The market always tries to distract investors from what the obvious themes, a bit like a good striker selling a dummy to a goalkeeper, before he tugs it away. I’ll try my best to avoid that mistake here. Seen from my desk, the state of play in the global economy currently can be boiled down to two stories: First, the intensifying slowdown in real narrow growth in the major economies, and second, the fact that monetary policy divergence between the Fed and the rest of the world is being stretched to hitherto unseen extremes. This doesn’t mean that other stories—EM wobbles, Italian bond market woes, and trade wars—aren’t important. They are, especially for macro traders who have deservedly re-gained their mojo this year. But no matter how much joy investors have in the murky world on emerging market currencies, they will, sooner or later, have to take a view on the two themes highlighted above. Using money supply as part of global business cycle analysis is a controversial topic. For some analysts, it is the holy grail, while others will walk out of the room if you even mention it. Many economists prefer the credit impulse—the second derivative of loan growth—but if you actually draw the charts, you will find that this indicator very often is closely aligned with M1 growth.
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