InfraCap Report Update, January 22 2024, New York, NY ~ The team at Infrastructure Capital Advisors tracks the Global Monetary Base, defined as currency in circulation plus bank reserves, as an indicator of current and future interest rates. This article provides data and insights for December data released in January.
December Global Monetary Base (GMB):
While the GMB was up 1% in December, it is still lower by $430 billion over the last 18 months. We believe that tight global monetary policy was the key driver of higher global rates, and not the increase in US treasury issuance. Our view is supported by the fact that U.S. and global rates dropped by over 50 basis points in December, as it became apparent that the Fed’s tightening cycle was over.
We expect that the GMB will stabilize over the next quarter and start growing again in mid-2024 as the European Central Bank (ECB) and the Peoples Bank of China (PBOC) are forced to ease monetary policy in response to a recession in Europe and slow growth in China. Eurozone GDP came in at negative 0.4% annualized for the third quarter and is now forecast to decline 1.2% annualized in the fourth quarter. The European recession is not surprising considering ultra tight ECB policy and the absence of the positive dynamics that are supporting the US economy, including an 80% cost advantage in natural and gas and electricity costs, counter-cyclical infrastructure spending and a shortage of homes available for sale.
If the Global Monetary Base remains flat in 2024 we expect interest rates to also stabilize and likely decline in the second half of 2024 as central banks cut rates in response to slow or negative growth. Declining global interest rates and a flat to increasing GMB will support the global stock and bond markets.