Category Archives: Credit

Saudi Price Cut, Domestic Car Sales, Commercial Paper

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This is how they would start a downward price spiral if that’s what they wanted:

Saudi Aramco Cuts Crude to Asia, U.S. Amid Weak Demand

By Anthony Dipaola

Oct 4 (Bloomberg) —Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand.
Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said in an e-mailed statement. The discount for the Medium grade to Asia, the main market for Saudi crude, widened by the most since the state-owned company made a $2 a barrel cut in February 2012, according to data compiled by Bloomberg.

Doesn’t look so good (Imports aren’t part of GDP):
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Here’s the foreign car sales:
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Even total sales don’t look all that stellar.

The growth rate has to match the prior year growth rate to make the same contribution to GDP:
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The rest of the bank lending charts haven’t updated yet. Will post when I get the updates.

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Bank capital and lending comment

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So the idea is that with higher capital ratios banks are less prone to ‘get in trouble’.

So let’s say minimum capital requirements go from 8% to 10%. Most banks try to stay about 1% over the limit to be safely compliant.

That means that when requirements were 8%, most banks had 9% to be ‘safe’ and with 10% required, banks are at 11% to be ‘safe’

Now let’s say today’s banks have losses of 2% of capital, which brings them down to 9%, 1% under the new limit. When that happens is the regulators call it a ‘troubled bank’ and suspend new lending until ‘good standing’ is restored. And cessation of bank lending triggers a general, downward, pro cyclical credit contraction.

In other words, the increase in capital requirements didn’t prevent the same 2% drop in capital from having the same negative effect.

Yes, the increased capital may help to protect ‘tax payer money’ to some degree should banks be liquidated, but it does nothing to protect the macro economy from a contractionary pro cyclical downward spiral.

And all it takes is a drop in asset prices to shut down lending, a risk I pointed out late last year when oil prices collapsed. Stocks were the cheapest source of borrowing for many, and with that equity evaporating that lending contracts. Lending vs commodities related collateral also contracts. etc.

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Existing Home Sales, Household Equity, Credit Check

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Reversing as suspected after rush to buy before possible Fed hikes:

Existing Home Sales
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Highlights
Though slowing in August, existing home sales are still healthy and trending higher. Existing home sales came in at a lower-than-expected 5.31 million annual rate in August which is the lowest since April. July was revised down just slightly but is still an 8-year high at 5.58 million. At 6.2 percent, growth in year-on-year sales is the lowest since February. The year-on-year median price, up only 4.7 percent to $228,700, is the lowest since August 2014. The report cites no special reasons behind August’s softness, but notes that it follows prior strength, in fact six months of strength.

With the in dip sales, supply relative to sales is less tight, at 5.2 months from 4.9 months in the prior two months. But there’s still a lack of homes on the market, evidenced by a comparison with the year-ago supply at 5.6 months.

Details show high mid-single digit declines across regions except the Northeast where the August sales rate was unchanged. Year-on-year, data are very well balanced with high mid-single gains for all.

Despite low mortgage rates and soft prices, the housing sector isn’t exactly on fire. Watch for FHFA house prices on tomorrow’s calendar, which are expected to rise, and also for new home sales on Thursday which are also expected to rise.
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Lower inventories tend to reduce sales:
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Returning to ‘normal’ but not there yet:
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This growth rate continues to slip:
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Minimal credit expansion:
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Not accelerating:
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Nothing happening here, either:
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Credit check, Jobs comment, ECRI update, Saudi statement

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Commercial paper nudges down a bit, bank loans up a bit, so not much happening on balance:

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BLS Jobs Situation Disappointing in August 2015. Growth Rate of Employment Continues to Slow.

By Steven Hansen

The BLS jobs report headlines from the establishment survey was disappointing. The unadjusted data shows growth is at the lowest levels since the Great Recession. Hey, if the kids were not going back to school (teachers being hired) – this report would have been a disaster.

Rail Week Ending 29 August 2015: Shows a Decline for the Month of August

Week 34 of 2015 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements. but weekly railcar counts continued in contraction. Total rail traffic for the month of August declined 0.8 %.

28 August 2015: ECRI’s WLI Growth Index Slides Deeper Into Contraction

ECRI’s WLI Growth Index which forecasts economic growth six months forward – slid further into negative territory. This index had spent 28 weeks in negative territory then 15 weeks in positive territory – and now is in its third week in negative territory. ECRI also released their inflation index this week.

