User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday January 25, 2010 - 11:39:42 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly - Weak money supply growth argues for continued stimulus; Weekly economic data preview -UK poised to exit recession in Q4, while US recovery gathers further momentum

Economics Weekly -25 January 2010


Weak money supply growth argues for continued stimulus


A notable feature of the global economic downturn over the past two years has been the marked weakening in money supply growth. Despite unprecedented policy stimulus, the deposits held by the private sector and the amount of bank borrowing undertaken have both slowed sharply. Since peaking at 9.6% in early 2008, OECD annual broad money supply growth has almost halved to 5.4%. As chart a shows, broad money supply in the US, euro zone and UK have all posted sharp slowdowns over the past year, with the annual growth of broad money (M3) in the euro zone recently dipping into negative territory for the first time ever.


The desire of monetary financial institutions to repair their balance sheets has led to a decline in the supply of credit, while uncertainty over the economic outlook has weakened demand for loans. The fall in both the supply of, and demand for, credit has contributed to a decline in the money multiplier - how quickly financial intermediaries convert deposits into new lending - and the velocity of money – how many times money is spent in the economy. These declines, in turn, have exacerbated the fall in both money supply and nominal spending growth.


That said, there is no clear hard and fast short-term relationship between the money supply and nominal gdp growth. As chart b shows, there was a clear breakdown in the link between UK broad money growth (M4) and nominal gdp from the early to mid-1990s. The breakdown in this relationship, which was also evident in other countries, was largely due to the increased instability of the velocity of money. This was partly related to the growth of debit card transactions and also to changes in the structure of financial intermediation, notably the growth of off-balance sheet vehicles and the increase in capital market funding. The impact of these changes has been to weaken the link between traditional forms of credit growth and nominal spending.


As a result, the importance central banks attach to money supply developments in setting

monetary policy has declined since the 1980s. Nonetheless, the relationship may be inexact, but money supply trends can still impart useful information about the prospects for an economy. For example, the contraction in the euro zone money supply strongly suggests that nominal gdp growth across the region is likely to remain weak for some time.


More generally, with the world’s central banks having embarked on an unprecedented loosening of monetary policy, money supply is once again being monitored for signs of whether the policy stimulus is working. This is particularly the case in the UK, where the Bank of England has gone a step further than most other central banks by injecting around £200bn into the economy through the purchase of financial  assets (mostly gilts) from the private sector. These purchases have been financed through the creation of central bank reserves (the so-called policy of Quantitative Easing).


The Bank of England hoped that these purchases would achieve two aims: (i) boost financial asset prices, both gilts, equities and corporate bonds, and thus boost financial and economic confidence; and (ii) by raising the aggregate amount of deposits and reserves held in the banking system, encourage an increase in bank lending, thus raising money supply growth and, with a lag, nominal spending.


So far, evidence of the success of this policy has been mixed. While Quantitative Easing appears to have boosted financial asset prices – equities have risen sharply and corporate bond spreads have narrowed – traditional credit growth and nominal gdp growth have fallen further. As chart b shows, both the headline annual rates of broad money (M4) and nominal gdp growth have continued to drop sharply over the past year.


The detail of the money supply data shows an even weaker prognosis. Transfers between banks and intermediate ‘other financial companies’ have grown substantially over the past ten years. These flows, which are captured within the OFCs component of M4, impart little information about trends in nominal spending. To get a better picture of underlying trends, the Bank of England is now publishing a measure of M4 which excludes intermediate OFCs. As chart

c shows, on this measure, annual M4 growth has dropped from over 10% to less than 3% over the past two years, while M4 lending (ex OFCs) has fallen from a peak of over 14% to just 0.1%.


The weakness of money supply growth is partly being driven by the desire of both households and companies to pay down their loans. Over the past year, the amount of outstanding borrowing from banks and building societies by households and private non-financial companies (PNFCs) has declined by 0.8% and 2.4%, respectively (i.e. debt has been repaid). The rate of borrowing for house purchase has slowed markedly, while consumers have reduced their unsecured balances. Faced with historically high levels of indebtedness and a weak labour market, this process of balance sheet repair in the household sector is likely to continue.


In the corporate sector, the picture is more complicated. While PNFCs have paid down bank debt over the past year, thus reducing M4, the volume of bond and equity issuance has picked up markedly (see chart d). Indeed, it appears that larger companies are actively using the proceeds of capital market financing to reduce their outstanding bank loans.


With households and companies likely to continue repairing their balance sheets, the prospect of a meaningful recovery in money supply growth in the UK and other developed economies remains remote. Although there is no automatic link between money supply and nominal GDP, a recovery in money growth (towards a more normal range of around 5-7%) is likely to be viewed by policy makers as an important objective as they seek to put nominal gdp growth on a firmer footing. Indeed, until measures of money supply start to turn higher, speculation of a reversal, or even a suspension, of policy stimulus in the UK, US or euro zone may well be premature.

