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Can Europe Continue To Surprise Positively Through The Summer?

EUROPE
  • While a significant increase in money supply tends to be followed by a strong performance in risky assets (such as equities) in the US, UK or even China, it has not had an important impact on European financial assets.
  • However, an increase in money supply has historically acted as a strong leading indicator of the economic activity in the Euro area.
  • The chart below shows that real M1 has led Euro industrial production by 9 months in the past 20 years.
  • Many empirical publications have expressed the predictive power of real M1 on real economic activity in the past cycle.
  • We have already seen that business surveys have recovered sharply in the past year and are currently standing at 10-year highs (i.e. manufacturing PMI); can the real economic activity in Europe continue to surprise positively following the sharp increase in real M1 in 2020?

Source: Bloomberg/MNI

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