According to most flow-tracking economists (and not their conventionally-trained peers) when one strips away the noise, there are just two things that matter for the global economy and asset prices: central bank liquidity injections, and Chinese credit creation. This is shown in the Citi charts below.
And since it is indeed the case that just these two variables matter, then the world is set for a very turbulent phase because while global central banks liquidity is set to reverse a decade of expansion, and enter contraction some time in Q3 as the great "liquidity supernova" begins draining liquidity for the first time since the financial crisis...
... the latest Chinese credit creation data released overnight, added significantly to the risk of a "sudden global economic stop" after the PBOC reported that in May, China's broadest monetary aggregate, Total Social Financing, barely rebounded from a 2 year low, rising to RMB1.138TN - missing expectations of a 1.4TN print, and confirming that Beijing's shadow deleveraging campaign is accelerating and gaining even more traction, even if the threat of a global deflationary spillover is rising by the day.
A quick look at numbers reveals that there was not much of a surprise in traditional new RMB loans, which continued their rapid pace of growth, rising sharply from last month's RMB1.150TN to RMB1.84TN, and well above consensus RMB1.535TN, growing 12.7% yoy in June, up from 12.6% last month
And yet even despite the 4th highest monthly increase in total new loans, Total Social Financing was still a disappointment, and for the second month in a row, was below the new loans print.
The reason is that while new loans - a core component of TSF - jumped, the drop in shadow bank was particularly sharp for the second month in a row: this has been the area where Beijing has been most focused in their deleveraging efforts as it’s the most opaque and riskiest segment of credit. And, as the chart below show, the aggregate off balance-sheet financing posted its biggest monthly drop on record in June
Meanwhile, the lass granular M2 reading also posted a growth slowdown, rising only 8.0% in June, down from May's 8.3%, below consensus of 8.4%, and the lowest on record.
Commenting on the ongoing slowdown in China's credit creation, Goldman said that the latest money and credit data highlighted the challenges the government is facing in loosening monetary policy.
Specifically, while the loosening policy intention should be clear judging from the RMB lending rebound and more net fiscal spending (June fiscal expenditure accelerated to around 7%yoy from 0.5%yoy in May), the effectiveness of the policy loosening is clearly questionable.
Meanwhile, commenting on the drag of non-loan TSF - which as noted above became even bigger than it was in May - Goldman said it was "clearly not the recent...