Stubborn inflation, weak lending weigh on eurozone

The LTRO may have ignited the bond markets and the stock market but it did not do anything for bank lending. The New York Times reports Survey of European Banks Shows a Sharp Cut in Lending

LONDON/BEIJING — European manufacturing appeared no closer to recovery last month while growth in Asia cooled, according to business surveys and trade data on Friday that pointed to ongoing weakness in global demand. Purchasing managers’ reports from the United States due later, however, are expected to show growth picking up in the world’s largest economy, after a weak fourth quarter. In China, factory growth slowed to multi-month lows. Sluggish domestic demand added pressure to already depressed foreign sales, two separate purchasing manager indexes (PMI) showed.

If Friday and yesterday it was Europe's reporting of ugly and below expectation economic data that pushed US stock futures ultimately higher, today it will be Europe's modest economic data beats that will send futures, where else, higher, and result in the Dow Jones breaking its nominal all time highs at the open or shortly thereafter.

When the Bank of Canada announces its interest rate decision Tuesday, it will do so with the Canadian economy at its most sluggish level this year. Last week’s GDP data from Statistics Canada showed the Canadian economy expanded at an annual rate of 0.6% in the third quarter, far lower than the second quarter’s 1.7% and well below the Bank of Canada’s 1% forecast.

Bond action in the Eurozone has modestly picked up (yields steady or falling) since the ECB's 3-Year LTRO program - Long Term Refinance Operation. However, European banks still do not trust each other, not even for overnight lending. Instead, banks park all available funds with the ECB, as noted by the Wall Street Journal in Deposits at ECB Hit Record High.

Shah Gilani submits: In spite of five straight quarters of loosening lending standards and strong U.S. credit growth data, actual loan growth in the U.S. economy is dangerously anemic. What isn't apparent to investors is that the reason first-quarter gross-domestic-product (GDP) growth fell to 1.8% from the fourth quarter's more robust 3.1% rate is that loans and leases - which accounted for as much as 51.2% of U.S.