Money growth has improved lately in the US, while there are trillions parked on the time deposit / MMF side-lines. If the Fed cuts rates into the current rally, we may see another 2021/2022 melt-up.
It remains an overwhelming consensus that a strong cutting cycle is in the cards, but there is growing uncertainty around the inflation outlook that is yet to be reflected in market pricing. Money trends are not tight enough.
The tightening cycle continues for both the Fed, ECB and now also BoJ, and that means it’s time to revisit global money trends to see what might happen next.
There are reasons to believe that the April inflation report will not be as soft as we’d like, but our chart book of leading indicators continues to hint at a sharp disinflation over the next 3-5 months.
This week’s CPI report aligned seamlessly with our expectations, affirming the anticipated cycle-pattern. Naturally, this begs the question – what lies ahead, and what could break our view? Some additional thoughts for the weekend.
Peak inflation is in, but monetary policy works with “long and variable lags” as monetarists say. While Goods inflation is sliding, some areas are resilient and services inflation remains an issue. Even though expectations and soft data are perplexing, there are pockets of data indicating a fight-back to the weakening dove sentiment.
It is quite before the storm in the global economy, and this may allow a short-term window of hopetism to arise again.
Another day, another direction for rates. Banks are driving the show and the underlying question remains. Is this a true banking crisis or is it a tempest in a teapot? As true macro investors, we prefer to take a step back from the daily noise and watch the underlying trends. Amidst a renewed hawkish repricing yesterday the M2/M3 money growth measures were released in the Euro area. We have never seen the kind of destruction of money (and hence deposits) in the history of the Euro zone and if we look at similar data in the US, it looks even worse. The underlying quarterly growth numbers of money in Europe and the US are running at historically destructive levels. This is the true underlying reason for the deposit flight/destruction and the monetary policy is simply too tight by now. Chart 1: The quarterly pace of negative money growth in Europe is historic The trend remains very uniform across the West. Money growth is falling of a cliff from a sequential perspective and the banking crisis is likely to accelerate the trend as M2 growth is linked to the risk appetite of credit departments of banks. When various emergency facilities at the Fed (and other central banks) are getting maxed out, it is not a signal that banks are willing to add to the risk profile, rater the contrary. We know this drill and it is not reflationary. There is one spot on earth, and basically one spot only, with a […]
Silicon Valley Bank is nothing but a symptom of years of excess money growth and it is now time to figure out who else is swimming naked. Money growth is negative, and idiots only survive in times of excess liquidity.
Most people tend to agree that the amount of money in an economy affects economic conditions. More money makes consumers buy more goods and services, and the excess demand leads to increasing prices.. but what happens when we destroy USDs as we currently do? More SVB cases show up!