Adam Chester, Senior UK Macroeconomist


Editorial comments to:

Trevor Williams

Chief Economist

Lloyds TSB Corporate


Economic Research

10 Gresham Street

London, EC2V 7AE

Tel: +44 (0)20 7158 1748


Weekly economic data preview -25 January 2010


UK poised to exit recession in Q4, while US recovery gathers further momentum


􀂄 Financial markets will have to wait until Friday for the data highlight of the week in the US. The advance estimate of Q4 2009 GDP is expected to show economic activity picked up sharply, after belatedly returning to positive territory in Q3. We look for annualised GDP growth of 5%, underpinned by consumer spending and a strong contribution from inventories. Figures for December durable goods orders will be closely watched on Thursday, for clues about business investment trends and to help refine Q4 GDP forecasts. Meanwhile, we expect another contrasting performance from existing and new home sales in December, primarily highlighting the important influence of government initiatives at this time. We expect existing home sales to have declined sharply to 6.0mn (from 6.54mn), but new home sales to have rebounded to 380k (355k). Consumer confidence will be a key determinant of economic prospects - and the housing market – over the year ahead. We look for a third successive rise in the Conference Board’s headline index to 53.5 (from 52.9) on Tuesday, while the University of Michigan sentiment index may be revised up to 73.5 (72.8) in January on Friday.


Although the FOMC is widely expected to announce another unanimous decision to keep the target range for the Fed funds rate at 0-0.25% on Wednesday, financial markets will be alert to any changes to other emergency programmes or in the language used in the accompanying press statement. It is also a heavy week for Treasury issuance ($118bn).


􀂄 It is a light week for UK data, but still an important one. The first estimate of Q4 GDP (Tuesday) will be the one of the last key data points for the MPC to evaluate before going into its Inflation Report forecasting round (sectoral M4 data released on 1 February will also be of importance to gauge the recent efficacy of the quantitative easing programme). The decision on whether or not to extend the Asset Purchase Facility at the February meeting hangs in the balance and so the detail of the GDP report will be important for marginal voters on the MPC. Our central view, which is predicated, in part, on survey evidence (including our own business barometer) is for a relatively modest 0.4% quarterly expansion, marking the first positive reading in seven quarters. There is also some consumer-related data to digest, with the confidence index (Friday) expected to rise slightly reflecting in part, early signs of an improvement in the labour market. To the extent that retail sales growth was boosted in December by an advancement of consumption ahead of the VAT rise at the turn of the year, a fall in the CBI’s reported retail sales balance for January (Wednesday) is forecast, as this effect washes through the data. The inclement weather conditions earlier this month are also likely to have depressed retail activity. Housing data on both prices and bank mortgage approvals are also released during the week.


􀂄 From a financial markets perspective, the euro’s price action will be closely watched as concerns about public finances in peripheral euro-zone countries continue to mount. In terms of data, this week sees a further round of euro-zone business surveys. The main highlight will be Tuesday’s German Ifo report, where we anticipate an improvement in the business climate index to 95.0 in January, from 94.7. Broadly, the underlying picture in Germany is one of healthy current economic sentiment supported by tax cuts to boost economic activity, with expectations relatively less upbeat. The latter reflects concerns over the sustainability of global recovery (vital for Germany’s exports) and also the eventual withdrawal of government labour market subsidies (which potentially presage a sharp rise in unemployment). Meanwhile, weakness in the broad euro-zone monetary aggregates underscore the ECB’s cautious stance on unwinding past monetary stimulus. We look for M3 to contract by some 0.5% in the year to December, with loans to the private sector falling by 0.9% over the same period. Lending to the non-financial sector has been pared back particularly sharply. Finally, January’s euro-zone CPI estimate is published on Friday, where our forecast stands at 1.1% year-on-year.

Jeavon Lolay (Senior Global Macroeconomist), George Johns (UK Macroeconomist), Mark Miller (Global Economist)


Economic Research,
Lloyds TSB Corporate
10 Gresham Street,
London EC2V 7AE
0207 626 - 1500


Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.



Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Mon 10 Sep 2018
AA 08:30 GB- GDP, Trade, Output
Tue 11 Sep 2018
AA 08:30 GB- Employment Decision
A 09:00 DE- ZEW Survey
Wed 12 Sep 2018
A 12:30 US- PPI
A 14:30 US- EIA Crude
A 18:00 US- Beige Book
Thu 13 Sep 2018
A 1:30 AU- Employment
AA 11:00 GB- Bank of England Decision
AA 11:45 EZ- European Central Bank Decision
A 12:30 US- Weekly Jobless
AA 12:30 US- CPI
Fri 14 Sep 2018
A 08:30 GB- GDP
AA 12:30 US- Retail Sales
A 13:15 US- Industrial Production
AA 14:00 US- prelim University of Michigan

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105