At the end of the trading session today, the US equity markets bounced back from the lows created during the course of the session. The S&P 500 closed down 12 points at 1138, after touching 1129 which is approximately the 20 day moving average.
The market came under renewed pressure after China has asked some banks to restrict lending and credit. There is now even talk of a possible rate hike Friday. Rumors underscore market concerns and come after Premier Wen Jiabao yesterday signaled the end of the period of emergency policy. Today’s lending curbs appear aimed at slowing the pace of credit growth after some banks issued a heavy supply of credit at the start of the year (perhaps in anticipation of tighter conditions later in the year.) There is some evidence for this in lending data which shows banks issued CNY1.1 trillion of loans in the first half of January with the four largest Chinese banks accounting for almost half (or CNY500 billion.) The new regulation will restrict credit growth to CNY7.5 billion ($1.1 trillion) this year and require some banks to hold extra reserve requirements for the next few months.
On an economic front, there was some encouraging UK jobs data. Jobless claims fell more than expected (-15.2K vs. -4.6K exp in December) and the November data were revised to -10.8K from -6.3K. While seasonal factors may have contributed to the improvement in the data, the claimant count rate remained unchanged at 5.0%. The news adds to the view that the UK economy picked up in Q410.
In the US, Housing starts slid by 4.0% from the previous month to a seasonally adjusted 557,000 annual rate in December, according to the Commerce Department. Economists surveyed had expected starts would dip by 0.2% to an annual rate of 573,000. Meanwhile, Wednesday’s data showed building permits in December jumped 10.9% to a 653,000 annual rate. Economists had expected permits to rise by 0.2% to a rate of 590,000. Producer price index for finished goods rose a seasonally adjusted 0.2% on the month in December, according to the Labor Department. The core PPI, which excludes volatile food and energy prices, was flat last month compared to a 0.5% increase in November.