Brazil has just cut interest rates for the fourth time since last August. Its central bank rate is now 200bps lower than it was then and there remains plenty of scope for further reductions. China is easing too. It has yet to cut interest rates but it has started lowering reserve requirement ratios and announced overnight that it is allowing the big banks to raise lending quotas with the instruction to front load lending in the first and second quarters of this year.
Meanwhile, as the emerging world loses momentum, the US economy continues to regain it. Not only is the economic news flow better than expected but there is evidence that the Fed’s policy easing and especially its QE initiatives may be reaching the non-bank economy. As the chart shows, it is not just the underlying trend in private sector employment that is continuing to improve but so is the underlying trend for outstanding commercial and industrial loans. Also, although the Fed no longer publishes the broader monetary aggregate M3, a shadow series for this aggregate from Shadow Government Statistics is reproduced in the following chart and indicates, albeit tentatively, that the trend could be about to turn upwards again. More >