Key economic views advanced in recent posts include:

• Global growth is slowing from a spring peak.
• The US economy will regain momentum by late 2017.
• Chinese monetary conditions remain growth-supportive.
• Euroland economic optimism is peaking.

Recent evidence relating to these themes is reviewed below.

Slowing global momentum

June flash PMIs released last week were mostly weaker than expected. In particular, the Euroland composite output index fell to a five-month low, with a slowdown in services activity outweighing further manufacturing strength.

Company earnings news is turning less favourable. The MSCI All-Country World Index earnings revisions ratio fell below zero in June, i.e. downgrades to company earnings forecasts outnumbered upgrades (adjusted for seasonal variation) – see first chart.


Six-month growth of world steel output, meanwhile, dropped sharply in May, suggesting that growth of industrial output peaked in April – second chart.


Improving US prospects

This view is based on a rebound in six-month real narrow money growth since February.

The two-year swap spread correlates inversely with future GDP growth and has fallen since March, consistent with the positive monetary signal – third chart.


A sharp rise in mortgage rates in late 2016 has acted as a drag on housing demand and construction. The rise has partially reversed, suggesting that the drag will lift from late 2017 – fourth chart.


Supportive Chinese monetary conditions

Interpreting current money and credit trends is not straightforward. Annual growth of domestic bank credit has nearly halved since the start of 2016 but this mainly reflects a slowdown in lending to the government and financial sectors; growth of “total social financing” of households and non-financial enterprises, representing “real economy” fund-raising, has been broadly stable – fifth chart.


Annual narrow money growth, meanwhile, has moderated but remains much higher than in 2014-15. The provisional conclusion here is that the authorities have succeeded in reining in speculative credit while avoiding a money / lending squeeze on economic growth.

The monetary slowdown has eased inflationary pressures, supporting real money growth and giving the PBoC scope to reverse recent policy tightening – sixth chart.


Euroland optimism peaking

Optimism about economic prospects has increased but monetary trends suggest stable growth. Surveys may have been boosted by a temporary “Macron effect”, while the global backdrop is turning less favourable.

The Euroland earnings revisions ratio was positive and above the US ratio through May but both turned negative in June – seventh chart.


The Citigroup Euroland economic surprise index has fallen sharply and is expected here to turn negative over the summer, converging with a recovering US index – eighth chart.