The CrossBorder Capital Blog

‘Japanification’ and US Treasury Supply   The overall economic backdrop remains disinflationary, largely because of the whopping debt overhang.  Aside from the latest step-up in prices caused by supply-chain shortages, inflation is dormant. This leaves changing term premia as the main drivers of bond markets. They are determined by the balance between available liquidity and the supply of ‘safe’ assets. It follows that the Fed’s growing desire to ‘taper’; a prospective temporary rebuilding of the Treasury General Account to side-step the approaching US Debt Ceiling; the faltering World economy and the prospect of a smaller Democrat fiscal package should all keep US 10-year Treasury yields at the lower end of a 1-1 1/2 % range         See our latest published research, Global View - ‘Japanification’ and US Treasury Supply - August 2021  

Liquidity Growth Normalises   Latest weekly balance sheet data from major Central Banks show aggregate liquidity growing at 6.9% (3m ann.), the lower end of the long-term pre-pandemic range. The G4 equivalent (ex. China) stands at 6.4%. The unprecedented monetary response to the Covid crisis looks to have run its course. The US Fed and ECB have been at the forefront of this normalisation dating from early April, and the impact of their actions is all the more significant because together they have supplied 85% of World QE during Q2 2021. The Bank of Japan has added to the squeeze since mid-June. And latterly, the People’s Bank of China has also slowed its liquidity provision.       See our latest published research, Weekly Global Liquidity Update 2 nd August 2021  

What Are The Bond Markets Really Saying About The Slowing World Economy?   The World economy is slowing. This is already clear from daily nowcasting reports and has been long foreshadowed by prior downward inflections in both Global Liquidity and World government bond markets. But how bad will this dip be? We combine evidence from slower Global Liquidity and signposts from the bond markets to suggest a coming 'W'-shaped pattern. This may set up a another good buying opportunity for World stock markets.     See our latest published research, Global View - What Are The Bond Markets Really Saying About The Slowing World Economy? - August 2021  

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