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Euro money hopes

This indicator is simply the M1 measure of the money stock - that is, notes and coins plus overnight bank deposits - adjusted for the rate of inflation. This is now growing at its fastest rate since 2010. This matters, because there has been a good link between this growth rate and the change in industrial production nine months later: since January 1998 the correlation between the two has been 0.66. Accelerations in monetary growth in 2002, 2010 and in 2013 led to pick-ups in output growth, and falls in monetary growth in 2000, 2008 and in 2012 led to slowdowns.

Of course, hitherto-stable relationships in economics have a habit of breaking down. It could be that short-term bank deposits are growing strongly now not because households and firms are getting ready to step up their spending but because they fear a possible break-up of the euro and so don't want to tie up their money in long-term deposits.

Two things, however, suggest this might not be the whole story.

First, the rise in M1 in 2012-13 - when the euro crisis was at its worst - also led to a pick-up in growth. This suggests that safe-haven demand for cash doesn't destroy the relationship between M1 and subsequent growth. If people stockpile ready cash for an emergency, they might be tempted to spend it if that emergency doesn't materialize.

Secondly, it's not just nominal M1 that has lead indicator properties. Real M1 is rising not just because nominal M1 is, but also because inflation is falling. And lower inflation on its own has also boosted growth in the past. The correlation between CPI inflation and industrial production growth nine months later has been minus 0.51 since 1998.

If the post-1998 relationship continues to hold, the current growth rate of real M1 points to industrial production in September being 5.5 per cent higher than it was in September 2014*. This is much faster growth than generally expected.

If this is remotely correct, it has two implications for investors. First, it suggests that the rally in eurozone equity prices might well be justified. Markets aren't just looking ahead to a QE-driven bubble, but to genuine growth.

Secondly, it means we should doubt how far the euro can fall against the US dollar. Stronger economic activity should give support to the euro - especially if more evidence emerges of the damage done to the US economy from the strong dollar.

There is, however, a more awkward implication for the ECB. If all this is right, it implies that quantitative easing has come too late. If it works at all, QE will strengthen a recovery that's happening anyway. Monetary policy will then be cyclical, not counter-cyclical. This isn't necessarily a disaster: with unemployment at 11.5 per cent and even core inflation far below its target rate, it's unlikely that strong growth will swiftly lead to an inflation problem. It will, however, pose the question of whether the ECB has the foresight or flexibility to conduct stabilisation policy.

*There is, however, a large standard error around this estimate, of 3.9 percentage points. Even the lower end of the range of growth implied by this relationship would, however, be better than many expect.