Economy in Brief

The global manufacturing PMIs from S&P are largely mixed in June with 9 of the 18 surveyed economies showing manufacturing improvement and 9 showing deterioration. However, there's relatively more improvement shown among the large economies with the euro area, Germany, the United States, the United Kingdom, and Japan also showing improvement in the manufacturing sector in June.

Median manufacturing readings moved down slightly month to month in June; the sequential readings from 12-months to six-months to three-months still show slight slippages in train.

Diffusion readings measure a breadth of improvement from period to period. These readings show a 61.1% breadth over 12 months compared to a year ago; over six months compared to 12-months the breadth slips sharply to about 27%; over three months compared to six-months breadth improves to about 39%; however, that's still below 50% which is the neutral reading. Clearly on balance more are slipping that are improving.

There are some sequential trends clearly showing that conditions are still touch and go and still not improving although the counterpoint to that is that year-over-year, the six-month to 12-month, and the three-month to six-month changes show consistent improvement for the United States, France, Germany, the euro area and that on that comparison India is also doing better at each venue.

The pooled data are not particularly impressive or encouraging. However, it's clear that there are some centers of strength and of firmness and enough to be somewhat encouraging because the large economies do tend to lead the way and right now, they are the stronger group of economies.

Readings in terms of strength show that, on the whole period, back to January 2021, the euro area, Germany, France, and the U.S. all have standings in their June readings that are above their medians; for that period Japan also has a standing above its median. India has a standing in its 90th percentile, an extremely strong reading. The large economies, and at least one of the large developing economies, are having some success.

The percentile standings, however, drive home a message that the median ranking among reporting countries for this period is in its 32nd percentile, close to the one third mark and nowhere near the median for its historic queue of data - and that's not encouraging.

Polled together on unweighted data, the U.S., the U.K., the European Monetary Union, Canada, and Japan have a queue standing on the period in only its 45th percentile. The BRIC countries are only in their 40th percentile. The average among Asian countries is only in its 37th percentile.

Globally money growth has stabilized more in the month of May.

In the European Monetary Union (EMU) over three months the annualized money growth rate ticked up to 2.9%, compared with 2.5% growth rate over six months and a 3.6% growth rate over 12 months; over two and three years the growth rate for money in EMU has been 2% for two years and 1.4% for three years. Compared to that, we have money growth sustaining itself at a stronger level.

In the United States, money growth continues to accelerate but slightly; the three-month growth rate for money is 6.2%; at an annual rate over six months it's 4.9%; over 12 months its pace is 4.5%. Money growth has steadily accelerated compared to a 0.4% growth over 3 years and a 2.7% pace over 2 years. The U.S. is the one exception where money growth rates are looking hot and where there has been steady acceleration in these growth rate; these calculations are in terms of M2.

The United Kingdom shows more variability as 12-month growth in U.K. for the money aggregate M4 is 3.5%. That moves up to 4.1% over 6 months and is back down to 1.7% annualized over 3 months. So, the 3-month growth rate in the U.K. is looking more like the 1.8% growth rate over 2 years, but even that stepped up from 1.1% over 3 years. In the case of the U.K., money growth rates have picked up and do seem to have steadied and they are off their top growth pace. However, at 1.7% the nominal growth rate of money over three months is on the light side

Japan, of course, is the central bank that is still engaged in raising rates and still has an acknowledged inflation problem. In Japan, the 3-month growth rate for M2 plus CDs is -1.3% annualized, weaker than 0.1% over 6 months which is weaker than 0.6% over 12 months; the Japanese money growth rates also decelerate from three-years to two-years and continue to decelerate on down to three-months. The Bank of Japan is still plotting its strategy for an inflation rate that appears to be both stubborn and slightly excessive. However, it's a welcome set of problems compared to the deflation that Japan dealt with the decade earlier.

Real money balances Real money balances tend to show some step up in pace. In the case of the European Monetary Union, there's a steady acceleration of money growth from -2% at an annual rate over three years to +2.3% over 3 months and more or less steady pickups from period to period in between.

