Annual M3 growth in September accelerated for the first time since August last year. However, at minus 1.2 percent, the yearly contraction was just a tick shallower that in mid-quarter and weak enough to reduce the headline 3-month moving average rate from minus 0.4 percent to minus 1.0 percent. This was marginally stronger than the market consensus but still a new record low. Versus August, M3 was up 0.5 percent, only its second positive reading since January.

The modest pick-up in annual growth was largely attributable to M1, where the rate of fall eased from August's record 10.4 percent to 9.9 percent. Amongst the M3 counterparts, lending to the private sector turned negative at a minus 0.3 percent rate and, after adjustment for loan sales and securitisation as well as for positions due to notional cash pooling services, dropped from 0.7 percent to 0.3 percent. The latter post matched the weakest since June 2015 and within which loans for house purchase declined from 0.5 percent to 0.2 percent. Credit for consumption was little changed at 3.1 percent but lending to non-financial corporations fell from 0.7 percent to just 0.2 percent.

The September update is consistent with the results of the ECB's new lending survey which found weakening credit demand and tighter bank lending standards. This should be a factor helping to ensure that key interest rates are left on hold tomorrow. Today's report puts the Eurozone RPI at minus 12 and the RPI-P at minus 22, both readings showing overall economic activity falling slightly short of market expectations.

Annual broad money growth (on a 3-month average basis) is expected to extend its downward path to a 1.1 percent contraction in September versus minus 0.4 percent in August.

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.