Euro area monetary dynamics to soften in July

Significant improvements have been seen in monetary and credit dynamics in Euroarea since the ECB adopted an accommodating stance back in June (rate cuts, TLTRO, QE). Indeed, M3 money supply growth recovered from a lacklustre 1.1% yoy in May 2014 to a buoyant 5.3% yoy in April 2015, above its reference value of 4.5%. In June, monetary dynamics showed signs of stabilisation, with money supply rising by 5.0% yoy. 

In July, money supply growth is expected to soften at 4.8% yoy, bringing the three-month moving average at 4.9%, due to the following effects, says Societe Generale.

Given the still weak actual loan demand, the improvements in monetary dynamics will support higher asset prices (everything being equal) rather than higher real GDP growth in the short term. However, medium term, there is a good possibility that the improvement in the outlook will give companies enough confidence to start investing and hiring again.