The CrossBorder Capital Blog

China and Emerging Market Liquidity Update: China, The US Dollar and Emerging Markets   Emerging Market Liquidity conditions improved noticeably in November 2023, according to the jump in our EMLI™ index to a reading of 55.1. This rise was underpinned by buoyant cross-border capital inflows from foreign investors (index 68.6); an impressive rebound in private sector liquidity generation (index 54.1), reflecting signs of firming commodity markets, and further signs of easing by regional Central Banks (index 63.7), noticeably China (index 72.1). This provides a solid base for prospective EM stock market gains in 2024.       See our latest published research, China and Emerging Market Latest GLI™ – December 2023   For further information, please contact us at research@crossbordercapital.com  

US Dollar 2024 Outlook: Vulnerable to Looser Fed, But Supported by Strong Uptrend in Capital Flows   Structural capital inflows underpin the uptrend in the real trade-weighted US dollar basket. Notwithstanding a likely temporary 2024 pull-back in the US dollar as the Fed starts to ease, we expect medium-term trend weakness in both the Euro and Asian currency baskets.     See our latest published research, Global View: US Dollar 2024 Outlook: Vulnerable to  Looser Fed, But Supported by Strong Uptrend in Capital Flows - 23 rd December 2023   For further information, please contact us at research@crossbordercapital.com        

Update on the Fed… Sea Change?   The US Fed has likely over-tightened monetary policy. The challenge for 2024 is whether policy makers be able to get Fed Funds down fast enough? We remain bullish. Next year could prove a very favourable time for risk assets because they enjoy macro-regimes where GDP growth is sluggish and policy makers are easing. Already latest data reveal a solid pick-up in Fed Liquidity injections in the same week that the FOMC hinted that rates have peaked. Looking longer-term, more liquidity is coming as fast as government finances deteriorate.       See our latest published research, Global View: Update on the Fed… Sea Change? - 18 th December 2023   For further information, please contact us at research@crossbordercapital.com              ————————————————————————————————————————————————————————— 19/21 Catherine Place, London SW1E 6DX Tel: 020 3954 3430...

Global Liquidity Update - December 2023: Devastation or Liquidity Deluge?   Our Global Liquidity Index (GLI™) hit 25.9 at end-November 2023. This step-up in the pace of expansion confirms the steady liquidity uptrend in-place since October 2022. It underpins the bull market in risk assets. Many remain sceptical of holding risk assets, nervous that the World economy is about to plunge into the dark abyss of recession. Yet, bull markets always climb a ‘wall of worry’ and this one may be no different.       See our latest published research, Global Liquidity Latest – December 2023   For further information, please contact us at research@crossbordercapital.com  

The ‘Great Containment’: Global Liquidity and Asset Rotation   A Primer on Why Global Liquidity Matters   This report argues that the P/E multiple approach to investing is inappropriate at the market level. We describe an alternative method that uses investor behaviour and the Global Liquidity cycle. We show that asset allocation between major asset classes has flat-lined since the 2008/09 GFC: the ‘Great Containment’. However, there is an ever-active allocation across national stock markets as investors flip between Europe, the US and Emerging Markets.        See our latest published research, Global View: The ‘Great Containment’: Global Liquidity and Asset Rotation – 7 th December 2023   For further information, please contact us at research@crossbordercapital.com      

Monetary Shock and Au? Is This Gold's Breakout Moment?   Gold is a monetary hedge par excellence. Looking ahead our huge debt burden requires a sizeable monetary inflation to keep pace. The prospects for gold look attractive. Momentum is building for a breakout.     See our latest published research, Global View: Monetary Shock and Au? Is This Gold's Breakout Moment? - 29 th November 2023   For further information, please contact us at research@crossbordercapital.com      

Why The US Fed May Find It Hard NOT to Cut Rates in 2024   The beckoning US Election Year is likely to focus investors both on economic prospects and on the potential for an easing of Fed policy. We remain more sanguine than the consensus about the World economy and expect inflation to fall quickly during 2024. This should allow a significant policy easing and herald a sequential move into the next ‘Calm’ phase of the Global Liquidity Cycle.       See our latest published research, Global View: Why The US Fed May Find It Hard NOT to Cut Rates in 2024 - 22 nd November 2023   For further information, please contact us at research@crossbordercapital.com      

Mrs Watanabe’s Threat To World Bond Markets   We argue here that Japan’s shifting YCC policy is far from the greatest threat to global bond markets from Asia. A bigger issue is the stability of Japan’s huge household savings pool. Currently invested in low yielding deposits, it is anchoring low World interest rates. However, faster Japanese inflation and/ or a rapid economic rebound across the Asian economies, could lead to a significant asset shift away from global bonds.         See our latest published research, Global View: Mrs Watanabe’s Threat To World Bond Markets - 16 th November 2023  

Global Liquidity Update: Looking East   ·            GLI™ (Global Liquidity Index) trails at a still low 20.1 reading (range 0-100). Asia strongest region, Europe weakest ·            World Central Bank Liquidity subindex rose to 27.3 in October, largely fuelled by non-Western policy-makers ·            More than half of World markets are in positive Rebound or Calm regimes ·            Slowing Asian capital outflows add upward pressure to bond yields     See our latest published research, Global Liquidity Latest – November 2023  

