The CrossBorder Capital Blog

Emerging Market Liquidity: The Risks of Bretton Woods 3   ·                 Currently average investors’ exposure to EM sits above our index threshold of +40 that represents two-standard deviations above normal   ·                 Since 2016/17 (Shanghai Accord), there is compelling evidence that pan-Asian policy-makers have been targeting their currencies. This may be aptly described as Bretton Woods 3?       See our latest published research, Emerging Markets Latest GLI™ – July 2021  

Global Liquidity Latest: A View From Twin Peaks   ·                 Peak Liquidity is underscored by de facto tightening by the US Fed, and Peak Economy is close, with activity undermined by a skidding Chinese economy   ·                 We are cautious about equities near-term because of tightening liquidity and an economic growth peak. Bond should perform better    

Have Central Banks Tightened Too Quickly?   Latest weekly balance sheet data from major Central Banks show aggregate liquidity growth hovering at a pandemic era-low of 7.2%. The G4 equivalent (ex. China) stands at 6.3%. At this time last year, liquidity was expanding at a 49% 3m ann. clip (G4, 54%), having peaked at 95% (G4, 110%) a month earlier. The main driver has been the US Fed, where liquidity is shrinking on a 3m annualised basis. The Fed downturn, dating from April, has been compounded by the ECB and Bank of England. The sharp slowdown in US Fed and ECB activity is all the more important because they have supplied 85% of World QE over the past three months. Yet, recent economic data point to slowing momentum: have Central Banks tightened prematurely?      

US Monetary Policy – Made in China?   Quick summary: Are bond markets reacting more to slowing World business activity than to tightening threats from the US Fed? Latest economic momentum data, calculated from economic surprises, show a sharp and accelerating decline across Asian economies. The culprit is China. Could this growth hiccup warn that World policy-makers have started to tighten too soon?       See our latest published research, Global View - US Monetary Policy – Made in China? - July 2021  

Tightening in all but Name   Latest weekly balance sheet data from major Central Banks show aggregate liquidity growth plummeting to 6.5% (3m ann. rate), its pre-Pandemic rate. The G4 (ex. China) equivalent has dropped to 6.2%. At this time last year, liquidity was expanding at a 54% 3m ann. clip (G4, 59%), having peaked at 95% (G4,110%) a month earlier. The recent downturn started in the US, where the monetary base is now shrinking. The slump has been compounded by the sharp slowdown in ECB and Bank of Japan liquidity growth, and liquidity contraction in other non-major Central Banks. The Bank of England is holding steady. Meanwhile, the People’s Bank of China is bucking the trend and stepping up the pace of its liquidity injections.         See our latest published research, Weekly Global Liquidity Update 2 July 2021