Janus Henderson: Will global money trends recover?

The earlier monetary slowdown signals a likely loss of global economic momentum through late 2018, so Simon Ward Chief Economist at Janus Henderson Investors.

11.06.2018 | 13:47 Uhr

Near-complete April monetary statistics confirm an earlier indication that six-month growth of real narrow money in the G7 economies and seven large emerging economies was little changed from March and above the nine-year low reached in February. The earlier monetary slowdown signals a likely loss of global economic momentum through late 2018 but prospects are no longer deteriorating. Real broad money growth has also recovered slightly since February – see first chart.

G7 + E7 Industrial output & real money

Will monetary trends revive more significantly into mid-year, implying a brighter economic outlook for end-2018 and early 2019? Such a scenario is possible but does not currently seem likely.

The recovery in G7 plus E7 six-month real money growth since February has been driven by a slower rate of increase of consumer prices (seasonally adjusted) – nominal money growth was unchanged between February and April. Recent firmer commodity prices suggest that six-month inflation will stabilise or partially retrace the recent decline.

The small change in G7 plus E7 real narrow money growth between March and April conceals a decline in G7 expansion offset by a pick-up in the E7 – second chart. Real money growth rose in China, Brazil, India, Russia and Taiwan. Recent capital outflows from emerging markets and an associated tightening of domestic financial conditions, however, could have a negative impact on monetary trends in some countries.

G7 und E7 Industrial Output & Real Money

Previous posts discussed the possibility that US money trends would rebound in lagged response to tax cuts, mirroring experience after previous large reductions. No pick-up is yet evident: six-month narrow money growth fell back in April and is unlikely to have increased in May – the third chart includes a May estimate based on weekly data through 21 May.

US Narrow Money

US and G7 money growth is probably being dragged down by slowing QE, with the 12-month running total of purchases of government and agency securities by the Fed, Bank of Japan, ECB and Bank of England already down by almost a half from its March 2017 peak and projected to continue to decline rapidly – fourth chart.

G7 narrow Money & G4 QE Bond Purchase

The six-month rate of change of real narrow money is lower than a year ago in almost all developed economies (exception: New Zealand) and has been negative for several months in Australia, where the housing market is slowing sharply in response to a belated regulatory clampdown on loose lending standards – fifth and sixth charts.

Real narrow mones
Australia housing credit & finance commitments

A recovery in money growth seems likely in China, reflecting a recent policy shift away from tightening towards modest easing and an associated fall in market rates. The timing and extent of any rebound, however, are uncertain: the two-year government yield is only 30 basis points lower than a year ago while previous significant reversals higher in narrow money growth have been preceded by a decline of at least one percentage point – seventh chart.

China true M1 & 2Y government yield

Diesen Beitrag teilen: