Money & Cycles Weekly Bulletin
Has global liquidity tightened?
July 22, 2024 by Simon Ward
Warning signs. US monetary deficit financing has (temporarily?) slowed, bank reserves are trending lower, US overnight rates have firmed and global six-month real narrow money momentum has crossed back below industrial output momentum (see charts).
US jobs data in focus. The comprehensive Business Employment Dynamics dataset for Q4 is released this week; Q3 data showed a net fall in private jobs vs. a bumper payrolls survey increase (see charts).
Surprise Chinese rate cut. Key rates were lowered by 10 bp despite ongoing currency pressure (see charts).
Japanese CPI boosted by subsidy suspension. Six-month core momentum was stable at 1.5% annualised (see charts).
Mixed Eurozone bank lending survey. Loan officers expect a strong pick-up in mortgage borrowing but SME demand for credit remains weak (see charts).
UK deficit overshoot. Q2 numbers cast doubt on the OBR March forecast for 2024-25 borrowing, while the new government faces calls for higher spending in multiple areas (see charts).
Warning signs
Is violent rotation in markets a symptom of liquidity tightening?:
US monetary deficit financing via the private banking system – “Treasury QE” – has slowed sharply, suggesting broad money weakness:
June money numbers are released this week.
US bank reserves are trending lower again as Fed balance sheet contraction continues:
Overnight rates have firmed recently:
Global six-month real narrow money momentum has crossed back below industrial output momentum:
CCC spreads have widened:
Note a similar divergence with B spreads in late 2021.
Japanese bank reserves have fallen back, with the BoJ due to announce details of reduced JGB buying at its end-July meeting:
Reduced purchases may imply QT given a high flow of redemptions.
Yield spreads have moved further in favour of the yen:
Positioning and complacency also suggest upside risk:
US jobs data in focus
The comprehensive US Business Employment Dynamics dataset – based on UI records – for Q4 is released this week:
All eyes on whether a Q3 undershoot vs. payrolls is repeated or corrected.
Houses under construction are falling fast – starts are now significantly lagging completions – suggesting job losses ahead:
Total retail sales were up just 2.3% yoy nominal in June, with “discretionary” categories back in negative territory:
Surprise Chinese rate cut
The PBoC lowered its benchmark seven-day reverse repo rate by 10 bp following off-target Q2 GDP growth, with one- and five-year loan prime rates also cut:
The RMB has remained under significant pressure, with the “best” intervention proxy rebounding to $44 bn in June:
Japanese CPI boosted by subsidy suspension
Japanese headline CPI jumped on suspension of energy subsidies but six-month core momentum was stable at 1.5% annualised, with money trends signalling a further fall:
Mixed Eurozone bank lending survey
The ECB lending survey suggests a strong pick-up in mortgage borrowing but SME demand for credit remains weak:
UK deficit overshoot
Three months in, the OBR forecast for UK government borrowing in 2024-25 is already looking unachievable:
Six-month headline and core CPI momentum ticked down, with money trends suggesting a big fall into 2025:
