THE Chinese authorities ordered their banks to stop lending for the second half of this month, after witnessing huge lending to companies at the start of the year.
This was enough to put some firecrackers into the share prices of mining stocks last week, as prices tumbled. With cash starved, even if only on a temporary basis, this would clearly affect Chinese imports; the biggest of which are mining commodities.
Growth in China is no longer running at a level that most other economies are jealous of, but at too fast a rate for the authorities’ liking. Putting the brakes on lending is one way of arresting this.
Western politicians’ favourite punch bags, the banks, took further batterings, leading markets lower towards the end of last week. The usual rule was followed of “when in difficulty, bash a banker”.
The recovery of banks is essential for the western economies to recover, but the politicians seem determined to hinder progress in this area.
The law makers create regulatory systems and regulators to oversee important markets, to ensure fair play to all participants and consumers.
It is crucial that the regulators are allowed the freedom to operate and knee-jerk reactions to gain political capital could do serious damage in both the short and longer terms.
Today is an important date for the stock market, and more importantly the economy in the UK. The first preliminary estimate for Gross Domestic Product (GDP) for the fourth quarter of last year is released.
Should this be a positive figure, this will be the first official confirmation that the UK has come out of recession.
Some had expected a positive figure in the third quarter. The preliminary figure first announced was a further decline of -0.3 per cent.
The reason that it is called a preliminary figure is that only data for the earlier part of the quarter is available at the time.
That is why the official figure, a later release made on December 22 for the third quarter, stated the decline as -0.2 per cent, as later data in the quarter caused an upward revision.
Why is this important?
Even the word recession provokes a “feel bad”
reaction. While the phrase “a return to growth” is hardly euphoric, there is the potential for the “feel good”
factor to come back into force.
A positive GDP, together with last week’s better unemployment figures, might even make the BBC optimistic about the economy.
We have seen evidence from Australia, who just about escaped recession, that growth in the economy has soared since growth figures stopped falling.
France and Germany, which came out of recession before the UK, have since had their growth forecasts raised significantly higher, as optimism grows.
UK retail sales, released on Friday, showed a shopper improvement on the year before.
The comparisons saw a 0.3 per cent increase, defying the doom mongers.
January is likely to be a tricky month, not because of the hike-back in VAT, but due to the snow, as many people couldn’t get to the shops, even if they wanted to.
In the meantime, Thursday saw the FTSE 100 fall to below this year’s start level.
Previous falls have seen buyers rally the market back up, soon after.
We shall have to see what impact the GDP figures have later today.
* Anthony Platts is a divisional director in the Teesside office of Brewin Dolphin, and can be contacted on 0845-213-1340. All prices quoted in the article are from public sources. The views expressed are not necessarily held throughout the Brewin Dolphin Group. You should bear in mind that no investment is suitable for all circumstances and it is important to seek expert advice if in any doubt. Brewin Dolphin Limited is a member of the London Stock Exchange, authorised and regulated by the Financial Services Authority.
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