It appears the world is ganging up on The Fed as following China's recent clear and present threat should the USD strengthen, BoJ's Kuroda warned that further QQE might threaten the bank's finances - implicitly demanding moar from Yellen because he knows he's out of bullets. Add to that the surge in China credit which merely extends the life of already zombified firms, thus spreading more deflationary stress to the world and stocks from China (SHCOMP -3%) to US (Dow -280 points from Bullard Bounce highs) are tumbling.
China’s broadest measure of new credit surged the most since June as companies increase borrowing on the corporate bond market, underscoring a shift away from reliance on state-backed banks for funding.
Aggregate financing rose to 1.82 trillion yuan ($276 billion) in December, according to a report from the People’s Bank of China on Friday, compared with the median forecast of 1.15 trillion yuan in a Bloomberg survey.
[9]
The data shows companies are turning to alternative sources for credit given banks’ reluctance to lend. It also adds to signs the economy is stabilizing, not slumping as its falling currency and plunging stock market seem to suggest.
"For the whole year of 2015, the biggest increment in aggregate financing came from the corporate financing via bond and stock markets," said Zhou Hao, an economist at Commerzbank AG in Singapore.
"It appears to us commercial banks have few incentives to provide loans directly to corporates, especially due to credit concerns over SMEs, but turn to capital markets to finance the corporate indirectly. This hints an ongoing structural change in China’s financing system."
In fact, as we noted previously, [10] the bigger than expected increase in aggregate financing shows Chinese companies taking advantage of lower (bubble) bond yields to raise funds as commercial banks have refrained from providing loans to domestic companies because of the slow economic growth outlook.
Despite the massive supply, yields have collapsed...
[11]
As both "strong"
[12]
And "weak" balance sheet firms...
[13]
...take advantage of the credit bubble. However, there is one less than silver-lining:
Going by the official numbers, which are widely regarded as understated, bad loans rose to a seven-year high of 1.2 trillion yuan as of the end of September. In a sign of write-offs to come, policy makers are aiming for a clean-up of “zombie companies” that rely on government subsidies and bank loans to keep operating.
While that credit impulse would normally be seen as a positive in the new normal, it appears there has been a clear shift in recognition that enabling already-zombified companies to live longer merely exacerbates the over-invested, over-produced, mal-invested deflationary spiral that is rapidly spreading across the world.
Then Kuroda piled on, noting:
- *KURODA: NO PLANS AT THE MOMENT TO ADD TO MONETARY EASING
- *KURODA: JAPAN'S POTENTIAL GROWTH RATE IS AT OR BELOW 0.5%
- *KURODA: QQE POLICY HAS A RISK FOR BOJ'S FINANCES
Which sounds an aweful lot like a demand that The Fed step back up to the plate and "ease" the world's pain (or at least "un-tighten.")
And crushed Japanese Stocks... (Nikkei down over 500 points from the US session close)
[14]
And the result of that is an almost total reversal of all Fed's Bullard's good work during the US session. (Dow down over 250 points from Bullard's Bounce peaks)
[15]
So for now, Bullard appears to be firing blanks and "good" news is bad news once again.
Chinese stocks head for their longest weekly losing streak since October...
[16]
...and still the worst start to a year ever...
[17]
