Global six-month real narrow money momentum – a key indicator in the forecasting process followed here – is estimated to have moved sideways for a third month in June, based on monetary data covering 85% of the aggregate. Real money momentum has recovered from a September 2023 low but remains below both its long-run average and the average in the 10 years preceding the GFC, when short-term interest rates were closer to recent levels. The expectation here has been that the fall into the September 2023 low would be reflected in a weakening of global industrial momentum into late 2024. Continue reading

Chinese money trends are puzzling but ominous, suggesting – at a minimum – that the economy will remain weak through H2. Q2 real GDP growth came in below expectations but there was better news on the nominal side: two-quarter nominal GDP expansion rose for a second quarter as the GDP deflator stabilised. This improvement tallies with a recovery in six-month rates of change of narrow money and broad credit around end-2023. Continue reading

An analysis of the Fed’s historical behaviour suggests that the conditions for policy easing are in place. Chart 1 shows the fitted values and current prediction of a logit probability model for classifying months according to whether the Fed is in policy-tightening or policy-easing mode. The model’s determination for a particular month depends on values of annual core PCE inflation, the unemployment rate and the ISM manufacturing delivery delays index known at the end of the first week of the month (i.e. after the release of the employment report for the prior month). Continue reading