UBS Calls It: "The Global Credit Impulse Suddenly Collapsed To Negative"

Tyler Durden's picture

One month ago, a skeptical Deutsche Bank warned that just as global macro surprises and economic momentum had hit 6 year highs, the bullish story was set to rollover from its current elevated levels...


... primarily as a result of a series of disappointing data points out of China...

... which would be manifest in commodity prices first then across the entire risk spectrum: "Lower macro surprises would be consistent with a tactical pull-back for equities (especially against the backdrop of still-elevated readings on our market sentiment indicators) as well as a roll-over in cyclicals versus defensives."

While it may not have known at the time, what Deutsche Bank was really saying is that the primary driver behind global growth in the past decade - China's credit creation, or rather its first derivative, the credit Impulse out of Beijing - was about to turn negative.

One month later, that is what UBS' Arend Kapteyn discovered when in a report published overnight, the Swiss bank economist reported that the most important variable when it comes to global economic expansion (and alternatively, contraction) has just turned negative for the first time in three years.

In the note, UBS writes that "Our global credit impulse (covering 77% of global GDP) has suddenly collapsed" and explains that "as the chart below shows the 'global' credit impulse over the last 18 months is essentially mainly China (the green shaded bit), which even now is still creating new credit at an annualized rate of around 30pp of (Chinese) GDP. But the credit impulse is the 'change in the change' in credit and even the Chinese banks could not sustain the recent extraordinary pace of credit acceleration. As a result: whereas back in Jan '16 the global credit impulse was positive to the tune of 3.8% of global GDP (of which China comprised 3.5% of global GDP) it has now fallen back to -0.1% of global GDP (China's contribution is -0.3% of global GDP).

There was some good news, namely credit creation everywhere else but China as the credit impulse in advanced economies (DM) is running at its 5y avg pace, "that is to say, DM's contribution to the global credit impulse is about ½ pp of global GDP, exactly equal to the average of the last 5 years but a few tenths below the pace back in Q3. Within DM, positive contributions are mainly coming from the US (0.2pp), UK (0.3pp) and France (0.1pp). For the US that's largely reflecting its large GDP weight, but for France there is a clear turnaround (2 ½ pp of GDP) from a negative credit impulse mid last year to a positive one now (coinciding to some extent with the strong improvement in PMI data), and the UK is sustaining a credit acceleration that started last May. The only DM economies where the credit impulse is currently negative are Italy, Canada and Australia (combined 12% of our DM aggregate)."

Unfortunately, as we have explained for years, starting back in 2010, when it comes to the global credit impulse, it was, is and will be all about China: without a massive surge in debt creation over and above the prior year, and thus a boost to annual impulse, the global economy virtually always rolls over.  As UBS calculates, credit impulse has a strong correlation with global domestic demand growth: the average DM correlation with domestic demand is 0.67 (and as high as 0.75 for the US) whereas for EM it's only 0.23. The correlations for Poland (0.67), Turkey (0.66), Brazil (0.6) and South Africa (0.55) are all decent but India (0.15) and China (0.1) are very low, possibly because of problems with the GDP data."

The bottom line: absent a new, and even more gargantuan credit expansion by Beijing - which is not likely to happen at a time when every single day China warns about cutting back on shadow banking and loan growth - the so-called recovery is now assured of fading. It is just a matter of time.

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syzygysus's picture

Bullish for sure.  Dow 33,333 then to 666.

gatorengineer's picture

Bullshitish for sure Copper, Nat Gas, Oil, well off of lows, what falling commodity prices?

Ham-bone's picture

And what this means for commodities and global demand is plain...down down down.  And why the engine of global growth that is China can't maintain global growth.

BandGap's picture

Natural gas has to get it soon, I live in the far north and it's been in the mid 50s all week.

Very mild winter.


Raffie's picture


Nothing collapsed!!!

Do not read this article of VERY FAKE NEWS.

Put all your money into the stawks if you want to be rich.... everyone is making mad cash.

Would we lie to you for well over 70 years? We would not, now give till it hurts.

TeethVillage88s's picture

When Johnny comes marching home again (USD)
Hoorah, Hoorah!
When Johnny comes marching home again (USD)
Hoorah, ..Hoorah!

The Dow will reach 50,000
We all will reach 50,000
When Johnny comes marching home !

Muad'Grumps's picture

And a million socially engineered E-trade babies just cried out in horror! What? You mean my Amazon and FB won't go up forever?

Hohum's picture

Debt is weatlh.  Ignorance is strength.

niemand's picture

real money (aka Gold) is slavery

TeethVillage88s's picture

If Ignorance is strength... I'm still looking pretty good.

FreeShitter's picture

Yeah this sounds uber bullish.

Trade Guru's picture

This is so obvious to anyone that actual follows markets and isn't just fishing the internet for a stock tip.

No shit people....this forex nut has had this down for getting ridiculously short US Dollar. 

You should be aware....The U.S Dollar is about to nose dive.

NugginFuts's picture

Uh, sorry, but this guy seriously missed it back in November when Gold took it in the shorts and the Dollar shot to the moon. If I'd followed his advice, I'd have ended the year in the red.

That being said, I don't disagree with him at this particular juncture.... Gold has certainly come back. But it didn't start that climb until late December. Buying mid-November was a huge loser, same with shorting the USD.

Bernie Madolf's picture

Nose dive vs what?

Eur is trash and will likely go away after the EU dies.

Yen is garbage.

Unlikely the commodity currencies appreciate in any meaningful way without a surge in demand.

So you're planning for the yuan to rally? Unlikely with the capital outflows.

NugginFuts's picture

That's my point! I think he's so into his charts that he misses the macro picture sometimes. Granted, his more recent posts deal with SOME macro issues... You simply can't ignore that fundamentals and to some extent even technical indicators are moot in this market. It's a market driven nearly 100% by 140 characters from a POTUS. 


Jim Sampson's picture

USD is the shiniest turd in Fiat.  Will be the last to fall but all Fiat will fall.

Stormtrooper's picture

I heard that the Zimbabwe dollar has been gaining strenth recently.  Maybe......

NugginFuts's picture

"the so-called recovery is now assured of fading. It is just a matter of time."


Could it be yesterday please? And thank you.

besnook's picture

you mean china controls the world, more specifically, the pboc rules wall street, the city and brussels. it's the oh! shit! moment for the world.

E.F. Mutton's picture

"Hello Peter? This is Paul, hey - can you lend me...."

They just need a bigger credit card.  Yeah, that's the ticket.

wisehiney's picture

Last chance to get on board the tbond train.

Falconsixone's picture

I see squiggly lines and care.

hotrod's picture

Who will take the baton next? China tired. Iceland how is your balance sheet?

Sounds like a damn good time for Yellen to raise rates.

Trade Guru's picture

so wrong....yen will sky rocket.....EUR will blast higher as USD gets shit canned.


NugginFuts's picture

hey I hope you're right.... I just don't buy your timeline or diagnosis. 

Falconsixone's picture



Smerf's picture


Sonny Brakes's picture

Tyler, listen to me. Lately, your ideas— they’re horrible.

Econogeek's picture

being picky - this 'impulse' is a second derivative.  Looks like the first derivative is still +.

fatlibertarian's picture

These markets are so manipulated, we've got no clue what's going to happen. I voted for Trump but I honestly am not sure this ramp in the market is good. Just means it's going to have harder to fall. If it ever does. If it does not fall then look for inflation.