China money supply up for the first time in four months

Standard Chartered's China Divisia measure rose up 14.5% in August.

Growth in Standard Chartered (SC)'s China Divisia money measure picked up to 14.5% in August from 13.6% in July, following three consecutive months of weakness that pushed the pace to below average growth since 2011.

SC notes that a continued declining trend would have raised concerns about China’s economic growth.

The acceleration was largely driven by a pick-up in growth of M2, which includes corporate and personal deposits and government bond issuance.

Here's more from SC:

The rebound in broad money supply is likely to have supported real economic activity in August, following a slowdown in July. Both supply-side and demand-side economic indicators recovered substantially in August, including industrial production and fixed asset investment

Consumption also accelerated, continuing to provide steady support to the overall economy.

We believe SC Divisia remains consistent with China’s current pace of economic expansion. GDP grew 6.7% in Q2-2016. SC Divisia also indicates that monetary conditions are more expansionary than suggested by the official M2 series, which supports our above-consensus forecast for China.

The gap between the two measures narrowed slightly but remains large by historical standards. The recent rise in demand deposits has driven a wedge between our measure and the official M2 series.

Divisia gives a higher weighting to more liquid assets.

One of the key reasons for the rise in demand deposits is the drop in interest rates on longer-term savings. As a result, the spread over demand deposits has narrowed significantly.

The People’s Bank of China has also said that the recent increase in demand deposits partly reflects the temporary effects of a local-government debt-swap programme.