Chinese September monetary numbers are a mixed bag but will probably be interpreted positively by the market.

The monthly flow of total social financing was above expectations, while six-month growth of the outstanding stock returned to its mid-year high – see first chart.

The bad news is that six-month narrow money growth fell back sharply. Note that the latest data point for true M1 incorporates an estimate of household demand deposits, which are released several days after the headline money numbers.

As the chart shows, growth rates of TSF and narrow money usually move in the same direction, making the September divergence difficult to interpret. The money numbers are more volatile, suggesting playing down the apparent negative signal and waiting to see if there is a rebound in October (or a relapse in TSF).

Broader money measures don’t help to clarify the issue. Six-month growth of headline M2 was slightly higher but growth of the preferred measure here, which excludes deposits of financial institutions, was unchanged after its recent fall, echoing the cautionary signal from narrow money – second chart.

From a longer-term perspective, money trends appeared to be responding to policy easing in early 2019 but the pick-up aborted after the failure of Baoshang Bank in May, which disrupted the interbank market and led to a reduction in credit supply to private firms. Consistent with this narrative, the corporate financing index from the Cheung Kong Graduate School of Business monthly survey reached a record high in April and plunged through August, recovering marginally in September – third chart.

Global six-month narrow money growth is estimated to have picked up significantly in September despite the disappointing Chinese number, mainly reflecting a US surge, part of which pre-dated the Fed’s repo operations – fourth and fifth charts.