Will US / Chinese economic divergence reverse?

Current negative sentiment in markets reflects perceived US / Chinese economic divergence. Chinese weakness is widely thought to be intensifying, dragging down global growth, while the US economy is deemed sufficiently solid to keep the Fed on track for an early rate hike. The suggestion is that equity investors face an unappealing combination of softening […]

22 August 2015 by Simon Ward

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Chinese money growth responding to policy easing

Chinese monetary trends suggest an improving economic outlook. With recent easing measures yet to have their full impact, money growth may lift further during the second half. The preferred monetary aggregate here is the narrow “true M1” measure, comprising currency in circulation and demand deposits of corporations and households. As previously discussed, the official M1 […]

20 August 2015 by Simon Ward

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Chinese “currency war” unlikely but policy intentions opaque

Investors have been fearful of the market fallout from a rise in US official rates in September or December. In the event, it has been the unfixing of another central bank-controlled price – the RMB / US dollar exchange rate – that has triggered turmoil. The official explanation is that the change to the daily […]

16 August 2015 by Simon Ward

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UK MPC news: hawkish forecast more important than August vote

Bank of England Governor Mark Carney managed to suppress hawkish dissent at the August MPC meeting but the latest Inflation Report forecast creates a strong presumption in favour of an interest rate rise before year-end. It was always unlikely that more than one or two mavericks would defy Governor Carney’s recent signal that it would […]

8 August 2015 by Simon Ward

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Global growth: business surveys supporting H2 pick-up

Previous posts suggested that global economic growth would revive from mid-2015, reflecting stronger developed-world demand following a pick-up in real money expansion in late 2014 / early 2015. Incoming business survey results are consistent with this forecast. The first chart shows a selection of developed-country manufacturing survey indicators for which a July reading is available. […]

2 August 2015 by Simon Ward

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Eurozone money trends still solid

Eurozone monetary trends continue to suggest a positive economic outlook. Narrow money M1 rose by a strong 0.9% in June, with the broader M3 measure up by 0.3%. Loans to the private sector, adjusted for sales and securitisation, were unchanged on the month but this reflected repayments by financial companies – loans to households and […]

28 July 2015 by Simon Ward

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EM equities: get ready to buy?

Emerging market equities have underperformed developed markets by a further 5.5% so far in 2015, according to MSCI indices. The price to book ratio of the MSCI Emerging Markets index stood at 1.55 at end-June versus 2.24 for the MSCI World index of developed markets – a 31% discount, the largest since 2003. Is it […]

25 July 2015 by Simon Ward

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Global economic / liquidity backdrop benign, supporting equities

The MSCI All-Country World Index in US dollars was down by 6.5% from its 21 May all-time peak as of Wednesday, the recent low. The modest response to “Grexit” risk and Chinese stock market chaos is consistent with the assessment here of a supportive global economic / liquidity backdrop. A post in February suggested that […]

13 July 2015 by Simon Ward

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UK Budget: big changes, few winners

The big story of the Budget is a dramatic reduction in the squeeze on departmental spending. The Chancellor made room for less spending restraint by cutting deep into the welfare budget and raising taxes significantly. He also allowed his borrowing targets to slip again. The fiscal stance over the next two years is less restrictive […]

9 July 2015 by Simon Ward

Economy

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Greece: latest thoughts

The comfortable “no” majority – the opposite result to that predicted by betting markets – will, at least, serve to accelerate the conclusion of the crisis. The priority of the Eurozone authorities will shift from securing a deal with Greece to protecting other EMU members from financial contagion. This could involve an expansion of QE, […]

7 July 2015 by Simon Ward

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