Global Risk ON: PBOC Unleashed a Historic Credit Tsunami in January! ECB and BOJ Jumpstarts Balance Sheet Expansions!
Wonder why Global Stocks supposedly had the best returns since 1987 in January 2019?
Chart from Bloomberg
From Reuters: China’s total social financing (TSF), a broad measure of credit and liquidity in the economy, hit a record 4.64 trillion yuan ($685.01 billion) in January, far more than expectated, data from the central bank showed on Friday…The rise in financing levels should allay some of the anxiety about weakening credit growth as China’s economy slows. TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales. The People’s Bank of China has revised the way it calculates TSF by adding financial institutions’ asset-backed securities and loan write-offs. It has also added local government special bonds issuance into the TSF calculation from September. TSF is used as a barometer of fundraising trends and can provide some clues on activity in China’s vast and unregulated shadow banking sector.
Chart from Yardeni.com
More…
From Reuters: China’s banks made the most new loans on record in January - totaling 3.23 trillion yuan ($477 billion) - as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown in the world’s second-largest economy. Chinese banks tend to front-load loans early in the year to get higher-quality customers and win market share. But they have also faced months of pressure from regulators to step up lending, particularly to cash-starved smaller firms. Net new yuan lending last month was far more than expected, and eclipsed the last high of 2.9 trillion yuan in January 2018.
The same article on corporate credit…
Demand for credit picked up sharply in the corporate sector, followed by the household sector, according to data released by the People’s Bank of China (PBOC) on Friday. Corporate loans jumped to 2.58 trillion yuan from 473.3 billion yuan in December, while household loans rose to 989.8 billion yuan from 450.4 billion yuan, according to Reuters calculations based on the PBOC data. Corporate loans accounted for 80 percent of new loans in January, up sharply from 44 percent in December.
China bank lending expanded by a gigantic USD 2.5 trillion year on year on January 2019 while Total Social Financing exploded by USD 3.1 trillion!
China’s estimated GDP in USD is at 13.457 trillion, which means 2018 bank lending growth signified an 18.6% share while TSF growth accounted for 23.06% share of the GDP.
In other words, in the face of snowballing defaults, the Chinese Government PANICKED!
It’s not just China.
From Reuters: Cheap bank loans, a form of stimulus first launched by the ECB during the global financial crisis, look set to make a comeback in coming months and investors anticipate shorter term loans with a variable rate to allow the central bank flexibility. It’s just two months since the European Central Bank wrapped up its 2.6 trillion euro (2.3 trillion pounds) bond-buying scheme, but with euro zone growth at four-year lows and other global central banks already backtracking on policy tightening, bond market expectations of ECB action are on the rise. That’s expected to take the shape of a loan package for banks — known as Long Term Refinancing Operations (LTROs) or the more targeted TLTROs. Details could come in March or June at ECB meetings that would coincide with updates of the central bank’s economic forecasts. LTROs or TLTROs — which ECB sources say are a priority over other measures — should lower funding costs for businesses and households and offset the effect of negative interest rates on banks, investors argue.
From Reuters: Bank of Japan Governor Haruhiko Kuroda said on Wednesday that it was his responsibility to achieve the central bank’s 2 percent inflation target by persistently continuing its stimulus policy. Speaking to a lower house budget committee, Kuroda also said he would closely examine the central bank’s stimulus policy so that it would not cause side effects.
From Reuters: The U.S. Federal Reserve should stop paring its balance sheet by the end of this year, Governor Lael Brainard said on Thursday, suggesting the Fed could wind up with a permanently bigger balance sheet than had been expected even a few months ago. The Fed’s “balance sheet normalization process has really done the work it was intended to do,” Brainard said in an interview on CNBC, adding that she would not want this policy tool, which is tightening financial conditions, to run counter to interest-rate policy. At its January meeting, the Fed put further rate hikes on hold.
All of a sudden central banks have been talking about easing!
Unfortunately, at 2.25 to 2.5 for the FED, ZERO rates for the ECB, and -.1 for the Bank of Japan, leveraging monetary policy through interest rate channel has been limited.
Central banks thus would have to deal with negative interest rates and balance sheet expansion through Large Scale Asset Purchases or Quantitative Easing.
Chart from Yardeni.com
And last week’s public statements weren’t just talks, the BoJ and the ECB backed the PBOC by expanding their balance sheets in January.
So to support the stock markets, central banks would have to keep expanding their balance sheets thus feeding on the global debt pile which is at USD 244 trillion as of the 1Q 2018 or 318% of the GDP (government debt at USD 66 trillion or 80% of theglobal GDP)
The BSP will be next. But it will first cut reserves.
Global central banks panic, stock markets love them.
We are at uncharted territory.
Anyway, it’s the year of the PIG.
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