China Banks and Bubbles
If the Chinese banks have problems and dramatically slow lending, can the oil bull market continue? How about the carry trade? Concerns are mounting around the banks, raising the question as to whether the China commodity consuming gravy train will continue at the previous rapid pace. Overnight these concerns are coming to the forefront as China’s fourth largest bank is looking to raise 40 billion yuan or the equivalent of $5.86 billion dollars to shore up its capital base and maintain its lending capacity.
Last week I said that in the beginning of the year many Chinese lending institutions went on a massive lending spree, seemingly lending money to anything that moved. It is possible that these institutions were either driven by greed or the realization that they knew that soon the Chinese government would raise rates and stop the lending party. Bloomberg News reported that the Chairman of the China Banking Regulatory Commission said that loans in China were “relatively high”. He said that some banks were asked to stop lending because they failed to meet reserve requirements. Obviously the failure to meet these requirements and the Chinese government dramatically moving to rein in credit, means that many lending institutions in China are trying to lend every penny they have available to them. We'll see if there is a global double dip in the economy. It is possible that these intuitions could have some problems.
Now the China bank six-year bond issuance is subject to the approval of bond holders but raise the larger issue how the markets are going to handle the removal of stimulus. Or what is more, how will the world handle a China whose growth may not be all it is cracked up to be.
Long term we still feel oil is on a long term journey near $40 per barrel. Today March crude oil has strong support near the $74.00 handle with resistance near $77.00. We should see some swings this week ahead of the Fed meeting.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.