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Global real money momentum at new low on BRIC weakness

02 novembre 2023 par Simon Ward

Additional monetary information confirms an earlier estimate here that global (i.e. G7 plus E7) six-month real narrow money momentum reached a new low in September, extending a decline from a local peak in December 2022 and suggesting further economic deceleration through spring 2024.

The September decline reflects a further fall in E7 momentum, which offset a small G7 recovery and reduced the E7-G7 gap to its narrowest since August 2022 – see chart 1.

Chart 1

Chart 1 showing G7 + E7 Real Narrow Money (% 6m)

E7 and G7 gauges have moved in opposite directions since April. The E7 decline over May-August was driven by China, India and Brazil, with the September fall due to a plunge in Russia – chart 2. Russian weakness is likely to intensify given a recent surge in rates – chart 3.

Chart 2

Chart 2 showing Real Narrow Money (% 6m)

Chart 3

Chart 3 showing Russia M1 (% 6m) & 2y Government Bond Yield (6m change, inverted)

The G7 recovery since April has been due to a minor reduction in the pace of nominal narrow money contraction coupled with a further slowdown in six-month consumer price inflation. The change of direction has occurred in most DM economies and momentum remains weaker in the Eurozone / UK than the US, Canada and Australia – chart 2. Still-extreme negative readings argue against much diminution of recessionary prospects.

Cross-country S&P Global manufacturing PMI results are broadly consistent with the real narrow money momentum ranking – chart 4 (rank correlation coefficient of latest data points in charts 2 and 4 = 0.85). October PMI falls in India, China, Brazil and particularly Russia may extend given weaker monetary readings. A recent recovery in the US PMI, meanwhile, appears out of line with negative / little changed real money momentum and could reverse (as did the ISM manufacturing PMI last month).

Chart 4

Chart 4 showing Manufacturing Purchasing Managers’ Indices

Groupe financier Connor, Clark & Lunn Ltée
novembre 2nd, 2023