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Velocity and momentum

| Posted by: Paul Donovan | Tags: Paul Donovan

  • With Japan, China and the UK all off on holiday today, the financial markets are likely to be relatively subdued.
  • The Euro area was on holiday on Friday, and thus missed the normal cycle of manufacturing sentiment data releases. They make up for that today, with the consensus for fairly static indices (implying modest acceleration). However, there may be some downside risks given the surprises elsewhere.
  • The US Senior Loan Officers' survey is possibly released today. This is an important indicator. If banks are willing to lend, and willing to lend at a price borrowers are willing to borrow at (not the same thing, necessarily) then it implies further increases in the velocity of circulation and a need for Fed tightening.
  • The weak (albeit incomplete) Q1 GDP data caused our US team to revise down their estimates for growth this year to 2.3% (was 2.8%). However the momentum of the economy (rising growth, rising inflation, rising employment) still argues for a tighter central bank policy.