Markets are not known for their consistency — what can engender a sense of optimism one day (even hour), can be death 24 hours later (or a few minutes).

And that’s what we saw overnight with the US market up 148 points very quickly, then sliding into the red, only to close up 76 points (for the Dow) with everyone saying “stocks rise because of solid data”.

Well, during the day that data was solid (good news from manufacturing and a surprise profit from Ford), then it wasn’t, as inconveniently, a senior executive from the US Federal Reserve made some sobering remarks about the continuing weak state of the US banking and finance sector that belied the strength in the market. And at the end, it was all good, until tomorrow and then Wednesday and the Fed statement.

Markets started coming to terms with the pre-arranged collapse of business financier CIT with $70 billion in assets. The collapse, by the way, will see the $US2.3 billion injected into the company by the US Treasury completely wiped out in the biggest loss so far from last year’s bailouts.

And no one, as yet, seems to be all that upset that the US Treasury couldn’t protect taxpayers’ money in an arranged bankruptcy designed to better the position of some big bond holders and lenders, including Goldman Sachs.

The main drivers for the day was a surprise third-quarter profit from Ford, and news that it expects to be “solidly profitable” by 2011, (it’s using that news to try and extend its debt maturity) ignoring the fact that its work force had rejected plans to cut costs that will leave it a higher cost producer by then compared to General Motors, Toyota and other car groups.

More importantly, there were a slew of positive manufacturing reports for October from China, Australia, the UK, France, Taiwan South Korea and from the US. In the case of China, Taiwan and South Korea they were better than expected, confirming the recovery in this region remains far more advanced than elsewhere. Overall, manufacturers reported rising output, falling stocks of finished goods and rising levels of new orders, all good news.

Car sales rose year-on-year in Japan, Italy and South Korea, thanks to stimulus spending.

The US manufacturing reading was also higher than expected, leading many analysts to conclude that there were signs of real demand. Not yet, it’s companies rebuilding badly depleted stocks (cars especially) in the hope they will be sold at Christmas and in early 2010.

And today will see the same surveys of the service sectors of various countries and this will be vital in showing whether the rising optimism in manufacturing has spread to this larger sector of most economies. This will be vital for signs of solidly based emerging recovery and not one just based on restocking in European and US manufacturing and the China-led surge in Asia.

But the news of the stronger performance by global manufacturing should also give investors pause for thought: what if central banks start thinking that the economy is getting back on track and they start thinking about rate rises and removing stimulus packages.

They won’t, but another month or two of readings from the sector such as October’s and central banks will be reaching for the rate lever and the white out to rewrite post monetary policy meeting statements.

But if you want the real deal on how damaged or solid an economy is, you can always rely on a central banker to give it to you straight.

And so it was overnight when Jon Greenlee, associate director of the Fed’s Division of Banking Supervision and Regulation, told a Congressional committee that America’s banks face the rising risk of sizable new loan losses, particularly on commercial property, and some banks may not have enough capital to fully protect themselves against losses.

As most of the 116 banks to have failed in the US this year have been taken down by unsustainable losses on commercial or home mortgage lending, his comments, have a loud ring of certainty.

“Credit losses at banking organisations continued to rise, and banks face risks of sizable additional credit losses given the outlook for production and employment,” he said.

“Poor loan quality, sub-par earnings, and uncertainty about future conditions raise questions about capital adequacy for some institutions,” he said.

So this raises the question, if the US recovery is to be sustained, how can that happen without a rise in lending by banks and others to individuals and business, especially small business? It’s not happening, if anything, it is falling. The recovery won’t happen without it.