The Banking and Strategy Initiative

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The Thursday Fed Update: Non revolving credit up, Canada and China step up to the plate

The Afternoon’s Consumer credit report from the Fed (G.19) had a double cause to cheer as Non revolving credit grew 7% on April 2011 to take the Consumer credit above $2.5T even as revolving credit was down 4.75% on the year. Most of the increase went to Credit unions even as Reserve Bank Credit for the week was down $3.5 B on the average and M2 tighter yet in the same range this eek as it shrunk a small $2.8 B

Meanwhile the Fed’s borrowing program is as strong as ever with $60B in Bills less than 1 year and more than a $100 B in 3Y , 10Y and 30Y notes on auction this coming week including more to be announced on Tuesday.

The Balance sheet is up to $2.854 T up $9.3B after a big $16B shrinkage last week as Central Bank Liquidity Saps were back in the mix and Treasuries holdings rose by $7 B

The morning Jobless claims report was a still high 377,000 jobs but good news from Canada and China will likely bring home the bacon for equity markets as the Ivey PMI for Canada shot up to 66 and that can mean only good things for the Economy across the border from the falls.

Global Demand

China’s pronouncements for a 25 bp rate cut on the Sovereign Deposit rate and the lending rate to 6.31% and 3.25% from June 8 on the back of another 25 bp cut for the Reserve ratio (RRR) just a couple of weeks ago. Chinese Banks have already reported a RMB 1000 B number and more for May lending encouraging Copper and the commodities markets in general after the announcement even as the Dollar Index receded to 82 this week

Meanwhile Japan was also not the one subscribing to the Central Bank saps as its on the same Pacific Economic miracle as Australia producing a remarkable 1.2% growth in the quarter with Y/Y growth up to 2.7%. This quarter growth kept pace in Consumption that is 60% of the GDP even as investment ( and Govt Spending) was actually down 2.1%. The US GDP came below 2% for the quarter’s Year on Year growth. Japanese Domestic Demand is up 1% and that could mean good depreciation for the Yen even as the index ticks down

Fed Speak

The Fed’s indeed happy with the results from the Beige Book that were released by Dallas Fed this week, showing moderate growth across regions so the Fed Chairman’s likely stance from his speech on Thursday remains QE unfriendly. While he mentioned that the Fed is ready to actif stresses mount, it seemed more like “only if skies fall” (Marketwatch) The Fed meeting in June will have some more easing announcements though as Lockhart(Atlanta Fed), Rosengren(Boston Fed) and even Vice Chairman Janet Yellen mentioned a stalled recovery in various forums. Lockhart puts more negative influence from Europe, Rosengren pointed out Fed still has the flexibility to help and Yellen remarked on the stalled improvements in the Labor market and the weak Financial Condition before they meet at the FOMC on June 19-20. The Minneapolis Fed President Narayan Kocherlakota joined in commenting on Jobs growth that remains disappointing. He was speaking in South Dakota

Bank of England

Bank of England (Photo credit: Wikipedia)

Bank of England pronouncement

Bank of England in the meantime let rates be at a low 0.5% meaning inflation was in control as reported last week. They also did not go in for more stimulus as the bond buying program is already GBP 325 B. However at least three new appointments need to be made to the Bank of England in the coming weeks with policy maker Adam Posen leaving for the Peterson Institute. The new Governor and Dy Governor will take over the institution amidst a change in its role with direct supervision of the Financial sector and veto powers to the government in power as proposed by George Osborne in response to the RBS saga in the UK that brought down the house in 2007



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