The bloc’s finance ministers and central bankers left weekend talks of the Group of Seven signaling that they’re poised to scale back austerity, are open to increased monetary aid and looking to unfreeze bank lending. European officials will meet in Brussels today to discuss the economy and review aid payments for crisis-struck nations from Greece to Spain. (…)
Authorities are keen to rally lending at banks, which account for about 80 percent of corporate financing in the euro area, compared with less than 20 percent in the U.S. Small companies in the periphery are especially starved of cash, hurting a traditional engine for hiring.
But there’s this problem as FT Alphaville explains:
(…) Bad debts consume capital and make banks more risk averse, especially with respect to lending to higher risk borrowers such as SMEs [...]
It is not surprising that the periphery is exhibiting a rising pattern in terms of NPL ratios. What is worrying is the speed of increase, at 2.5% per year. Within the periphery, Greece is the outlier with a NPL ratio of 25%, and no signs of that abating yet. Ireland follows with a NPL ratio of 19%. Italy (at 13.4%) is above Spain and Portugal (at close to 10%) but this reflects the reporting biases mentioned above. (…)
The German divergence is making the task of the ECB very difficult both in terms of setting monetary policy for the whole region, but also in terms of dealing with an impaired transmission outside Germany. Draghi clarified in its latest press conference that it is not the ECB’s role to clean up banks’ balance sheets, meaning that the ECB is unlikely to deal itself with the €500bn large non-performing loan problem in periphery. (…)
However, the problem of NPLs may require more targeted solutions. This leaves the onus on sovereigns, or the ESM or other supranational bodies to deal with the more important problem of cleaning up bank balance sheets from non-performing loans and bad debts. (…)
While signaling acceptance of the yen’s decline through 100 per dollar for the first time since 2009, G-7 policy makers said they examined Japan’s strategy and that they will monitor its impact on currencies. The yen has fallen 15 percent against the dollar this year and 13 percent versus the euro as the Bank of Japan stepped up monetary stimulus.
“Everybody watches exchange rate developments,” German Finance Minister Wolfgang Schaeuble said after the meeting. “We had a very intense discussion about Japan with our Japanese colleagues.”
The yen weakened past 102 per dollar for the first time since October 2008 today. (…)
Canadian Finance Minister Jim Flaherty said that there were “expressions of concern” about exchange rates, although “all the countries in the G-7 consider themselves to be free-trading.”
A U.S. official said there had been an in-depth discussion on Japan, a day after Treasury Secretary Jacob J. Lew told CNBC Television that he had “made it clear that we’ll keep an eye on” ensuring countries aren’t trying to devalue exchange rates.
While ministers discussed recent stimulus efforts by central banks, “there is close attention that there are no unintended consequences on other countries both via capital flows or exchange rate movements,” Italian Finance Minister Fabrizio Saccomanni said in a Bloomberg Television interview with Francine Lacqua after the talks.
Schaeuble said finance ministers told the central bankers that they’re “increasingly concerned” about “relative high liquidity.”
Fujitsu Ltd., a Japanese maker of personal computers, plans to raise domestic prices as the yen’s drop to a four-year low boosts the cost of importing components.
The price increases will take effect by July and apply to models released in the summer, Chief Financial Officer Kazuhiko Kato said in an interview at Fujitsu’s Tokyo headquarters. The company may also curb discounts on existing lines, he said.
China recorded a modest improvement in its industrial output and retail sales in April but the slight gains were not enough to erase concerns over a weak recovery for the world’s second-largest economy.
Data released on Monday showed that industrial output in April came in at 9.3% over a year ago—a tally that was better than the weak 8.9% reading in March but below expectations of 9.5%, according to economists polled by The Wall Street Journal. Nomura analyst Zhiwei Zhang noted that April 2013 had two more working days than 2012; accounting for the difference, he figures that industrial production “likely slowed.”
The property sector showed continued signs of strength, despite the government’s crackdown on speculators. Investment in real estate development in the first four months of the year was up 21.1% to 1.92 trillion yuan ($312.3 billion), an acceleration from a low of 15.4% in the first 10 months of last year, the data released Monday showed.
Retail sales were 12.8% higher than a year ago in April, accelerating from a 12.6% increase in March, data from the National Bureau of Statistics showed Monday. But consumer reluctance to spend kept sales increases below the 15.2% mark recorded in December. Economists say that reflects in part the government’s campaign against corruption, which has hurt the restaurant and tourism industries among others.
