Daily Insight
Group Economics Macro & Financial Markets Research
13 January 2016
Global money growth on the up Nick Kounis Head of Macro and Financial Markets Research Tel: +31 20 343 5616 nick.kounis @nl.abnamro.com
Our global money supply growth indicator accelerated in November
Advanced economy M1 money supply growth remained elevated…
...while China and India drove the EM aggregate higher
Stronger M1 usually ties in with better momentum in growth and equities
Falling FX reserves and Fed tightening may have an adverse effect going forward, but there are also factors that should be supportive
Financial conditions improving at the end of last year We have updated our aggregate money supply measures. These are based on the largest advanced and emerging market economies and provide an indication of how financial conditions around the world are developing. The good news is that our global real M1 money supply aggregate has been accelerating. However, the optimistic picture is tempered by the fact that absolute growth rates are not spectacular and our last data point was in November, so the situation might be changing.
Real M1 money supply growth % yoy
30 25 20 15 10 5 0 -5 03 04 05 06 07 08 09 10 11 12 13 14 15 Global
Developed
Emerging
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
M1 money supply growth on the up in November… Global real M1 money supply growth rose to 7.9% yoy in November from 7.4% in October. The pace of growth is now roughly in line with the historical averages, but is up significantly compared to the summer months when the aggregate reached a low of 4.9%. That reflected sharply slower money supply growth in the emerging market economies, partly offset by stronger money supply growth in the advanced economies. The
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Daily Insight – Global money growth on the up – 13 January 2016
subsequent acceleration in the global aggregate has been driven by emerging markets, especially India and China, both of which eased monetary policy over that time period. Indeed, Bloomberg’s Asia financial conditions index has also been easing. Still our emerging market real M1 growth indicator remains well below its historical average. In contrast, real M1 growth in the advanced economies is significantly above its trend rate. This is in particular due to double-digit growth in the eurozone series, which could well be a reflection of the ECB’s aggressive asset purchases. …usually consistent with better momentum for cyclical indicators and risky assets Major shifts in money supply usually go hand in hand with changes in momentum for cyclical indicators as well as risky asset prices. This can be seen for instance in how the global aggregate has trended with the S&P 500 (see chart below). We have certainly not seen anything in these money supply indicators that would justify the sharp correction in equity markets seen at the start of this year. This seems to reflect concerns about the Chinese economy and financial system, which we think are somewhat overdone, and the sharp fall in oil prices.
Real global M1 and equities % yoy
%yoy
18 16 14 12 10 8 6 4 2 0
100 80 60 40 20 0 -20 -40 -60 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Global Real M1 (lhs)
S&P 500 (rhs)
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
Financial conditions going forward Could the picture of financial conditions have changed since November or more generally going forward? There are some factors that could have a tightening effect. For instance, EM FX reserves have been falling and this could have a contractionary effect on the monetary base. Of course EM central banks could offset this effect by easing monetary policy. However, they may be restricted in what they can do given concerns that currencies might fall too sharply. This is especially the case given the Fed’s monetary policy tightening cycle, which could also lead to slower US money supply growth. On the other hand, the US rate hike cycle will likely be very slow and obviously US rates are still very low. In addition, the ECB and the BoJ will continue – and likely even step up – monetary easing. So overall we would expect global financial conditions to remain supportive of moderate economic growth.
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Daily Insight – Global money growth on the up – 13 January 2016
Day
Date
Time
Country
Saturday Saturday
09/01/2016 09/01/2016
02:30:00 02:30:00
CN CN
Tuesday Tuesday Tuesday
12/01/2016 12/01/2016 12/01/2016
12:00:00 13:00:00 16:00:00
Tuesday Tuesday Tuesday Wednesday Wednesday Wednesday
12/01/2016 12/01/2016 12/01/2016 13/01/2016 13/01/2016 13/01/2016
Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday Friday Friday
Period
Latest outcome
Consensus
CPI - % yoy PPI - % yoy
Dec Dec
1.6 -5.9
1.6 -5.8
US IN US
NFIB small business optimisme - index CPI - % yoy US Job Openings by Industry
Dec Dec Nov
95.2 5.6 5431.0
95.5
15/01/2016 15/01/2016 15/01/2016 11:00:00
CN CN CN EC CN CN
Aggregate financing - CNY bn New yuan loans - CNY bn Money supply M2 - % yoy Industrial production - % mom Exports - % yoy Imports - % yoy
Dec Dec Dec Nov Dec Dec
1020.0 708.9 13.7 0.6 -6.8 -8.7
1150.0 700.0 13.6 0.0 -8.0 -11.0
14/01/2016 14/01/2016 14/01/2016 14/01/2016 14/01/2016
00:50:00 13:00:00 13:00:00
JP GB GB PL KR
Machinery orders private sector - % mom Policy rate - % BoE size of asset purchase programme - GBP bn Reference rate - % Policy rate - %
Nov Jan 14 Jan Jan 14 Jan 14
10.7 0.5 375.0 1.50 1.50
-7.3 0.5 375.0 1.50 1.44
15/01/2016 15/01/2016 15/01/2016 15/01/2016 15/01/2016 15/01/2016 15/01/2016
14:30:00 14:30:00 14:30:00 14:30:00 15:15:00
US US US US US US US
Retail sales - % mom Dec Prod. prices index - % mom Dec Prod. prices index excl food and energy - % mom Dec Empire State PMI - Manuf. general business conditions - index Jan Industrial production - % mom Dec Univ. of Michigan cons. confidence - index Jan P Business inventories - % mom Nov
0.2 0.3 0.3 -4.6 -0.6 92.6 0.0
0.1 -0.1 0.1 -2.4 -0.2 92.8 0.0
16:00:00
Key Economic Indicators and Events
ABN AMRO
95
-0.2
1.50 1.50 0
-3.0 92
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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