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Money & Cycles Weekly Bulletin

More grounds for Fed tightening

May 18, 2026 by Simon Ward

  • US CPI / PPI data surprised unfavourably, inflation expectations are firming and broad money growth is too strong (see charts).
  • Chinese money / credit growth, by contrast, has cooled, arguing for policy easing to offset a likely export slowdown (see charts).
  • An excessive pace of QT continues to drag down Japanese money growth while contributing to upward pressure on JGB yields (see charts).
  • Strong Q1 UK GDP growth is likely another head fake, being driven mainly by a surge in stockbuilding (see charts).

Measures of US annual core CPI inflation are inflecting higher, including “supercore” services and trimmed mean (favoured by Fed Chair Warsh):

Chart 1 showing US Consumer Prices (% yoy)

The pick-up is more pronounced in PPI data, encompassing goods and services:

Chart 2 showing US Producer Prices for Final Demand (% yoy)

Measures of inflation expectations are firming, although the five-year five-year forward remains within the recent range:

Chart 3 showing US Medium-Term Inflation Expectations

Six-month broad money growth of 6.5% annualised in March is inconsistent with the 2% inflation target, i.e. monetary conditions risk accommodating cost-push pressures from tariffs and Gulf conflict:

Chart 4 showing Broad Money (% 6m annualised)

By contrast, modest / weak growth in Europe / Japan argues that current policy stances are sufficiently counter-inflationary.

Strong money growth appears to have been sustained into May, based on weekly data:

Chart 5 showing US Broad Money M2+ & Weekly Proxy* (% 6m annualised)

Tax refunds supported April retail sales but six-month inflation-adjusted growth remains weak:

Chart 6 showing US Personal Consumption & Real Retail Sales (% 6m annualised)

 

Chinese April activity numbers were disappointing, with soft domestic demand offsetting continued export strength, although home sales appear to be stabilising:

Chart 7 showing Chinese Activity Indicators* (% 6m) *Own Seasonal Adjustment

Still, home prices continue to deflate:

Chart 8 showing China House Prices

Six-month growth rates of money and bank lending continue to trend lower:

Chart 9 showing China Nominal GDP* (% 2q) & Money / Social Financing* (% 6m) *Own Seasonal Adjustment

Money rates have eased further, suggesting an official rate cut soon:

Chart 10 showing China Interest Rates

 

Japanese money growth is off the lows but continues to be dragged down by excessive QT, which is also a key driver of the JGB sell-off:

Chart 11 showing Japan M3 & Credit Counterparts Contributions to M3 % yoy

There is a case for an “operation twist”, combining an expected further rate hike with a cut-back or cessation of QT.

Small firms remain gloomy:

Chart 12 showing Japan Economy Watchers' Survey

 

Strong Q1 UK GDP growth is likely another head fake, being driven mainly by a surge in stockbuilding:

Chart 13 showing UK GDP (% qoq) & Demand Contributions (pp)

Home-buyer demand remained weak in April, with higher mortgage rates suggesting further downward pressure:
Chart 14 showing UK RICS Housing Survey New Buyer Enquiries & 2y Fixed Mortgage Rate (bp 6m change, inverted)

The equal-weight MSCI World index remains below its end-February high:
Chart 15 showing MSCI World & MSCI World Equal Weighted in USD 31 December 2024 = 100

The US continues to regain relative performance:
Chart 16 showing MSCI Price Indices USD Terms, 31 December 2025 = 100

The US 10-year Treasury yield remains below 2023 / 2025 highs, in contrast to yields in Europe / Japan:
Chart 17 showing 10y Government Bond Yields

IT and energy drove the market-weight MSCI World index to a new high:
Chart 18 showing MSCI World Sector Price Indices Relative to MSCI World, 31 December 2025 = 100

NS Partners Ltd.
May 18, 2026