing these numbers say is that U.S. business is active, that business is borrowing money and that usually means expansion and growth. Another thing the number is telling us is that banks are lending. Now, this is nothing new, despite the noise out there about how difficult it is to get a loan. In 2011, business borrowing rose substantially over 2010 and a lot of the growth came in Q3 and Q4. The important aspect to this is that banks are getting back into the business of lending, which creates a rippling effect throughout the economy, and it means a potential rise in revenue and profits for banks.
A lasting upturn in demand for loans to finance investment would be good for the economy and, in turn, rebuild profits from consumer lending, investment banking, and asset management.
This brings us back the Friday’s earnings reports and why the market is probably sitting tight. JP Morgan is the first out of the gate and the numbers from that giant will give us the first sign whether the big banks are successfully making the transition from “traders” back to bankers, you know, the folks who used lend money to build their portfolios. Now, moving to the other side of the world, there is good news out of China.
China’s inflation rate eased to a 15-month low in December … Consumer price inflation of 4.1 percent, just ahead of market expectations of 4.0 percent, extended an easing trend of the last five months to reinforce the view of many that the central bank is poised to ease monetary policy.
It appears China has achieved its goal of 4% inflation for 2011. The question now is how much stimulus will the government apply to reinvigorate the economy? I suspect that whatever they do to assure a soft landing will come incrementally and carefully, as the Chinese economy wants to grow no matter the brakes applied.
Moving across Asia and into Europe, today’s news from the beleaguered region is good as well. The Spanish and Italian bond sales today went better than expected, dropping Italian 10-year bond yields below 7% again. Yes, the yields need to go lower, but, again, the right direction is the thing to look at. Don’t ever forget, in this business, perception is reality. Confidence is the name of the game …
Trade in the day – Invest in your life …