China’s recent trade data surprised most observers but nevertheless cheered equity markets. Trade data are possibly the worst set of stats coming out of China (fake invoicing is a national sport there). Considering that most other data are pretty bad…A reader (tks Frank) sent me Eric Sprott’s view on Chinese imports and exports data. In the same vein, here is CLSA’s Andy Rothman’s analysis of the recent data related to Chinese consumers:
Consumption growth disappointed during 1Q, largely because nominal urban wage growth slowed to 8.3% YoY compared to 13.8% a year ago, according to the National Bureau of Statistics. This is, however, a bit of a mystery, given that firms we have spoken to reported that wages for both unskilled and skilled workers rose faster in 1Q than in the previous quarter, and that labor markets were tighter in 1Q than in the previous quarter.
As a result of slower wage growth, NBS reported that in 1Q, urban household disposable income rose by 6.7% YoY in real terms, down from 9.8% in 1Q12 and the slowest pace since 2001. To put the 1Q13 rate of 6.7% in context, the average annual growth rate for the last decade was 9.3%.
Real per capital rural cash income also rose at a slower pace in 1Q, 9.3% YoY compared to 12.7% a year ago, due in part to slower growth in food prices.
One positive sign is that despite slower income growth, real retail sales growth was 10.8% YoY in 1Q13, down only 0.1ppt from the first quarter of last year.
More troubling is that real household consumption growth was 7.3% YoY in 1Q, down from 10.6% a year ago and 7.8% in 4Q12.
Among all these peculiarities, Andy does not explain why retail sales growth was stable while consumption growth decelerated so significantly. To me, the important things to consider are:
- Domestic demand cannot be very strong when income growth is slowing so significantly and the party is so vigorously attacking corruption.
- Exports cannot be much stronger when most of China’s important trade partners are showing few, if any, signs of reacceleration.
- Most important, growth in electricity consumption, a more trustworthy stat, remains pretty weak.
Zerohedge adds this:
Of the 451 S&P 500 companies that have reported earnings to date for the quarter, 70% have reported earnings above estimates. This percentage is in-line with the average of 70% recorded over the past four quarters. However, only 48% of companies have reported sales above estimates. This percentage is below the average of 52% recorded over the past four quarters. If 48% is the final percentage, it will mark the third time in the last four quarters that the percentage of companies reporting revenue above estimates finished below 50%.
The blended earnings growth rate for Q1 2013 is 3.2% this week, unchanged from last week’s growth rate of 3.2%. On March 31, the Q1 earnings growth rate for the index was -0.7%. All ten sectors have witnessed an increase in earnings growth rates since that date, led by the Financials and Telecom Services sectors.
Corporations and analysts are lowering earnings expectations for Q2 2013. In terms of preannouncements, 69 companies have issued negative EPS guidance for Q2 2013, while 18 companies have issued positive EPS guidance. Analysts have taken down EPS estimates also, as the estimated earnings growth rate for Q2 2013 has dropped to 1.6% today from an expectation of 4.5% on March 31.
We should get the official S&P data pretty soon.
German airline Lufthansa said on Monday that April passenger traffic in terms of revenue seat kilometers was flat from a year earlier.
Food-stamp use rose 2.7% in the U.S. in February from a year earlier, with 15% of the U.S. population receiving benefits. (See an interactive map with data on use since 1990.) (…)
Food stamp rolls increased on a year-over-year basis, but were 0.4% lower from the prior month, the U.S. Department of Agriculture reported. (…)
The number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), reached 47.6 million, or nearly one in seven Americans.
Financial journalism lost one of its leading lights today when Alan Abelson died at the age of 87. Alan had served Barron’s as a writer, editor, and chief columnist the past 57 years.
(…) During his career, Alan trained dozens of journalists to be skeptical, to be exacting, to help average investors, and to be on the lookout for Wall Street’s crooks. About 10 of these fine journalists still work at Barron’s, I’m happy to say. Others have gone on to do ground breaking work at The New York Times, Bloomberg BusinessWeek, and numerous financial newsletters.
One of the unique things about Alan was that his keen knowledge of Wall Street was matched by his love of artful writing. Before Alan began his newspaper career in 1947, he earned a bachelor’s degree in English and Chemistry from The City College of New York and a master’s degree from the prestigious Writers’ Workshop at the University of Iowa, which counts among its alumni Flannery O’Connor, Jane Smiley, and John Irving. In our view, Alan ranks among them. (…)
Alan’s quest for truth and justice greatly enriched the traditions begun by Clarence Barron, who bought Dow Jones & Co. in 1902 and founded this magazine in 1921. A year earlier, Clarence Barron’s stories had exposed Charles Ponzi, the Boston swindler who gave rise to the phrase “Ponzi scheme.”
In 2001, thanks in large part to editors who trained under Alan, Barron’s published the first major story that questioned the investment claims of Bernie Madoff. Seven years later, Madoff was charged by the government and proved to be the Ponzi of our era.