Banks eased lending requirements and loan demand shows signs of growth 8/8/14

The Federal Reserve reported that Banks in the U.S. eased lending requirements amid a widespread increase in demand during the second quarter. The central bank surveyed 75 domestic banks and 23 U.S. units of foreign banks from July 1 to July 15.  Even with the lending increases, Fed Chair Janet Yellen said tight credit has caused the housing recovery to be slow. “It is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage,” she said.  In its Beige Book report, the Fed said in July that loan demand increased across the U.S., with lenders easing terms for “well-qualified commercial and industrial borrowers,” and competition in Philadelphia and Chicago regions prompting “some financial institutions to take on higher credit risks.”  We have discussed lending as one of the key catalysts for U.S. economic growth and these results look promising for higher GDP growth during the remainder of the year and into 2015.


Interest Rates remain Unchanged:


Dallas Fed President Richard Fisher said that he didn’t need to dissent at last week’s FOMC meeting because the committee is gravitating toward his hawkish interest rate outlook. Fisher, who is a voting member of the FOMC and who has been a long-standing critic of the Fed’s ultra-loose monetary policy,  said he refrained from casting a dissenting vote because “things have been coming my way” and Fed officials are increasingly in agreement with the idea that if the economy continues to improve, the time to raise short-term interest rates may be approaching. While most Fed officials believe the first rate hike will come in 2015, there is increasing speculation that the central bank may have to act sooner given continued strong job gains, solid growth, and rising price pressures.


Risk of Russia Invading Ukraine Rises:


Poland said the risk of Russia invading Ukraine has increased after President Vladimir Putin increased the number of troops on his country’s western border.  NATO warned today that there’s a risk that Russia will send troops into Ukraine under the pretext of a humanitarian or peacekeeping mission. Russia yesterday called for a humanitarian mission to Eastern Ukraine, which is on the verge of a catastrophe.  Russian aggressive intervention in Ukraine would be a completely new situation that the U.S. and Europe do not have an answer for and could roil the markets over the next few weeks.  Russian President Putin shows no signs of backing down in Ukraine despite increasing pressure from the international community and tightened sanctions.  Reports indicate that Ukrainian military officials said that Russia has amassed a large combat-ready force on the Ukraine border with more than a dozen battalion-sized combat groups.  Russia has deployed 45,000 soldiers, 160 tanks and as many as 1,360 armored vehicles. There are also 192 Russian warplanes and 137 military helicopters, as well as artillery systems and multiple rocket launchers.


President Obama authorizes air strikes in Iraq:


President Obama authorized limited air strikes against Sunni militants in Iraq, potentially reengaging the U.S. military in a conflict that Obama pledged to leave behind when he first won office.  Obama said the strikes, if needed, would be used to protect U.S. personnel and Yezidis, a minority sect concentrated in northern Iraq, who have been targeted by militants. The President also said American military planes are dropping food and water for thousands of Yezidis and the extremists “have called for the systematic destruction of the entire Yezidi people, which would constitute a genocide.”  As of today, no U.S. strikes have taken place, according to administration officials.  U.S. lawmakers of both parties said last night they backed Obama’s decision to provide humanitarian aid and authorize air strikes.


Ebola outbreak in West Africa reaches crisis level:


The World Health Organization today declared the Ebola outbreak that is spreading across West Africa to be a “public health emergency of international concern.” “Countries affected to date simply do not have the capacity to manage an outbreak of this size and complexity on their own,” said WHO Chief Dr. Margaret Chan. “I urge the international community to provide support on the most urgent basis possible,” Chan said. The WHO declared similar emergencies for the swine flu pandemic in 2009 and for polio in May.


As you can see, there are certainly many different moving parts around the world that have the ability to directly impact financial markets.  We do expect there to be some volatility in the near-term, but still believe that the U.S. economy is strengthening and should be able to navigate the current geopolitical environment.  We believe that fundamentals in the U.S. are improving and that corporate earnings will continue to dictate the direction of stocks, going forward.


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