Great news! We're growing too fast. China's GDP surged 10.7 percent in the fourth quarter compared to the same period a year ago, above expectations of a gain of 10.5 percent. Economic growth for 2009 came in at 8.7 percent. The minimum usually cited to continue to create jobs is 8 percent, so by any measure China is in good shape (assuming the numbers are accurate).
So why has the Shanghai Index stalled out? Because Chinese officials are clearly signalling they are going to slow the economy down. It's a reasonable fear: a $586 billion stimulus plan, combined with massive, low-cost lending and a GDP over 10 percent, is good enough reason to worry about an asset bubble.
Deutsche Bank told clients they believe China will likely hike interest rates in the second half of March.
The Shanghai Index was up fractionally, but the Hang Seng Index in Hong Kong was down almost 2 percent. It topped out in August.
1) Goldman Sachs up 2 percent on reported earnings well above expectations ($8.20 vs. $5.19), revenues in line with expectations of $9.62 billion. Why such a big difference in reported vs. expected earnings? Because they didn't pay people nearly what they used to! Trading and principal investment were two-thirds of the revenue, by the way.
Regardless, with announcements from President Obama and Paul Volcker coming later in the day, there is a lot of nervousness about financials.
2) Glass Steagall redux? President Obama will propose to limit financial the size of financial institutions and also limit proprietary trading activities in a speech later this morning. Whether this will result in an outright separation of commercial and investment banking activities is not clear, though. (Dick Bove says: Glass-Steagall Redux Would Be a 'Boon')
Our Steve Liesman says administration officials do not want to bring back Glass Steagall, they just want to separate a bank's proprietary trading from what it does for its customers.
This, in addition to the fee the President proposed last week to recover losses from the TARP program.
Traders yesterday were adamant that no matter what the President proposes, the likelihood that more radical reform proposals will go through is much lower after the Massachusets Senate election.
3) KeyCorp up 4 percent pre-open, reported a loss on continuing operations of $0.30, above consensus of a loss of $0.40.
Good news: credit problems are stabilizing.
Bad news: as with all the regional banks, the balance sheet is shrinking fast...lending is way down. So while everyone is focused on credit, the real question will soon be: what do these guys look like on the other side of this?
4) Improvements in traffic are helping airlines turn in profits in the latest quarter:
Continental Airlines rises 3 percent after posting a surprising Q3 profit (profit of $0.03 vs. loss of $0.07 consensus). Passenger demand improved in the quarter: the airline's load factor (how full a plane is) rose 3.3 percentage points from the year ago period, and revenue per available seat mile fell at a slower pace than the prior quarter.
Although business travel activity increased, Chief Executive Jeff Smisek cautioned a "long and slow road to recovery" is still expected.
Southwest Airlines also rises 3 percent after it too turned in better-than earnings as the domestic carrier continued to fill significantly more seats on its planes. Its load factor jumped nearly 10 percentage points in the quarter and that helped revenues per available seat mile rise 7 percent - despite seeing lower ticket prices.
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