Global six-month real narrow money growth – the key longer-range forecasting indicator employed here – stood at 1.5% (not annualised) in May, little changed from April’s 1.6%. This is the weakest reading since September 2008 but is consistent with slow global economic expansion rather than a recession – see first chart.

Global real money growth may be bottoming, with a further decline in inflation likely to provide near-term support and central bank easing improving prospects for nominal monetary expansion. Allowing for the normal half-year lead, the April / May stabilisation, if confirmed, suggests that global industrial output momentum will trough in October / November. Economic news, in other words, is likely to remain weak over the summer.

The minimal change in the global real money measure between April and May conceals potentially significant country developments. US real narrow money expansion, while still relatively firm, fell in May and will probably do so again in June, based on weekly nominal data – see second chart, which includes a June estimate for the US. Real money also slowed further in Japan and remains weak in China but the Eurozone six-month change is no longer negative while the UK reading moved up to its highest level since January 2010. The suggestion is that Eurozone and particularly UK news will surprise positively in late summer / autumn, at least relative to current downbeat expectations.

A cautious investment stance is warranted until the global real money measure turns up. With the Federal Reserve yet to launch “QE3”, this is likely to depend on the recent European recovery being sustained along with a reversal of narrow money weakness in China – plausible in light of recent policy easing moves but far from guaranteed.