Signals for 2026

• • • • Global real narrow money momentum recovered into late 2025, suggesting that economic growth will hold up through Q2 2026 (see charts).
      • However, growth may not be strong enough to prevent a further unemployment rise, while the stockbuilding cycle is peaking and should be in a downswing by H2 (see charts).
      • Nominal money growth is still running below its pre-pandemic average, suggesting that underlying inflationary pressures will remain subdued into 2027 (see charts).
      • A measure of the equity risk premium indicates that stock valuations are higher than before the GFC but still notably lower than during the dot-com bubble (see charts).
      • US dollar sentiment and positioning were contrarian-bearish at the start of 2025 but current signals are mixed (see charts).
      • Solid US GDP performance has cracks – overall business investment growth is modest despite booming tech spending, while consumption resilience has relied on a further fall in the saving rate (see charts).
      • A November surge in US demand deposits appears to reflect a classification change, so an adjustment has been made to exclude it from the narrow money measure used here (see charts).
      • Yuan appreciation vs. the US dollar may not signal a policy shift, with the exchange rate vs. the basket yet to break out (see charts).
      • Eurozone money trends are consistent with modest, stable economic growth, while UK narrow money underperformance is fading (see charts).

Global six-month real narrow money momentum fell over March-July but recovered into November:

The turnaround reflected nominal money trends, with CPI momentum stable at around its pre-pandemic pace.

The earlier real money growth fall has been reflected in weaker manufacturing PMI new orders but the more recent revival suggests PMI stabilisation / recovery into Q2:

While the suggestion is that global economic growth will hold up in H1, it may not be strong enough to prevent a further unemployment rise:

Meanwhile, the stockbuilding cycle is peaking and should be in a downswing by H2:

Real narrow money momentum remains relatively strong in Australia / Canada (upside rates risk?) and relatively weak, though recovering, in Japan, with Sweden now a negative outlier (downside economic risk):

Note that the US series has been adjusted for an apparent upwards distortion (see below).

G7 annual broad money growth has recovered but is still running below its pre-pandemic average, suggesting that underlying inflationary pressures will remain subdued into 2027:

A measure of the equity risk premium – the DM forward earnings yield minus 10-year TIPS – indicates that stock valuations are higher than before the GFC but still notably lower than during the dot-com bubble:

Real money growth, while not strong, remains above industrial output momentum, suggesting liquidity support for markets:

Against this, risk assets usually weaken in the 18 months preceding stockbuilding cycle troughs, with the next judged here to be due by H1 2027.

Eurozone equities topped the 2025 performance ranking, with non-China EM making a late run into second place:

Currency moves explain all of Japan’s underperformance but only part of the US shortfall, i.e. the US also lagged in local currency terms.

US dollar sentiment and positioning were contrarian-bearish at the start of 2025 but current signals are mixed:

Sentiment is weak (contrarian-bullish) but futures positioning is close to neutral.

US business investment growth remains modest, with booming tech spending offset by weakness elsewhere:

Meanwhile consumption resilience has relied on a further fall in the saving rate:

The US narrow money measure used here – M1A, comprising currency and demand deposits – surged in November, but this is judged to reflect a classification change, requiring an adjustment to the numbers:

Growth of official M1 and other aggregates remained within recent ranges.

The hypothesis here is that a bank or banks reclassified a large volume of savings deposits as demand deposits on the FR2900 reporting form, resulting in previously-excluded deposits being included in M1A.

Weekly numbers are consistent with the story, showing a large rise in demand deposits over two weeks, with a corresponding drop in other liquid deposits, which include savings deposits:

The change was spread over two weeks because the weekly numbers are averages of daily figures (i.e. the suggested classification change occurred mid-way through the first week, with a carry-over effect to the second week).

Yuan appreciation vs. the US dollar may not signal a policy shift, with the exchange rate vs. the basket yet to break out:

Tokyo annual CPI inflation – an early guide to national numbers – fell sharply in December, reflecting reintroduction of energy subsidies:

Eurozone money trends are consistent with modest, stable economic growth:

French narrow money continues to lag:

UK narrow money underperformance is fading:

However, corporate money growth remains weak: