Fed Is Ready to Raise Rates, but Key Bank Metric Suggests Caution
(…) Bank loans across all categories are growing 4.6% annually, the slowest pace since 2014, according to weekly Federal Reserve lending data from March 1. The trend is particularly marked in business loans, which are now increasing 3.9% annually, a rate that is a nearly six-year low. A number of factors are at play including rising interest rates; bankers also say some of their business clients put borrowing on hold before the U.S. election and aren’t yet confident enough to jump back in. (…)
Bank loans are one of the hard data not showing any economic momentum. This chart from David Rosenberg illustrates the weakness in borrowings in the last 3 months, that is since the elections.
Yet:
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CEOs’ Economic Optimism Jumps by Most in Seven Years Leaders of the largest U.S. companies are becoming more optimistic about sales growth, hiring and capital investment, causing a measure of chief-executive sentiment to increase by the most in seven years.
The Business Roundtable CEO Economic Outlook Index rose 19.1 points in the first quarter from the fourth quarter, to reach 93.3, according to a survey released Tuesday. It was the largest one-quarter gain for the index since the fourth quarter of 2009, when the economy was just emerging from the recession. Readings above 50 indicate economic expansion. (…)
The Roundtable survey showed CEOs upgraded their forecast for 2017 economic growth to a 2.2% increase, from the 2% gain forecast in December. (…)
“CEOs strongly believe that we can do a lot better than we’ve been doing,” he said. “With the right policies, this country can do better. We’re not believers that we’re stuck in low growth forever.” [J.P. Morgan Chase CEO Jamie Dimon] (…)
Mr. Dimon isn’t concerned that higher interest rates could slow growth. The Federal Reserve is expected to raise its benchmark rate at a meeting this week.
A rate increase is a “sign of strength, not a sign of weakness,” he said. (…)
The survey showed 41% of CEOs expect to increase hiring at their firms in the next six months, up from 35% in the prior quarter’s survey. And 46% plan to boost capital spending, also up from 35% in the December reading.
The NFIB surveys are also showing that exploding optimism has not triggered much actual spending just yet.
Could it be that companies are delaying expenditures waiting for the eventual tax reform that could allow full capex expensing in the first year? Maybe but weak capex spending is not a very recent trend as this Pictet chart shows:
The USA has not seen such widespread optimism for a very long time. Consumers, small business owners, CEOs, economists, strategists, commentators and investors are all displaying jolliness like if none of these groups includes any Democrat whatsoever.
Equity markets will occasionally feed from sentiment, boosting P/E ratios in anticipation of eventually higher earnings. But confidence alone is not enough. Equity markets need the proteins only supplied by actual profits to remain energized and healthy. David Rosenberg produced tables comparing various measures of confidence levels with equity returns 12 months later. Whether you look at consumer confidence, ISM surveys or the NFIB index, equity returns tend to be inversely proportional with confidence levels.
AMAZING CHART
From Pictet:
Natural-Gas Glut Deepens
A flood of natural gas swamping the U.S. is turning into a global glut, sinking prices and dimming the hopes of American producers to export their way out of an oversupplied domestic market.
Natural-gas futures have fallen 25% over the past 2½ months. The declines continued Tuesday, with April futures dropping 3.45% to $2.938 a million British thermal units on the New York Mercantile Exchange. Shares of gas-production companies are among this year’s worst performers. (…)
Many investors wagered that new gas-fired power plants and record exports would help burn off much of the excess supply in the U.S. But a historic level of exports hasn’t been enough to transform a market dominated by unpredictable weather and massive new supplies from fracking. (…)
One issue for U.S. producers is their own growing influence: More gas for sale world-wide—often floating on ships—eases bottlenecks that once drove big local price spikes. Global prices for natural gas have plummeted, down by half in some places in recent years.
Mild U.S. weather in February also has reduced demand. Warm winter temperatures sapped about 2.9 billion cubic feet a day of demand from the market this season, compared with just the 2.3 billion cubic feet a day of new exports added, according to Platts Analytics, a unit of S&P Global Platts. (…)
U.S. gas producers have nearly doubled their number of rigs from a historic low last year. Oil rigs also have nearly doubled, and they produce gas as a byproduct. Macquarie estimates that 9 billion cubic feet a day of new gas from oil wells alone between 2017 and 2021 will completely cover all new demand from exports.
Global supply is likely to increase by 44% in 2020 from 2015 levels and outpace new demand through the end of this decade, according to Moody’s Investors Service. (…)
Pipeline delays in Mexico and President Donald Trump’s pledge to change trade terms with that country could undermine sales to the most important export market for U.S. producers. Mexico last year received nearly 60% of U.S. gas exports, according to EIA. (…)
Oil Falls For 7th Day As Saudis Report Output Hike After Warning U.S. Shale Firms
(…) Saudi Arabia said it raised its oil production to 10.011 million barrels per day in February, up 2.7% from January, but still under the 10.05 million-barrel target the country agreed to under a production-cut deal reached last year between OPEC and top non-OPEC countries.
But the number conflicted with figures OPEC derived from other sources, showing Saudi production falling by 68,100 barrels a day to 9.8 million barrels per day. (…)
The OPEC report comes as Saudi energy minister Khalid Al-Falih told attendees at IHS’s CERAWeek energy conference in Houston last week that the output deal is “so far so good,” but his country “will not bear the burden of free rides” by others in the agreement. (…)
The Saudis can talk and warn all they want. American entrepreneurs are not just sitting on their hands and praying:
Source: @jsblokland, @DeanDijour via The Daily Shot
Meanwhile…
Strong Chinese Data Contain One Warning Sign: Flagging Consumption
(…) Value-added industrial output, a proxy for economic growth, expanded by a faster-than-expected 6.3% in the first two months of 2017 from a year earlier, compared with 6.0% growth in December,
Investments in factories, buildings and other fixed assets in urban areas rose by a better-than-expected 8.9% year over year in the January-February period, compared with an increase of 8.1% in 2016. (…)
Sheng Laiyun, a spokesman with the statistics bureau, said private investment in property, factories and other capital goods tied to Beijing’s public-private infrastructure projects is noticeably better. “The business environment has improved,” he said in a briefing. (…)
Property investment rose 8.9% in the first two months of 2017 to 985.4 billion yuan ($142.5 billion) compared with a 6.9% increase in all of last year, the statistics bureau said. Housing sales rose 22.7% by value in January and February from a year earlier, according to Wall Street Journal calculations, compared with a 49.2% increase in January-February of 2016. (…)
However, retail sales clocked the slowest increase in 11 years, with a 9.5% rise in the two-month period, according to the National Bureau of Statistics, compared with a 10.9% increase in December.
Goldman Turns Cautious on Stocks
Did you miss yesterday’s TAXATION MATTERS