U.S. Consumer Credit Usage Continues Moderately
Consumer credit outstanding increased $14.1 billion during November following an upwardly revised $16.0 billion October rise, initially reported as $13.2 billion. During the last ten years, there has been a 54% correlation between the y/y growth in consumer credit and the y/y growth in personal consumption expenditures.
BTW: FHA will reduce annual mortgage insurance premiums by 0.5%, giving the “typical” first time homebuyer a $900 cut in yearly mortgage payment. This is roughly the
same as a -50bp cut in mortgage rates. (ISI)
Car Loans See Rise In Missed Payments Borrowers who took out auto loans over the past year are missing payments at the highest level since the recession, fueling concerns among regulators, analysts and some in the car industry that practices that helped boost 2014 light-vehicle sales to a near-decade high could backfire.
“It’s clear that credit quality is eroding now, and pretty quickly,” said Mark Zandi, chief economist at Moody’s Analytics.
More than 2.6% of car-loan borrowers who took out loans in the first quarter of last year had missed at least one monthly payment by November, the highest level of early loan trouble since 2008, when such delinquencies rose above 3%, according to an analysis of data performed for The Wall Street Journal by Moody’s Analytics.
The uptick comes amid an increase in subprime auto loans, raising concerns that car buyers may have taken on more debt than they can handle. For that set of borrowers, defined as consumers with a credit score lower than 620, loan performance also is deteriorating.
More than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November, according to the Moody’s analysis of Equifax credit-reporting data. That was the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%. (…)
The rise in delinquency rates shouldn’t be surprising given the rebound in subprime lending, said Melinda Zabritski, director of automotive credit for Experian. Lending to below-prime borrowers accounted for about 23% of the vehicle-finance market in the third quarter, up from 21% in 2009 but still below pre-recession levels of 28% in 2007, according to Experian. (…)
These borrowers are direct beneficiaries of lower oil prices.
Eurozone Industrial Output Falters
Official data released Friday showed industrial output in Germany fell on the month in November by 0.1%, bucking expectations for a 0.4% rise in a Wall Street Journal survey of analysts. Germany’s trade surplus also narrowed more than expected as exports declined and imports increased.
October’s output rose a revised 0.6%.Energy output declined 2.4 percent in November from the previous month and construction fell 0.6 percent, today’s data show. Manufacturing rose 0.3 percent, driven by gains in output of investment and consumer goods.
French data also disappointed. There, industrial output fell unexpectedly in November, declining 0.3% on the month from October. Analysts polled by the Journal had predicted an increase of 0.2%.
In Spain, the news was also negative. Industrial production declined by 0.1% on the month.
ECB Said to Study Bond-Purchases Up to 500 Billion Euros
China Inflation Inches Higher China’s consumer inflation ticked up slightly in December, but a further slide in factory prices raised new concerns over weak demand in the world’s second-largest economy.
The consumer-price index gained 1.5% year-over-year in December compared with a 1.4% increase in November, the National bureau of Statistics said on Friday. The uptick in prices largely reflected a slightly faster pace in food-price increases, with the consumer-price index rising 2% for all of 2014—well below the government’s 3.5% target and representing its smallest increase in five years.
In December, the producer-price index, which measures prices at the factory gate, slipped 3.3% from a year ago for its 34th month in a row of declines, with the fall accelerating from the 2.7% drop in November. For 2014 as a whole, the producer-price index fell 1.9%. Excess capacity, particularly in heavy industry, has been blamed for much of the drop.
Looking at monthly trends, deflation is not a concern in China at this time.
CHINA CREDIT SHOWS UNSEASONAL RISE IN DECEMBER
China’s banks usually lend less in December because of low year-end demand. At the end of 2014, though, banks may have broken the seasonal pattern, extending nearly double the amount of new loans compared with the same period in 2013. The main reason is the PBOC’s lending rate cut in November. (BloombergBriefs)
China LDR Change Paves Way For Bank Loan Expansion
The decision by the People’s Bank of China to relax the rules for calculating bank loan-to-deposit (LTD) ratios in 2015 will facilitate increased bank lending, says Fitch Ratings. If this leads to another round of monetary stimulus and loosening of credit conditions, it would reaffirm Fitch’s concern about Chinese bank asset quality and the risks from a fresh round of rapid credit expansion.
The rule change by China’s central bank, as stipulated in a document recently reported by local and international media, broadens the definition for deposits when calculating the LTD ratio. Notably, these include interbank deposits from non-deposit taking financial institutions and placements relating to securities and trading settlement. Initially, the reserve requirement ratio for these newly defined deposits will be set at zero.
These changes would reduce the existing ratio by up to five percentage points, according to market estimates, enabling banks to boost credit by up to CNY5.5trn-6.0trn This would go a long way toward supporting Fitch’s forecast that by year-end, total adjusted credit will hit 260% of GDP, thereby extending an unprecedented rapid rise in system leverage. (…)
The ratio calculation had previously been relaxed earlier in 2014 by the China Banking Regulatory Commission to spur lending to small and micro enterprises (MSEs), and the latest move follows a lending rate cut in November. As such, Fitch maintains its view that this could prompt banks to revert to a volume-driven, expansionary stance. This is especially so as the government has been focused on targeting increased lending to the potentially higher risk MSE sector.
It is important to note, though, that the change in the LTD ratio calculation could also lead to more off-balance sheet lending moving back on to bank balance sheets. Increasing the disclosure of shadow bank lending on the balance sheet would improve transparency – something that has scope for considerable improvement, and continues to weigh negatively on bank ratings. By recognising these exposures as loans, banks would also have to increase provisioning against non-performing assets.
Brazil December Inflation Accelerates Most in Nine Months Brazil’s inflation accelerated to the fastest rate in nine months in December as the central bank raises rates in the face of flagging growth.
Monthly inflation as measured by the benchmark IPCA index accelerated to 0.78 percent from 0.51 percent in November, the national statistics agency said today in Rio de Janeiro. That matched a median estimate for a 0.78 percent rise from 42 economists surveyed by Bloomberg. Annual inflation slowed to 6.41 percent from 6.56 percent a month earlier, dropping within the target range.
How OPEC Weaponized the Price of Oil Against U.S. Drillers
(…) The global oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates.
The four Middle East OPEC members are counting on combined reserve assets estimated by the International Monetary Fund at $826.4 billion to withstand the plunge in prices. Petroleum represents 63 percent of their exports. At least 10 calls and several e-mails to the oil ministries of all four countries on Jan. 7 and yesterday weren’t answered.
The price decline will cost all 12 OPEC members a total of $257 billion in lost revenue this year, according to the EIA. Venezuela has a 93 percent chance of defaulting on its debt over the next five years, according to CMA, a data provider owned by McGraw Hill Financial Inc. (…)
Mexico Cuts 10,000 Oil Service Jobs as Pemex Funds Fall
More than 10,000 people working at Mexican oil service companies were laid off this week as state-owned Petroleos Mexicanos cut contracts in the face of the global slump in crude prices. More job losses are expected.
Most of the companies are based in Ciudad del Carmen, on the Campeche Bay in theGulf of Mexico, and were told this week that contracts wouldn’t be renewed with Pemex, as the world’s ninth largest oil producer is known. Job losses could rise to 50,000, Gonzalo Hernandez, secretary at the Ciudad del Carmen Economic Development Chamber, said in a phone interview.