Saudi confirms price cutting strategy:

U.S. Oil-Production Decline to Accelerate: Saudi Aramco Chairman

By Brian Wingfield

(Bloomberg) — U.S. crude production will decline before global oil markets recover, Saudi Aramco Chairman Khalid Al-Falih said.

“We expect the decline from the U.S. to accelerate as we go forward” because many rigs have already been demobilized, Al-Falih, who is also his nation’s health minister, said today at the U.S.-Saudi Investment Forum in Washington. “A re-balancing is taking place as we speak.”

Officials from Saudi Arabia, the world’s largest oil exporter, are visiting the U.S. as King Salman meets with President Barack Obama at the White House to discuss issues ranging from regional security to energy. Global oil prices have declined by more than 50 percent within the last year as world supply has exceeded demand, triggering thousands of job losses in the energy sector.

The Organization of the Petroleum Exporting Countries, of which Saudi Arabia is the largest producer, said in a report Aug. 31 it’s willing to talk to other nations about achieving a “fair” price in global markets.

The U.S. Energy Information Administration, the Energy Department’s statistical arm, projects domestic production to decline to 8.8 million barrels a day by next August before recovering later in 2016. U.S. production in June was about 9.3 million barrels a day, according to the EIA.

Al-Falih said he’s concerned that low prices may undercut investment in the oil industry, leading to future shortages. It’s “inevitable that oil markets will recover,” he said. “We’ve already started seeing pickup in demand globally,” Al-Falih said.

Saudi Arabia is better positioned to deal with the downturn in prices because it has created budgetary buffers and accumulated international reserves to shield it from an oil-price decline, Finance Minister Ibrahim Al-Assaf said at the investment forum.

“Our strategy has proven to be the right one,” he said.

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China, Saudi Output, Credit Check

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This monetarist stuff doesn’t work:

China removes regulation on loan-to-deposit ratio

Aug 28 (Xinhua) — China’s top legislature on Saturday adopted an amendment to the Law on Commercial Banks, removing a 75-percent loan-to-deposit ratio stipulation. China has kept the 75-percent ratio since the law was enacted and put into effect in 1995. “The ratio was set to prevent overly quick expansion of commercial banks’ credit scale and control liquidity risk, but it has become improper for current needs,” said Shang Fulin, chairman of the China Banking Regulatory Commission. Such an outdated ratio is now hindering the already market-oriented banks to better support the real economy, Shang said.

And this kind of stuff will further slow things down:

Obama

By Carlos Tejada

Aug 30 (WSJ) — China Places Cap on Local Government Debt () Chinese lawmakers have placed a 16-trillion-yuan cap on local government debt. The Standing Committee of China’s National People’s Congress imposed a 600 billion yuan limit on the direct debt local governments are allowed to run up this year. That would be on top of 15.4 trillion yuan on debt owed by local governments as of the end of 2014. The caps don’t include indirect liabilities, which officials said totaled 8.6 trillion yuan. The latest government estimate put China’s local debt load at 17.9 trillion yuan as of the middle of 2013, up from negligible levels just six years before, including debt held indirectly.

Saudi output fell only a small amount, indicating that demand held reasonably steady at that level at their posted prices, and that they remain comfortably control of price:
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Growth still slowing:
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This one’s showing steady growth, though low still very low:
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credit check, rail traffic, ecri index, china pmi

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Still no sign of acceleration, as some deceleration continues:
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Rail Week Ending 15 August 2015: Continued Deterioration Of Year-over-Year Rolling Averages

(Econintersect) — Week 32 of 2015 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction.

07 August 2015: ECRI’s WLI Growth Index Returns to the Dark Side – Economic Slowing Forecast.

(Econintersect) — ECRI’s WLI Growth Index which forecasts economic growth six months forward – just slipped back into negative territory. This index had spent 28 weeks in negative territory then 15 weeks in positive territory – and now returned to negative territory. ECRI released their coincident and lagging indicators for July this week.

China Manufacturing PMI Plummets to 6-Year Low

(Econintersect) — China’s manufacturing sector reported the lowest PMI (Purchasing Managers’ Index) reading in 6 years with an August 2015 Caixin/Markit “Flash” (preliminary) survey result of 47.1. Readings below 50 reflect a contracting manufacturing sector. The low value for the survey result was a surprise. This was down from a July reading of 47.8 June reading of 49.4 and was the sixth consecutive reading below 50. Analysts surveyed by Bloomberg indicated expectations were for a reading of 49.7.

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