The CrossBorder Capital Blog

This Big Jump In Global Capital Flows Is Unusual But Not Without Precedent   Whether or not you believe that Central Bankers have altered course and veered away from quantitative tightening, the jump in cross-border flows since the December market correction is significant and, so far, has had a far bigger monetary impact than the Fed’s slated policy change. What’s more, this cross-border flow driver is not without precedent. Previously, it has sparked a sizeable outperformance from both cyclicals and non-US stock markets.

Capital Flows in Q1, 2019 – A Re-Run of the 2015-17 Risk Rally?   Cross-border capital flows, a major driver of Global Liquidity trends, often lead financial asset prices. They last boomed in the 2015-17 period, preceding and supporting a major risk rally in World equities. Flows have picked up strongly in Q1, 2019 and their strength through end-March may signal a repeat pattern? Flows into Developed Markets and notably the US are strong, whereas capital has been leaving the Eurozone.  

The Great Bond Puzzle   There are good reasons why 10-year US Treasury yields could plunge to match the prevailing zero yields on equivalent German Bunds and Japanese JGBs. Taking into account the effects of the recent QT policies, ‘true’ Fed Funds could be nearer to 5-6% than the targeted 2½%. Although US policy-makers may feel reluctant to cut policy-rates much from here, the structural shortage of ‘safe’ assets and the systemic needs of global money markets for liquidity will likely see QE restarted over coming months. We foresee a ‘half-way’ house, whereby the US FOMC allows modest rate cuts while pumping in more cash. The US yield curve will steepen, but with long-dated yields testing 2%.