US Inflation Fears Reignite As Chinese Money-Growth Flashes Red Flag

Authored by Simon White, Bloomberg macro strategist,

Money growth in China continues to improve, indicating stimulus is gaining further traction. This is a positive for China’s stocks, but it will also generate inflation that will seep into the US and around the world, increasing the likelihood of a more hawkish turn later this year from the Federal Reserve, ECB and others.

Patience is a virtue, and that is certainly the case for those waiting for Chinese growth to turn a corner. Previous iterations of easing have not reached the parts of the economy that needed it most, but the steady rise in narrow-money growth shows that is changing. As the chart below shows, real M1 growth leads economic growth in China by three-to-six months.