Global six-month real narrow money momentum – a key leading indicator in the forecasting approach employed here – is estimated to have rebounded in October, having reached a new low in September. Allowing for an average 6-7 month lead, this suggests that the global composite PMI new orders index will decline into end-Q1 2024 but may stabilise in Q2 if September is confirmed as a low for real money momentum.

The current constellation of economic cycles resembles the late 1960s, according to the framework employed here. The similarities in terms of US interest rates and labour market trends are striking and suggest major reversals next year.

Chinese six-month money growth rates were little changed in September / October following a sharp slowdown over the summer, suggesting weak economic prospects through end-Q1 2024. A small consolation is that recent monetary softness is partly explained by a rise in government deposits at the PBoC, representing yet-to-be deployed fiscal firepower.

On the ground insights from China, while cyclicals underperform in a down month for EM.

The global composite PMI new orders index fell from 49.5 in September to 49.3 in October, extending a decline from a local peak in May. Recent weakness was signalled by a fall in six-month real narrow money momentum, which reached a new low in September, suggesting a further PMI decline into end-Q1.

The PBoC has, ostensibly, been easing monetary policy – it reduced official rates in August, cut reserve requirements in September and has been injecting large sums in its regular lending operations. Yet three-month SHIBOR has risen since late August and is almost back to its March high.

Additional monetary information confirms an earlier estimate here that global (i.e. G7 plus E7) six-month real narrow money momentum reached a new low in September, extending a decline from a local peak in December 2022 and suggesting further economic deceleration through spring 2024. The September decline reflects a further fall in E7 momentum, which offset a small G7 recovery and reduced the E7-G7 gap to its narrowest since August 2022.

UK money trends are recessionary / deflationary but not as disastrous as suggested by the Bank of England’s M4ex broad money measure, which plunged 4.2% in the year to September after a 0.6% annual decline in August. M4ex includes money holdings of non-bank financial corporations (excluding intermediaries such as central clearing counterparties, hence M4ex).

October flash PMI results for major developed economies imply little change in the global composite PMI new orders index (released 6 November). The current index level is 1 standard deviation below the long-run average.

Changes in household energy bills will cut 1.6 percentage points (pp) from UK annual CPI inflation between September and October, implying a drop from 6.7% to 5.1% if annual rates of increase of other components are unchanged. Slowing food prices promise to lop a further 1.5 pp off annual inflation by early 2024, both directly and via pass-through to the important catering services component.

Global six-month real narrow money momentum – a key leading indicator in the forecasting approach employed here – is estimated to have fallen to another new low in September. Real money momentum has led turning points in global PMI new orders by an average 6-7 months historically, so the suggestion is that a recent PMI slide will extend through end-Q1.

US September non-farm payrolls blew through the consensus expectation but the totality of evidence from the employment report suggests that the labour market continues to cool. Including upward revisions to the prior two months, 455,000 jobs were added to the payrolls tally in September.

Global monetary trends appear inconsistent with economic expansion and recent levels of financial asset prices. Central banks are likely to be forced to reconsider policy stances, by market / financial instability and / or unexpected economic weakness.

Market risks loom, but don’t be too bearish – there is a silver lining.

This is the second in a series of short posts focusing on whether incoming economic news supports or contradicts the forecast of a global “hard landing” suggested by monetary trends. The US ISM manufacturing new orders index rose to a 13-month high of 49.2 in September, apparently supporting soft landing hopes.