One of the themes we have been tracking in the past 6 months is the slowdown in global money growth and excess liquidity.  The focus on the second derivative is important here.  The level of growth in liquidity and money growth indicators is decent but the annual growth rate is rolling over.  This suggests that growth and asset prices may see weaker momentum in the second part of 2014.

This is also consistent with yesterday’s message from the Fed which is getting increasingly hawkish in face of a declining unemployment rate. Our base case is that the Fed will remain dovish, but the data is slowly but surely dragging the Fed towards the end of QE and ZIRP.

The signal from global excess liquidity growth is particularly illuminating at this point.  Higher growth, stable inflation readings and a slowdown in money growth are now showing up through lower excess liquidity readings.

(click on pictures for better viewing)

200314_excess liquidity

In the US and Europe real M1 growth is losing momentum and in both cases we would expect momentum to dwindle further.

200314_real 1mThis should not be seen as a major growth slowdown signal at this point, but it indicates that we are setting up a peak in growth and asset price momentum later this year.