A broad scan

While it is tempting to jump into a deep dive straight away, oftentimes it is useful to do a scan of the waters to determine the most fruitful region for investigation.  For these sorts of purposes, Macro Man generally finds it helpful to look at broad-stroke indicators to identify areas and regions of potential interest.

Given that it's been some time since he's done any sort of screening on growth momentum, that seems like an appropriate place to start.   While relative growth trajectories are obviously pretty static in the short run, sometimes it's easy to fall into the trap of erring too far on the side of stripping out the noise by not checking in often enough.

Macro Man decided to pull together charts on two measures of economic momentum: the OECD leading indicators and the Citi economic surprise indices.   While each has their flaws, as a shorthand way of gauging how things are going each also has their uses.

The OECD leading indicator doesn't really tell you that much that you didn't know about G4 economies.  The growth impetus has, for the most part, been pretty anemic, the solid GDPNow forecast for Q2 US growth notwithstanding.   It's interesting to see little vigor in the Eurozone growth momentum (a bit more on this below) despite the reams of easing that the ECB has engaged in.

There's a bit more dispersion in the trajectories of smaller countries, though one can justifiably ask questions about the accuracy of some of the indicators.  After all, momentum in Australia is shown to be bottom-of-the-barrel; while it's true that the RBA has cut rates recently, that was an inflation thing. You really wouldn't expect a country with such weak growth momentum to be posting Q/Q non annualized growth of 1.1% as the Aussies did in Q1.  Still, the divergence between the  AUD and NZD indicators has generally coincided with weakness in AUD/NZD, so maybe there is some use there.

Japan is the notable outlier in terms of G4 economic surprise.  What are we to make of this, given that the burst higher has coincided with a general strengthening of the yen?  An obvious conclusion might be that the Japanese economy is a bit more resilient than commonly thought to the recent yen appreciation; given that the JPY is still on the weak side of fair value against many currencies, such a conclusion might make some sense.

As for the rest, well, it's a bit of a dog's breakfast there.  There's been a notable divergence in the CHF and SEK ESI's, but you wouldn't really know it from looking at FX chart.

This in turn serves as a useful reminded that these broad scans are necessarily shallow, and that a lot of the observed "signals" may just prove to be noise.   This especially holds for smaller country surprise indices where the forecast samples may not be particularly good.

Returning to Europe for a moment, one interesting development yesterday came with the release of the monetary data.  While MFI lending to non financial corporations continued to improve, the growth rate of lending to households declined for the first time since February 2015.  Perhaps more worryingly, despite the new ECB measures M3 growth declined 4.6%,  its lowest level since  February of last year (coincidentally enough).

Although it has seemed for some time that there was room for upside surprise to the EZ growth figures (and thus, potentially, bond yields) nothing presented here suggests that such an outcome is more likely than further disappointment.  Last week's Bobl recommendation is a couple of bps offside, but that's why it's important to use stops for this type of trade; it keeps the fretting to a minimum.

In the meantime, European banks look to be coiling for a big move, though in which direction remains to be seen.  The range is growing ever narrower and should be good for a nice explosive thrust when it finally breaks.  Hard to say at this point which way it will be, though if recent Brexit polls showing Leave picking up steam are accurate, it might not be hard to identify the catalyst...