Global Liquidity Peak Spells Trouble for Late 2012!
- This is an interesting piece by Ambrose Pritchard.
Global liquidity peak spells trouble for late 2012!
By Ambrose Evans-Pritchard, http://www.telegraph.co.uk/
The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year – with grim implications for Europe’s Latin bloc.
Data collected by Simon Ward at Henderson Global Investors shows that M1 money supply growth in the big G7 economies and leading E7 emerging powers buckled over the winter. The gauge – known as six-month real narrow money – peaked at 5.1pc in November. It dropped to 3.6pc in January, and to 2.1pc in February.
This is comparable to falls seen in mid-2008 in the months leading up to the Great Recession, and which caught central banks so badly off guard. “The speed of the drop-off is worrying. This acts with a six months lag time so we can expect global growth to peak in May. There may be a sharp slowdown in the second half,” said Mr Ward.
If so, this may come as a nasty surprise to equity markets betting that America has reached “escape velocity” at long last, that Europe will scrape by with nothing worse than a light recession, and that China is safely rebounding after touching bottom over of the winter.
Stephen Jen from SLJ Macro Partners said the world economy is weaker than it looks, with monetary stimulus losing traction in the West just as China, India, Brazil, et al, hit the buffers, constrained by inflation and their own credit woes.
“The risk here is that the credit cycles in emerging markets mature and start to deflate just as developed markets struggle with their own deleveraging process. We think 2012 will be a tough year for risk assets,” he said.
Monetary data for China is remarkable. Real M1 contracted in January, weaker than post-Lehman. The rate rebounded in February but only to zero.
But bear in mind that China has racked up loan growth of 87pc of GDP over the last five years – according to Fitch study that should be compulsory reading – compared to less than 50pc in Japan leading up to the Nikkei bubble, or in Korea before the 1998 crisis, or in the US before the subprime debacle.
We know from China Iron and Steel Association that steel output has dropped from 2m tonnes a day last year to 1.7m this year – with chilly implications for Vale and Brazil’s real, or BHP Billiton and the Aussie dollar.
We know too that R&F Properties in Guangzhou reported a 40pc fall in house sales over the first two months of the year, with a 22pc drop in price. Like others, I am watching the Confucian ‘soft landing’ with curiosity.
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