Future Trends in World Debt and Global Liquidity   This report is inspired by the release of latest World debt estimates for 2022 by the IMF. We argue that the evidence of rising debt levels, particularly across the Advanced economies, are dangerous and, at least, require more ‘liquidity’. The cost of adding liquidity is that this will mean faster monetary inflation. We are equivocal whether this spills over into high street or asset prices, but whichever, investors need to consider owning more long-term monetary hedges, such as gold… or crypto.       See our latest published research, Global View: Future Trends in World Debt and Global Liquidity - 8 th November 2023   For further information, or to change user options, please contact us at research@crossbordercapital.com      

Why The US Dollar Is Strong & Why It Could Get Even Stronger   A loose fiscal/ tight monetary policy mix is underpinning capital inflows into the US and pushing the US dollar higher. A strong dollar is not a consensus trade. However, it could prove self-correcting if the resulting disinflationary pressures compel the US Fed to ease monetary policy in 2024. It needs to be watched.       See our latest published research, Global View: Why The US Dollar Is Strong & Why It Could Get Even Stronger– 31 st October 2023   For further information, please contact us at research@crossbordercapital.com      

Capital Wars Redux   Did the US dollar just win the Battle for Currency Supremacy? And, following Xi’s surprise visit to the PBoC and another RMB2 trillion liquidity injection, is China’s economy about to boom again?     See our latest published research, Global View Capital Wars Redux – 25 th October 2023  

China and Emerging Market Liquidity: Before The Flood – Reassessing Emerging Markets After China's Shock Easing   Emerging Market Liquidity rose to an above-average reading of 61.3 at end-September 2023, driven higher by an uptick in Central Bank liquidity (index 70.2) and by robust cross-border capital inflows (index 73.7). Remarkably, even EM private sector cash flows are holding up and, probably, because commodity markets continue to remain elevated.         See our latest published research, China and Emerging Market Latest GLI™ – October 2023  

The Wrecking Ball Still Ripping Into US Bonds   Investors face a ‘duration crisis’ not (yet) a ‘credit crisis’. US 10-year Treasury yield could test 5½% because term premia when analysed closely still look too low. Pressures on term premia and yields are growing because of the unfavourable coupon supply outlook. A whopping near-US$11 trillion of gross US Treasury issuance is due before end-2024.     See our latest published research, Global View - The Wrecking Ball Still Ripping Into US Bonds – 23 rd October 2023  

Global Liquidity October Update: Prospects For 2024… Mr Bond Returns   ·          Global Liquidity Index (GLI™) climbs to a near-term high of 22.1 (range 0-100) ·          China's PBoC very loose liquidity stance (index 80.8) ·          Cross-border capital flows to Emerging Markets still robust (index 73.7) ·          Global Liquidity cycle in long-term upswing with peak around 2026     See our latest published research, Global Liquidity Latest – October 2023  

The Not (Yet) Credit Crisis   Markets are again testing the boundaries. We are not yet at the cliff-edge, but Treasury yields are hurtling towards it. The underlying problem is too much debt and the on-going burden of re-financing it. This ultimately requires more liquidity. The Fed has not yet thrown in the towel, but we anticipate a new acronym is coming: QS denoting a new policy of ‘quantitative support’ for markets.     See our latest published research, Global View - The Not (Yet) Credit Crisis – 5 th October 2023    

Inside the Bond Market: A Primer with Some Prospects   This report examines the background to the bond market. It explains the reasons why we have been bearish of duration (longer dated bond tenors) throughout this year, despite what has often been a backdrop of recovering Global Liquidity. We remain worried by the extremely depressed term premia component of bond yields.     See our latest published research, Global View - Inside the Bond Market: A Primer with Some Prospects – 2 nd October 2023  

The Sell-Off in Treasuries Is Not Good News for Global Liquidity   We argue here that structural supply and demand forces are pushing US Treasury yields higher via rising term premia. The US Fed is almost powerless to offset this. The resulting impairment to the value of the pool of collateral that backs credit markets will hit Global Liquidity. Caution: Asset prices could suffer a negative shock.       See our latest published research, Global View - The Sell-Off in Treasuries Is Not Good News for Global Liquidity – 26 th September 2023  

Global Liquidity conditions falter … again   Global Liquidity conditions falter … again. The root of the problem is weaker shadow monetary base growth. The Fed and Bank of Japan are behind this latest development. This is worrying. Tight liquidity conditions put pressure on financial assets. Already, bond market volatility, as measured by the MOVE, has ticked higher. A rise in the MOVE negatively affects the collateral multiplier, which in turn affects global liquidity. This is borne out by the charts below. Caution! Near-term developments are not good but we still remain upbeat longer-term and continue to believe the Global Liquidity cycle bottomed last October       See our latest published research, Weekly Global Liquidity Update 26 th September 2023  

  How China Sets US Interest Rates   China’s large economic size and her huge past commitment to the US dollar gives her huge sway over US interest rates. With the US Treasury set to boost coupon debt supply, the US Fed continuing its ‘QT’ and China’s appetite for holding US debt fading, US and World interest rates face severe crosscurrents, even a sea change!     See our latest published research, Global View - How China Sets US Interest Rates - 13 th September 2023