G7 monetary backdrop positive despite Eurozone weakness

27th July 2011 by Simon Ward

Eurozone real narrow money, M1, contracted by 0.9% (not annualised) in the six months to June – slightly smaller than a 1.4% fall between November and May but still signalling a grim economic outlook:

The country deposit breakdown continues to show contraction in the core as well as the periphery, suggesting that the recent two-speed economy will soon give way to generalised economic weakness:

Fortunately, declining Eurozone real narrow money has been offset by strength in the US and Japan, resulting in G7 six-month growth rising further in June, reaching its highest level since 2009:

The pick-up in G7 real narrow money is the basis for the forecast here of a revival in global industrial momentum during the second half, suggesting imminent stabilisation / improvement in manufacturing purchasing managers’ surveys. Equity analysts’ earnings revisions correlate with G7 PMI new orders and were slightly less negative in July, consistent with the story:

To receive our free email newsletter sign up here.

2 thoughts on “G7 monetary backdrop positive despite Eurozone weakness”

  1. Anonymous says:

    Hi Simon , I thought a build up of this narrow money criteria was indicative of risk aversion and liquidity build-up re : US debt celing debacle / Eurozone troubles etc. See earlier post on US liquidity increases. Are you interpolating soemthing different for the G7 as a whole?

    1. Simon Ward says:

      Liquidity hoarding has boosted the US money numbers over the last month or so but most of the pick-up in six-month G7 real narrow money is “genuine” IMO. In the likely scenario of a fiscal deal, hoarding should reverse, with positive implications for the economy and markets.

Leave a Reply

Your email address will not be published. Required fields are marked *