Wednesday 23 August 2017

Bank credit shrinks so far in August

Bank credit went back to shrinking in early August. Since Trump was elected it pretty much stalled through to April, grew again for a few months, slowed in June/ July and has shrunk so far in August.

Clearly there is a spread of phases across the sectors with some like Autos probably in recession, others slowing, but many service sectors still going strong and driving some wage-inflation pressures and, in my view, oil is recovering.

If the overall economy continues to grow while a few sectors crash, like oil did 2014-2016, the Fed will be under pressure to hike rates. On the other hand a transmission mechanism like overall credit shrinkage or corporates starting an inventory liquidation cycle, could cause a few sectors contracting to morph into an overall recession.

I suspect either scenario (Fed hikes or recession) is USD positive.

Latest number was slightly positive, but so far this year its drastically slowed. 

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