Chinese money supply growth slowing

Could have important implications for global markets

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China’s broad money supply growth slowed to 9.4% YoY in January, putting it weaker than in many advanced economies. That is unusual because China’s economy is growing much faster, so it’s money supply growth should normally be higher too in order to keep up with stronger demand growth.

Macro

This could have important implications for global markets. People tend to think about the effect of Chinese credit growth in terms of the credit impulse, which basically sets the change in credit relative to GDP. On this basis, credit has been tightened sharply in the past 6 months. This implies the 12-month credit impulse will turn negative soon as well.

China’s producer price inflation nevertheless rose in January and is likely to continue doing so due to the effects of the sharp falls in prices in early 2020.

In the US, the NFIB measure of small business confidence fell sharply again in January.

Despite the drop in confidence, firms say they intend to raise prices at a stronger rate - a sure sign those price intentions are related to supply pressures.

Markets

That stems partly from higher commodity prices. Copper is one commodity that has been doing particularly well, rising by 1.5% yesterday to its highest since 2013.

The dollar continues to catch many off-guard, now dropping back again after its recent rally - it’s not just a euro story either.

This has partly been because real yields have moved against the USD. While the real 5-yr/5-yr rate has been little changed in the past week in the US, it has risen by 10 bp in the eurozone.

That’s not been due to changes in nominal yields, which have risen by more in the US.

Rather, it’s because inflation expectations have outpaced the rise in yields in the US, but dropped back in the eurozone.

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