Euro area monetary dynamics to soften in July

Significant improvements have been seen in monetary and credit dynamics 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 likely to soften at 4.8% yoy, bringing the three-month moving average at 4.9%, states Societe Generale. This would mainly owe to base effects.

"Given the still weak actual loan demand, we still think that 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", says SocGen in a report on Thursday.