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