The CrossBorder Capital Blog

Policy Convergence But Pace of Liquidity Growth Diverges   Latest weekly balance sheet data from major Central Banks show aggregate liquidity growth slowing further to 15.8%, less than half the 2021-peak of 35% ( 3m ann. rate). The G4 equivalent (ex. China) has dropped to 16.0% versus its recent 41% peak. The driving force has been US monetary base growth which has plummeted to 0.2%, a world away from the whopping 78% recorded in early April. The ECB and Bank of England looked to be on the same pathway, but the downturn in their liquidity growth has been much less pronounced and there are signs of stability in the last 2-3 weeks. Meanwhile, the People’s Bank of China and the Bank of Japan have stepped up the pace of liquidity injections.       See our latest published research, Weekly Global Liquidity Update 28 June  2021  

Global Liquidity Support Has Shrunk … Safe Asset Demands Not Surprisingly Jump   Quick Summary: The slump in US Treasury yields and spike in the US dollar point to stronger demands by investors for ‘safe’ assets. The trigger appears to have been the June FOMC, but under the surface Global Liquidity peaked months ago and mid-May saw the Chinese economy skid badly. H2 promises slower World economic momentum and more volatility. Equities are just starting to wake up to the bad news. Rosy scenario is looking a bit red-faced!     See our latest published research, Global View - Global Liquidity Support Has Shrunk … Safe Asset Demands Not Surprisingly Jump - June 2021  

FOMC Leaves Policy Unchanged But Data Suggest Otherwise   Latest weekly balance sheet data from major Central Banks show aggregate liquidity growth sliding to 16%, less than half the rate recorded in early-April ( 3m ann. rate). The G4 equivalent (ex. China) has dropped to 17% versus its 41% peak. This week, the Federal Open Market Committee (FOMC) left policy on hold, yet US monetary base growth has plummeted to 7%: it peaked at 78% only 10 weeks ago. It is driving the downturn in policy liquidity expansion. ECB and Bank of England liquidity growth also peaked in April but the downturn has been less pronounced. Meanwhile, the People’s Bank of China, and now the Bank of Japan too, look to be moving in the opposite direction.       See our latest published research, Weekly Global Liquidity Update 18 June  2021  

Further Evidence of Fed Tightening   Latest weekly balance sheet data from major Central Banks show aggregate liquidity growth stabilising at 21%, compared to the recent early-April peak of 35% ( 3m ann. rate). The US Fed is leading the downturn. US monetary base growth has dropped to 26% compared to the 78% April peak. The jump in reverse repos is the main factor slowing Fed liquidity expansion. Importantly, this is not being offset by a simultaneous rundown in the Treasury General Account. The ECB and Bank of England are also gently curtailing liquidity growth. Meanwhile, the People’s Bank of China looks to be moving in the opposite direction.     See our latest published research, Weekly Global Liquidity Update 11 June  2021

China Cracks … Or Is It Just Chips?   ·                 Given that Chinese policy-makers are not deliberately tightening, why does the latest data warn of an on-going and worrying Chinese economic slowdown? ·                 Expect much lower interest rates across the Chinese yield structure, perhaps by as much as 50-100bp, with a potentially  big pass-thru into lower US rates     See our latest published research, Emerging Markets Latest GLI™ – June 2021  

Global Liquidity Update: Good News Over?   ·                 Markets are becoming stretched. Last year’s liquidity impulse is fading. Our analysis is at its most downbeat for two years. ·                 5-year Chinese government bond yields could drop by 50-100bp in the face of latest economic slowing, with a material pass-through into lower US rates.  

Central Bank Liquidity Growth Continues to Slow   Latest weekly balance sheet data from major Central Banks show aggregate liquidity growth slowing to 21%, compared to the recent early-April peak of 35% ( 3m ann. rate). The G4 equivalent (ex. China) stands at 23% versus its 41% peak. The US Fed is clearly driving the slowdown: latest 28% vs. 78% peak. March and April saw some acceleration in ECB, Bank of Japan and Bank of England liquidity expansion but this has stalled through May/June. The People’s Bank of China remains the tightest of the majors in terms of net liquidity injections.      

The US Dollar and the Asian ‘Euro’   The US dollar looks set to fall. Our analysis suggests 10-15% is likely, but we cannot rule out a more than 20% slump. The reasons are numerous and include the Fed’s easy monetary policy, the growing ‘twin deficits’ and the rival threat from China/ Asia. But applying Occum’s Razor, the standout risk is the changing direction of ‘safe’ asset flows out of US assets. Foreign investors are starting from huge relative positions in US safe assets built up over the past decade, with foreign issuance stepping up, competition is hot.       See our latest published research, Global View - The US Dollar and the Asian ‘Euro’ - June 2021