Chinese trade and money / credit releases for January reported recoveries in year-on-year comparisons and have been interpreted positively by market participants seeking evidence of economic turnaround. The suspicion here is that the improvements reflect a New Year timing effect and will reverse in February.

New Year fell on 5 February this year, 11 days earlier than in 2018. Exporters front-load shipments ahead of the holiday. When New Year is in early February (or late January), this bulge shows up in January exports. When the holiday occurs later, as in 2018, the February number benefits.

This effect is likely to explain the recovery in the year-on-year change in exports in US dollars from -4.4% in December to 9.1% in January. The February figure may fall sharply as high exports a year before drop out of the annual comparison – year-on-year export growth surged to 43.6% in February 2018.

This suggestion is supported by a comparison with two pairs of years with similar New Year timings  - 2010 / 11 and 2007 / 08. The first chart superimposes year-on-year changes in exports in those years on recent data. In both cases, a rise in growth in January of the second year was more than reversed in February.

The earlier New Year may also have contributed to a rise in year-on-year narrow money growth – as measured by true M1 including household demand deposits – from 3.4% in December to 5.1% in January. Demand for transactions money increases ahead of the holiday, with the effect showing up in end-January monetary data when the New Year occurs in early February. Money growth, like export growth, fell between January and February in 2011 and 2008.

Money and credit trends may be starting to revive in response to policy easing but a significant recovery in economic data is unlikely before late 2019, judging from the lead time at previous turning points in 2008, 2011 and 2015 – second chart.

Global six-month real narrow money growth is estimated to have risen further in January, based on partial data. This increases the probability that October marked a low, in turn suggesting that economic momentum will reach a low around July 2019, allowing for a typical nine-month lead. The recovery to date, however, has been modest and driven by a slowdown in inflation, which may reverse into mid-year. A pessimistic economic view will be retained here pending a more convincing monetary rebound.

The US, China, Japan, India and Brazil have released January monetary data, together accounting for about two-thirds of the G7 plus E7 aggregate tracked here. All countries bar Japan and Canada, meanwhile, have released inflation data. Six-month real narrow money growth is estimated to have risen to a 14-month high – see first chart.

The level of growth remains weak by post-crisis standards – it was lower in only three months between September 2008 and November 2017. The recent recovery, moreover, reflects a sharp fall in six-month consumer price inflation, with nominal money growth moving sideways – second chart. Inflation is likely to rebound into mid-year if commodity prices stabilise at current levels – third chart. Nominal money trends need to pick up to warrant hopes of late 2019 economic improvement.