M3 growth turned negative in July. An annual minus 0.4 percent rate was the first sub-zero print since May 2010 and was weak enough to reduce the headline 3-month moving average rate from 1.0 percent to just 0.4 percent. Versus June, M3 was down 0.4 percent, its fifth negative reading in the last six months.

Once again, the slowdown in annual growth was largely attributable to M1, where the rate of contraction steepened from 8.0 percent to 9.2 percent, easily another new record low. Amongst the M3 counterparts, lending to the private sector decelerated from a 1.4 percent rate to 1.1 percent and, after adjustment for loan sales and securitisation as well as for positions due to notional cash pooling services, from 2.0 percent to 1.6 percent. The latter post matched the weakest since October 2015 and within which loans for house purchase dropped from 1.3 percent to 0.8 percent. Credit for consumption was flat at 2.5 percent but lending to non-financial corporations dropped from 3.0 percent to 2.2 percent.

The July update again highlights the increasing impact of ECB tightening on the more interest rate sensitive sectors. Still, another 25 basis point hike in key rates next month remains very likely unless Thursday's HICP inflation data are especially well behaved. The July data put the Eurozone ECDI at minus 17 and the ECDI-P at minus 20. Both measures show overall economic activity falling short of market expectations, as has largely been the case since early-May.

Annual broad money growth is expected to slow to just 0.1 percent in July, reducing the headline 3-monthly rate to 0.6 percent.

M3 is the European Central Bank's (ECB) preferred broad measure of money supply. Since January 1999, the ECB has tended to focus on the 3-month moving average of the annual growth rate to judge underlying M3 trends although the significance of its 4.5 percent reference rate has been downgraded with time. The private sector lending counterpart is usually seen as the most important element of the M3 report.

While other central banks have virtually ignored money supply data, the European Central Bank has not. Thanks to the influence of the Bundesbank in organizing the ECB, M3 money supply was established as one of the 'two pillars' of monetary policy used by the ECB, the other being the harmonized index of consumer prices (HICP). While the target for HICP is two percent, the seemingly largely ignored reference target for M3 growth is 4.5 percent as measured by a three month moving average which is compared with the same three months a year earlier.

M3 measures overall money supply. It consists of M1 which is currency in circulation plus overnight deposits and M2 which include deposits with an agreed maturity up to two years plus deposits redeemable at up to three months' notice. Not all M3 measures are alike. For example, ECB M3 is approximately equivalent to the Federal Reserve's M2 measure. Because an increase in M3 leads to price inflation, this figure can also be indicative of the likelihood of future interest rate hikes.