Charts of the Week (Mar 31, 2023)

US Treasuries and data surprises US Treasury yields and global data surprises are typically linked. A stronger-than-expected raft of economic data usually places upward pressure on yields as investors discount a tighter (than previously expected) path for monetary policy (and vice versa). But recent weeks have seen yields decouple from the incoming dataflow, as evidenced in chart 1 below. Investors, in other words, are now discounting a much looser path for monetary policy relative to the messaging from (backward-looking) economic data. Putting that another way, investors are are now looking for a slew of weaker economic data to emerge in the immediate weeks ahead that will validate their current expectations for Fed policy.

Euro area credit growth This week’s money supply data from the euro area carried some warning signals too about the economic outlook from here. M3 growth fell to its slowed rate (2.9%y.y) since 2014 in February and arguably well below what might constitute a target-friendly inflation pace for the ECB. Underlying details of this report too were worrisome as they revealed a further slowdown in private sector credit flows (see chart 2 below) and heightened funding stress in the outflows from short-term deposits.

Broad money growth and equity markets The pace of broad money growth more generally has been slowing in most major economies over the past few months (see chart 3 below) in large part because of tighter monetary policy. The links with financial liquidity are arguably tenous given the huge complexity of global financial markets. Still, our aggregation of broad money growth in the US, Canada, Euro area and the UK has enjoyed a reasonably close correlation with changes in global equity prices in recent years (see chart 3 below). The implication is that looser monetary policy – and a faster pace of broad money growth – may be required before equity markets embark on firmer longer-term trajectory.

Consumer confidence Along with money and credit flows, sentiment indicators are likely to be monitored closely in the coming weeks. The March consumer confidence data released this week, however, revealed mixed messages. The UK and Euro area gauges, for example, nudged down and up respectively, albeit from very low levels. The US gauge (from the Conference Board), in contrast, rose to a much higher-than-expected level. As chart 4 below equally suggests, US consumer confidence continues to defy the gloom, particularly when contrasted with the Euro area and UK.

Trackers of economic activity The OECD’s economic activity trackers provide real-time high-frequency indicators of economic activity using machine learning and Google Trends data. So they should also be well suited to assessing activity during periods of turbulence. Those trackers specifically suggest that the US, UK and Switzerland continued to enjoy a respectable pace of growth in the week to March 19. Still, these data are very volatile and may not have yet caught up with the financial instability that unfolded over the last couple of weeks.

Internet penetration in India Amidst the gloom there remain, as ever, longer-term macro themes that should have some staying power in the months ahead. India’s ascent of the global economic ladder is arguably one of them. While India’s relatively young – and growing – demographics are a well-known positive, tapping into the productivity potential of those demographics has not always been easy, However, there has been a relatively rapid penetration/adoption of new technology that could help to foster firmer productivity trends. For example, while the data shown in chart 6 below are a little backward looking (the latest data pertain to 2020), India’s internet usage has increased significantly over the last few years and now lie not that far away from global norms.