The assessment here a month ago was that Chinese monetary policy easing was gaining traction but that additional stimulus and a further recovery in narrow money momentum were required to adopt a positive view of economic prospects. These conditions have been partially fulfilled: the PBoC has delivered additional easing and six-month narrow money growth picked up in July; however, a food-driven rise in CPI momentum held back real money expansion. The news, on balance, warrants an upgrade to the assessment: economic momentum […]

The yield spread over Treasuries of the ICE BofA US corporate high yield index rose from 310 bp at end-December to a peak of 599 in early July. It has since retraced more than half of this move. Was the early July peak a major top, with a further decline in prospect? This seems unlikely, for several reasons. First, the “financing gap” of non-financial corporations – the difference between capital spending and domestic retained earnings – is a long leading […]

The Fed’s July senior loan officer survey signals a major slowdown in US bank lending in H2 and 2023. Most commentary focuses on survey responses about credit standards and demand for commercial and industrial (C&I) loans. However, the Fed calculates aggregate indicators incorporating data for all loan categories (i.e. also including commercial real estate (CRE), consumer and residential mortgages). These indicators weakened sharply in Q2*, moving below their averages since 1995 – see chart 1. Chart 1 Demand for residential mortgages […]

Central bankers have ignored the lessons of their 2020-21 policy blunder and deserve the opprobrium they are likely to attract as an economic debacle continues to play out over coming quarters. Policy-making can be accurately described as anti-monetarist, not merely in the sense that money data are ignored but rather that decisions are the precise opposite of those warranted by monetary trends. The central banks continued to pursue ludicrously outsized QE in 2020-21 even as money growth surged to a level that […]

The assessment of global economic prospects here has been consistently more pessimistic than that of the consensus in recent quarters. The consensus is now shifting to acceptance of US / European recessions but these are widely expected to be “mild” and / or “short-lived”. The view here remains bleaker, based on three considerations. First, global six-month real narrow money momentum continued to weaken during H1 2022, reaching a level historically associated with serious recessions. The further decline into mid-year suggests no economic […]

Chinese monetary data for June confirm that policy easing is gaining traction but narrow money growth remains modest compared with previous reflationary episodes and a H2 economic recovery is likely to be dampened by weaker exports. GDP fell by 2.6% between Q1 and Q2 but monthly activity data indicate a significant recovery from an April trough, with June exports and retail sales particularly strong – see chart 1. Chart 1 Six-month growth rates of narrow and broad money, meanwhile, rose further […]

A fall in global six-month real narrow money momentum below zero in March signalled a shift in the economic outlook from slowdown to recession. A subsequent further decline in momentum to its weakest since 1980 suggests a deep recession extending into Q1 2023, at least. Economic contraction will release liquidity for markets, with “safe” bonds and quality stocks possible beneficiaries. Chinese real money momentum is diverging positively, supporting relative economic / equity market prospects. Global (i.e. G7 plus E7) six-month […]

Commentary for Q1 2022 on the International Equity Strategy

There are three messages from Eurozone monetary data for May released yesterday. The region faces a major recession that is likely to extend into early 2023, at least. Economic prospects are at least as bad for core countries as for the periphery. Nominal monetary trends are consistent with inflation returning to – or falling below – the 2% target in 2023-24, arguing for an immediate suspension of ECB tightening plans. The “best” monetary leading indicator of Eurozone GDP, according to ECB research, is […]

Commentary for Q1 2022 on the Global Emerging Markets Equity Strategy

Q1 2022 Quarterly Market Liquidity for Emerging Markets