In the U.S., real money growth rates show a persistence acceleration from -2.8% at an annual rate over three years to the 5.2% annual rate over three months. Real money supply growth in the U.S. is cooking and strong, particularly over three months. However, over six months the growth rate is only 2.2% so the heat in terms of U.S. money supply growth is a relatively recent phenomenon.

In the U.K., real M4 growth continues to show contraction and M4 growth contracts over all horizons; over three years, two years 12 months, six months and three-months. However, the three-month contraction is at a -1.6% rate, deeper contraction than the 12-month rate (-0.4%) and pretty close to what it's done over two years on balance (-1.5%) although that's a step up in the pace of contraction compared to 12-months to six-months. U.K. growth has been running on the weak side in addition to its weak real and nominal money supply growth.

Japan shows contraction and money supply overall horizons and the contraction gets progressively larger over more recent periods; money growth is at a -4.1% annual rate over three months and that compares to -2.8% over 12 months, logging a declining rate of -1.4% at an annual rate over three years. Japan’s weak real money growth is a policy decision.

The background for real and nominal money growth is that oil prices are continuing to fall. They're falling in nominal terms and in real terms with year-over-year oil prices falling at about a 23% annual rate and in real terms the oil price is falling at about a 25% annual rate. The weakness in oil is helping central banks catch up on their inflation mandates at least four headline inflation.

EU credit growth is lax And the European Monetary Union credit growth continues to expand but it is slowing. Private credit grows 2.4% at an annual rate over 12 months, but that slips to 1.5% annualized over three months and compares to the kind of growth that Europe had been seeing over two and three years where the growth rates averaged 1.4% and 1.7%. Real credit growth in the monetary union shows that there has been a pickup in the growth rates from 12 months to six months to three months; all show expansion although there's not steady acceleration there is steady positive growth. Those are good developments for the outlook for growth.

This week, we look at the state of US–Asia trade talks as the July 9 expiration of the US’ 90-day tariff pause approaches. Despite early activity, few deals have been finalized. So far, the US has reached only a limited agreement with the UK and rolled back mutual tariffs with China, alongside a framework on rare earth exports. Much of the action has focused on undoing previous measures rather than making new advances. Still, Asian markets have shown signs of stability (chart 1), though volatility may return as the tariff deadline nears. The outcome remains uncertain. President Trump has indicated flexibility on the deadline, and Treasury Secretary Bessent has suggested more deals may come only by Labor Day in September. Meanwhile, US effective tariff rates have already risen (chart 2), though inflation impacts have been muted, likely due in part to importers absorbing costs.

Among Asian partners, India shows the most near-term promise, with ongoing talks focused on mutual market access, though barriers remain in agriculture and dairy (chart 3). Japan has made no breakthroughs despite pressing concerns over auto and metal tariffs—sectors key to exports and GVA (chart 4). South Korea, just emerging from political transition, is only beginning substantive talks (chart 5). In Southeast Asia, Indonesia and Vietnam are among the most likely to reach agreements. Both face steep tariff hikes if talks fail, particularly Vietnam with a potential 46% rate. Indonesia has submitted proposals, while Vietnam remains optimistic. Thailand, still early in talks and politically distracted, is unlikely to meet the July 9 deadline (chart 6).

US trade deals so far this year We have already reached the end of the first half of the year, and the US’ flurry of trade-related actions has so far yielded tangible outcomes with only a few countries. To date, the US has concluded a limited trade deal with the UK and reached an agreement with China to roll back many of the tariffs both sides imposed earlier this year. More recently, the US and China also established a framework concerning China’s rare earth export controls. That said, much of the world remains without new US trade deals. Most of the developments thus far have focused on partially reversing measures implemented earlier this year, rather than advancing beyond the pre-inauguration day baseline. Still, a measure of market calm has returned—at least in Asia—as reflected in recent rallies across some of the region’s equity indexes (chart 1). However, renewed volatility may lie ahead as the July 9 expiration of the US’ 90-day pause on reciprocal tariffs approaches.