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Money Moves Markets

Is Eurozone “recovery” aborting?

June 28, 2024 by Simon Ward

Eurozone money trends remain too weak to support an economic recovery. A relapse in the latest business surveys could mark the start of a “double dip”.

Three-month rates of change of narrow and broad money – as measured by non-financial M1 and M3 – were zero and 3.3% annualised respectively in May. Current readings are well up on a year ago but significantly short of pre-pandemic averages – see chart 1.

Chart 1

Chart 1 showing Eurozone Narrow / Broad Money & Bank Lending (% 3m annualised)

May month-on-month changes were soft, with narrow money contracting by 0.1% and growth of the broad measure slowing to 0.1%.

Six-month real narrow money momentum – the “best” monetary leading indicator of economic direction – moved sideways in May, remaining significantly negative and lower than in other major economies. (The latest UK reading is for April.)

Chart 2

Chart 2 showing Real Narrow Money (% 6m)

June declines in Eurozone PMIs and German Ifo expectations may represent a realignment with negative monetary trends following a temporary overshoot – chart 3. A recent correction in cyclical equity market sectors could extend if Ifo expectations stall at the current level – chart 4.

Chart 3

Chart 3 showing Germany Ifo Manufacturing Business Expectations & Eurozone / Germany Real Narrow Money (% 6m)

Chart 4

Chart 4 showing Germany Ifo Manufacturing Business Expectations & MSCI Europe Cyclical Sectors ex Tech* Price Index Relative to Defensive Sectors *Tech = IT & Communication Services

Growth of bank deposits is similar in France, Germany and Spain but lagging in Italy – chart 5. The country numbers warrant heightened scrutiny, given a risk that French political turmoil triggers deposit flight to Germany.

Chart 5

Chart 5 showing Bank Deposits of Eurozone Residents* (% yoy) *Excluding Central Government

NS Partners Ltd.
June 28th, 2024