The CrossBorder Capital Blog

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 Rates   Plunging 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.    

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    

How Tight Is the US Federal Reserve? Three Charts That Warn About Upcoming Recession     We 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.    

The Battle for Middle Earth – The Changing Direction of Global Capital Flows     A 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.    

Who Stole Liquidity? The Outlook For US Treasuries   This report takes a ‘liquidity view’ of the US yield curve and rates. Although Global Liquidity growth is tanking at a worryingly rapid rate, bond market flows look to be more in balance. We do not expect the US Treasury yield curve to invert and it is more likely to gently steepen from around current levels. Yield curve movements depend both on term premia (largely via the long-end) and rate expectations (largely via the front-end). Aggressive rate expectations could drop back, but the low prevailing level of policy rates means it is unlikely they can fall by much. More likely is rising term premia from their unusually depressed levels. Two factors driving term premia higher are: (1) growing supply of US debt and (2) diminishing appetite for US assets from foreigners. According to a ‘liquidity view’, the ‘long-end drives the short-end’ and not vice versa. This will mean two more Fed policy rat...