Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chart of the Week : Global Credit Impulse Update
Christopher Dembik
Head of Macro Analysis
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance. This week, we update our leading indicator for growth, the global credit impulse.
Click here to download this week's full edition of Macro Chartmania.
The economist consensus is optimistic about economic growth in 2022. Financial conditions will remain broadly accommodative despite monetary policy tightening. With a faster vaccine rollout and new Covid antibody cocktails, the pandemic will be under control, at least in the developed world. The direct inflationary effect of bottlenecks will progressively vanish. On the production side, supply will increase and will reduce the risk of shortage. But what if the consensus is wrong ? Our proprietary leading indicator for growth, the global credit impulse, flashes a warning to major economies. It tracks the flow of new credit issued by the private sector as a percentage of GDP. In our sample, we have the eighteenth largest economies which represent 69.4 % of global GDP share. The global credit impulse is now in contraction territory, running at minus 1.3 % of global growth, according to our preliminary estimates. When the credit impulse is negative, expect that growth will cool down significantly in the next six to nine months afterwards. Said differently, we could see growth slowdown from Q2-Q3 onwards in 2022. This has not been priced in by any investors at that stage. Both short- and medium-term factors explain the contraction in the global credit impulse : the contraction in the flow of new credit in most developed countries (the United Kingdom, the euro area and Japan, for instance) and the tight monetary and fiscal policies implemented by China since early 2021. This has been recently reversed. But it will take time before it has a net positive global effect on growth. Our leading indicator has a very good track record. If it proves to be right once more, the year 2022 could be less quiet than most currently anticipate on the macroeconomic front.
What is Saxo Credit Impulse ?
The notion of Credit Impulse was introduced for the first time by Michael Biggs in November 2008. The Credit Impulse represents the flow of new credit issued from the private sector as a percentage of GDP. It is the second derivative of credit growth and arguably the largest driver behind economic growth.
The thinking behind Credit Impulse is based on basic Keynesian economics. Since spending is a flow, it should be compared with net new lending, also a flow, rather than credit outstanding, a stock.
The main advantage of Credit Impulse is that it helps to solve a number of conundrums that cannot be explained by an analysis focusing on the stock of credit. In addition, it has been demonstrated that, for many time periods and countries, a strong correlation exists between Credit Impulse and other economic data, especially private sector demand, and financial assets.
Before the Global Financial Crisis, the United States, Japan and Europe were the main drivers of the global credit cycle. But a major shift has happened since 2009 resulting in China becoming the dominant actor. As a result, China Credit Impulse is key to monitor in order to assess the evolution of the global economy.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer