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First Quarter Likely a Bottom for China

Friday, 13 Apr 2012 | 9:27 AM ET
China
AP
China

You could already hear the bears on China on the disappointing first-quarter gross domestic product numbers (8.1 percent, below 8.3 percent expected and the lowest level since March 2009).

But there are several signs the Chinese economy likely bottomed in the first quarter:

a) March bank lending figures hit a 14-month high;

b) crude steel production in March (61.58 millions metric tons) is at an all-time high; and

c) industrial production and retail sales were stronger in March.

Get the point? Somebody must be expecting a recovery of some sort.

Mizuho was one of many firms that came out overnight projecting that China would bottom in the first quarter...they are sticking by forecasts of 8.6 percent GDP growth in 2012.

China’s Shanghai Index went up 0.4 percent on speculation China would get even more aggressive in loosening monetary policy.

The main worry for China: slow exports. The downturn in the euro zone is a major problem, so much of China's GDP predictions depend on what side of the euro recession story you are on: mild, with a rebound by the fourth quarter, or more severe, with the euro zone remaining in recession well into 2013?

Elsewhere:

1) JPMorgan Chase and Wells Fargo beat on the top-line and bottom-line: It’s about expanding the mortgage business.

JP Morgan slips 0.7 percent pre-open after reporting better-then-expected first-quarter earnings of $1.31 a share, compared to analysts’ $1.18 a share consensus. As expected, the key was trading, with trading in fixed income, currency, and commodities down 4 percent year-over-year, better than the roughly 10 percent decline many were expecting, while equities trading rose 1 percent.

Wells Fargo dips 1.4 percent after slightly edging out the Street’s first-quarter estimates. The nation’s fourth biggest bank reported first-quarter earnings per share of $0.75, versus analysts’ $0.73 estimate. Much of the upside was from mortgage banking, much of that in the form of refinancings.

Here’s a startling fact: Wells Fargo is the largest mortgage originator in the U.S., with about one-third of the market. The other major players are Bank of America and Citigroup, both with roughly 10 percent. Combined, those three banks have 50 percent of the mortgage market.

A couple sidebars:

a) better mortgage business seems to be good for the mortgage-servicing names (Lender Processing Services; Ocwen Financial, PHH Corp., Altisource Portfolio Solutions, and Walter Investment Management); and

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b) it looks like big banks are increasing their market share in mortgage banking, likely at the expense of regional banks. So Wells Fargo increased mortgage originations by 7.5 percent quarter-over-quarter ($129 billion in the first quarter vs. $120 billion in the fourth quarter), it doesn’t bode well for the smaller guy. And their expenses were higher, so it looks like they’re paying people to get more business.

“The environment now isn’t like what it was during the housing boom when there was enough biz to go around ... banks are fighting for what little biz there is out there,” one bank trader wrote to me.

2) Global stocks this week: Europe continues weaker, U.S. down but still outperforming, Asia beats everyone.

Asia

Asian markets dodge a dip following lower-than-expected growth numbers out of China. Japan ended a seven-day losing streak in the middle of the week, which was the longest it had seen since July 2009 — nearly three years ago.

China +2.3%
Hong Kong +0.5%
Australia Flat
Korea -1.0%
Japan -0.5%

Europe

Southern bourses were pained this week by investor concerns of a possible spillover effect from rising Spanish and Italian yields. Spain’s IBEX is on track to finish Friday trade at a three-year low, while Portugal is less than 2 percent away from hitting a near decade low.

Spain -4.4%
Italy -4.1%
France -2.7%
Germany -1.6%
U.K. -0.9%
Greece +1.0%

U.S.

The U.S. has recovered a bit from Tuesday’s sharp selloff on global growth concerns. However, the S&P 500 index and the Nasdaq Composite Index are still on track for their worst week of the year.

Dow Industrials -0.6%
S&P 500 -0.8%
Nasdaq -0.8%
Russell 2000 -1.2%

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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