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The Real ‘Fake News’ Concerns Chinese PolicyChina is big and matters to all investors. But forget the hyped-up stories, the fact is that China is simply not easing yet. It should and it may ease soon, but so far the full January and provisional February data from the People’s Bank show that policy remains moderately tight.

Article in the Financial Times 19 February 2019

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Why Has Global Liquidity Crashed Again?We have been warning about the negative effects of plunging Global Liquidity for over a year and highlighting the negative role being played by the World’s Central Banks. Many policy-makers are engaging in a twin-tightening by simultaneously hiking interest rates and shrinking their balance sheets. There is no sign of this squeeze easing yet, even though Global Liquidity is crashing at its fastest rate since the 2007/08 Crisis. Nonetheless, investors should start to anticipate a massive monetary easing in 2019 that tries to reverse what may inevitably prove to be a coming hard economic landing.
Why The US Treasury Yield Curve Just Could Be Signalling 1.5% Fed Funds RatesPlunging Global Liquidity can explain a lot and, not least, flattening yield curves and skidding equity prices. Digging deeper, bond term premia data signal upcoming US recession and further confirm the yield curve slope’s bearish message. US interest rates have likely peaked and could fall back to test 1.5%, judging from how term premia typically perform over time. US yield curve should steepen through 2019, indicating easier liquidity conditions and paving the way for a market rebound later next year.

Credit Risks!

Is It Time To Dump Credits?Skidding Global Liquidity conditions warn of an upcoming credit crisis. Already the danger signs are there, from plunging EM bonds to changes in the term structure of interest rates. We fear US high yield credits could test 500bp over and EM US dollar credits could break through 600bp, over equivalent duration US Treasuries

Recession?

How Tight Is the US Federal Reserve? Three Charts That Warn About Upcoming RecessionWe have been warning for months that deteriorating Global Liquidity data will negatively impact the World economy by end-2018. Now, latest economic data point to a worrying wobble in US business activity. We have been concerned throughout this year that the US Fed is hitting the brakes harder than widely believed because rate hikes are occurring on top of balance sheet shrinkage. Reliable bond market metrics point to the real risk of an upcoming slowdown, while the recent collapse in investors’ risk appetite warns that an economic inflexion point is close.

Global Capital Flows

The Battle for Middle Earth – The Changing Direction of Global Capital FlowsA major realignment of global capital towards Asia and away from the US looks to us underway, fuelled by future growth opportunities and the prospects of higher profits from Chinese expansion into Central Asia. Set against crashing Global Liquidity, we are concerned that the recent huge build-up of US$ 4 trillion of speculative foreign capital in US financial assets flags an upcoming US dollar sell-off in 2019? America is trying to halt these shifts, as it fights to retain the dollar’s status as the international standard of value.