Thursday, March 16, 2017

Today's links

1--Loan growth has fallen back to 2014 levels even as bank stocks soar after Trump election


Hopes that a stronger economy would lead to more lending and further Federal Reserve rate increases have helped push bank stocks to postcrisis highs.
But new data show loan growth is slowing instead, raising questions about whether investors’ expectations will be realized.
Bank loans across all categories are increasing 4.6% annually, the slowest pace since 2014, according to weekly Fed lending data from March 1. ...

“The last five, six years, you’ve had actually decent industry loan growth” despite somewhat weak gross-domestic-product figures, Evercore ISI analyst Glenn Schorr said recently. “Now, we have optimism that some policy change will bring” higher GDP growth. “Yet, every bank is talking down expectations for loan growth. It seems a little backwards.”
Consumer-lending gains also have cooled in recent weeks, though the 6.9% annual growth rate in this category is still relatively high compared with recent years. In addition, banks have warned about a slowdown in mortgage lending as rates rise, and analysts have noted a cooling in credit cards and auto loans...

Banks typically make the majority of their revenue from the interest that customers pay on loans, so any prolonged slowdown could be a serious issue for the bank-stock rally.

2--Japan’s 7% Raise for Part-Time Workers Signals Wage Pressure -- Those at the bottom of the ladder are topping pay bumps because of a labor crunch

“Generally it’s a global trend that labor markets are tightening,” said Capital Economics economist Marcel Thieliant. “In the U.S., we’re clearly seeing signs of stronger wage growth and that’s one reason why we think the Fed will be quite aggressive in raising rates.”...

In a report released earlier this month, the Economic Policy Institute, a Washington, D.C., think tank, found that some of the fastest wage growth in 2016 took place among the bottom tiers of American workers. Hourly wages for people in the bottom 20% gained 6.4%, while those in the 95th percentile and above gained 1.7%, the institute found.
“What stands out in this last year of data is that the economic recovery appears to be finally reaching a broad swath of American workers,” wrote institute economist Elise Gould.

3--Post-Fed Rally Shows Central Bank Has More Room to Maneuver-- Bond prices and stocks surge—while dollar stays muted—amid signs of a low-stress market

“The Fed has some leeway to tighten policy without tightening financial conditions sharply,” said Aaron Kohli, interest-rates strategist at BMO Capital Markets.

4--Fed and Investors Are a Happy Couple, for Now --Markets and the central bank agree on three rate increases this year, but stocks are pricing in stronger growth than the Federal Reserve expects

While the central bank and investors agree on rates, they differ on the economic forecast. The bank’s median projection for growth this year was basically unchanged from December, with fourth-quarter gross domestic product up 2.1%, inflation at 2% under the Fed’s preferred measure and unemployment down to 4.5%.

Stock-market investors, judging by this year’s rally, see the economy growing more rapidly than the Fed does, which could push up growth and inflation and push down unemployment more than the central bank believes.
If investors are right, the Fed will need to choose between an uncomfortable increase in inflation and raising rates further. If investors are wrong, they have pushed the stock market too high. Either way, the friendly relationship between the Fed and investors might not last.

5--US Fed lifts interest rate and reassures markets

According to the Atlanta Federal Reserve, US annualised gross domestic growth for the first quarter may be as low as 0.9 percent, following growth of only 1.6 percent in 2016, the worst result for five years.
...
Since Trump’s election on November 8, the stock market has surged, with the Dow up 17 percent, the S&P 500 14 percent and the tech-based NASDAQ 16 percent.
According to Yale economist and Nobel Prize winner Robert Shiller, the market is “way over-priced.” He told Bloomberg that investors may be valuing a narrative rather than economic fundamentals, as took place in the dot-com bubble at the turn of the century....

Another area of concern is the impact of rising US interest rates on global bond markets. There is now a divergence between the policies of the world’s three major central banks. While the Fed is lifting rates, the European Central Bank (ECB) is still buying €80 billion worth of bonds a month and has kept its base interest rate at minus 0.4 percent. The Bank of Japan is keeping the rate on its 10-year bonds at between zero and 0.1 percent.
With the rate on the US Treasuries hovering at around 2.6 percent, money is coming into US financial markets from Europe and Japan.

But that situation could change rapidly, according to long-time bond market trader Bill Gross. In an interview with the business channel CNBC yesterday, he said that “hell could break loose in terms of the bond market on a global basis” once ECB president Mario Draghi began to taper—probably not for a few months—the €80 billion a month purchases were reduced and restrictions on the Japanese rate were eliminated.
In comments reported by the Financial Times earlier this week, Gross warned that the US economy was like a “truckload of nitroglycerine on a bumpy road.” A mistake could “set off a credit implosion.”...



