The ECB Money Is Filtering Through

Posted Thursday, December 29, 2016 by
Skerdian Meta • 1 min read

The M3 money supply seems to have increased in the Eurozone. The annualized number for November came out at 4.4% when the expectations were for a 4.4% increase. That´s a nice jump and the ECB (European Central Bank) must love this. 

For those who don´t know, the M3 money supply represents the entire stock of domestic currency (Euro, in this case) circulating in the economy in the form of physical cash or short term bank deposits.

I say that this is a positive for ECB because the consumer demand increases when there´s more cash floating around. The higher the consumer spending, the more income for companies. Thus, increased investment and the need for labour force, which in itself, leads to higher wages and then higher consumer demand again. The circle closes and the economy flourishes. 

It seems pretty easy, but we know it´s not that straightforward. Still, the ECB must love this because it will have an impact on the Eurozone inflation, however small it might be.

The trend is up but we´re only half way up to pre-GFC levels. 

The money seems to be filtering through the EZ (Eurozone) economy and the rise in the nonfinancial loans to 2.2% is a positive indicator. The EZ household loans also picked up nicely. Although important, money supply is not the ultimate indicator, but it´s yet another indicator pointing at the right direction.

I´m accumulating all these positive signals in by brain, so it doesn´t strike me as a surprise when the big Euro reverse comes.   

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