Markets were reassured by the language of the decision, with most analysts concluding that Fed chairwoman Janet Yellen had “dovish” views on rate rises...

The markets also took heart from the FOMC’s statement that the Fed would continue its policy of reinvesting principal payments from its massively expanded holdings of financial assets, including mortgage-backed securities and Treasury security holdings. As a result of its financial asset purchases under its previous “quantitative easing” program, the Fed now holds $4.5 trillion in financial assets, compared to $900 billion before the financial crisis of 2008...

6--Economic Growth Lags Behind Rising Confidence Data -- Measures of economic activity like retail sales look sluggish while sentiment gauges are pointing up

The data highlight a dichotomy of how people and businesses say they feel and how the economy is actually performing. Measures of optimism such as the University of Michigan’s consumer sentiment reading are pointing up while measures of economic output are slowing.

Economists attribute the former to promises by President Donald Trump to stimulate growth by easing rules on businesses, boosting government spending and simplifying the tax code.
“We have an environment in which confidence is elevated but largely riding on expectations,” said economist Gregory Daco of Oxford Economics. “Expectations of lower taxes. Expectations of infrastructure spending. Expectations of deregulation. All these pro-growth elements are promises and very little has been actually delivered upon.”...

But the combination of a tighter labor market and weak output could be a sign the economy is nearing its capacity to grow without stoking too much inflation. That suggests an aging population and a slowdown in productivity are indeed restraining the economy’s ability to lift Americans’ living standards at the pace it did in the middle of last century and in the 1990s.

7--The Productivity–Pay Gap , EPI

Most Americans believe that a rising tide should lift all boats—that as the economy expands, everybody should reap the rewards. And for two-and-a-half decades beginning in the late 1940s, this was how our economy worked. Over this period, the pay (wages and benefits) of typical workers rose in tandem with productivity (how much workers produce per hour). In other words, as the economy became more efficient and expanded, everyday Americans benefitted correspondingly through better pay. But in the 1970s, this started to change

Since 1973, pay and productivity have diverged.

From 1973 to 2015, net productivity rose 73.4 percent, while the hourly pay of typical workers essentially stagnated—increasing only 11.1 percent over 42 years (after adjusting for inflation). This means that although Americans are working more productively than ever, the fruits of their labors have primarily accrued to those at the top and to corporate profits, especially in recent years.

Why this happened—and how we can fix it

Rising productivity provides the potential for substantial growth in the pay for the vast majority. However, this potential has been squandered in recent decades. The income, wages, and wealth generated over the last four decades have failed to “trickle down” to the vast majority largely because policy choices made on behalf of those with the most income, wealth, and power have exacerbated inequality. In essence, rising inequality has prevented potential pay growth from translating into actual pay growth for most workers. The result has been wage stagnation.

For future productivity gains to lead to robust wage growth and widely shared prosperity, we need to institute policies that reconnect pay and productivity, such as those in EPI’s Agenda to Raise America’s Pay. Without such policies, efforts to spur economic growth or increase productivity (the largest factor driving growth) will fail to lift typical workers’ wages.


8--News from EPI An improving economy led to rising wages for most in 2016, but overall inequality persists


In The State of American Wages: 2016, EPI Senior Economist Elise Gould finds that an improving economy in 2016 brought broad-based wage growth for most workers. Notably, wages at the bottom rose more in states that raised their minimum wages.


“There’s good evidence that two clear mechanisms boosted wages for low- and middle-wage workers in 2016,” said Gould. “The first is state-level increases in the minimum wage and the second is lower unemployment overall.”...


Between 2000 and 2016, wage growth was consistently stronger for high-wage workers, continuing the trend of rising wage inequality. In 2016, however, wage growth was more evenly distributed, with median wages growing 3.1 percent.



As the economy improved and the labor market tightened, wages grew for most workers,” said Gould. “This is a promising trend, but there is still a lot of lost ground to make up. As such, policymakers should look for ways to strengthen labor standards and the Fed should keep its foot off the brakes until we reach full employment.”


9--Fed rate hikes + low growth = recession, says stock-market strategist


10--South Front thinks the US will take Raqqa


"Considering the increasing US ground presence in Syria, US-led forces will have enough military capabilities to launch a storm of Raaqah and to after some time seize the city. In turn, Syrian government forces will likely make an attempt to reach a group of strategic sites southwest of Raqqah: Tabqa, the Tabqa Airbase and the Tabqa dam.


If done, the government will be able to limit the US presence in the country with northeastern Syria. However, government forces will also need to secure the area of Deir Ezzor and its oil fields from ISIS. These efforts will draw a significant means and capabilities from the Syrian military which will delay operations against Hayat Tahir al-Sham in the western part of the Aleppo province."



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