The CrossBorder Capital Blog

Markets Catch-Up With The Central Bankers But Economies Are Already Slipping   The collapse in Central Bank liquidity is adding a fierce headwind for investors in 2022. This will be a year for capital preservation. However, not just Global Liquidity matters. Investors’ risk positioning is also affected by economic developments, among other things. We argue here that latest daily data points to weakening economies and may itself warrant lower equity exposure. The exception here is China, where already low investor holdings of stocks is starting to confront a strong pick-up in positive economic surprises. China could be the maverick play in 2022?       See our latest published research, Global View - Markets Catch-Up With The Central Bankers But Economies Are Already Slipping – January 2022    

  Emerging Market Liquidity: China's Continuing Squeeze ·                 Equities are not always the first asset class to be affected by liquidity changes, but they are the most geared to liquidity. This is even more true for EM equities ·                 There is no evidence of a renewed and strong Chinese credit impulse in the data we track   See our latest published research, Emerging Markets Latest GLI™ – January 2022  

  Global Liquidity Latest: Shanghai'd (Temporarily) By Beijing?   ·                 Since the GFC, new liquidity provisions have been largely controlled by changes in the size of Central Bank balance sheets. These now have a staggering 3-3½ times the impact on Global Liquidity they previously had.   ·                 China is the elephant-in-the-room, since the People's Bank (PBoC) continues to squeeze liquidity lower, cutting liquidity by a huge 20% at an annualised rate         See our latest published research, Global Liquidity Latest – January 2022  

Market Volatility and Polar Splits Among ‘The Big Three’ Policy-Makers Will Be the Stories of 2022   On paper, Central Bank Liquidity, the dominant driver of Global Liquidity over the past decade and particularly since COVID, looks set to slow markedly in 2022. Policy indications from both the US Fed and the ECB even point to absolute falls in balance sheet size from mid-year. Meanwhile, China is maintaining a stable course, albeit at a low ebb. We suspect that rising market volatility will cause some policy-makers to reverse their planned QE tapers. To us, the US Fed looks most likely to fold first.     See our latest published research, Global View - Market Volatility and Polar Splits Among ‘The Big Three’ Policy-Makers Will Be the Stories of 2022 - December 2021    

  Explaining US Exceptionalism   The consistent outperformance of US equities against other World stock markets has often been ascribed to 'US exceptionalism'. Paradoxically, the US growth record is slightly inferior to other economies and US interest rates have frequently been above equivalent yields recorded in both the Eurozone and Japan. Nonetheless, US valuation multiples have still expanded by more than in other World markets. We explain this textbook puzzle by looking inside the traditional P/E multiple and show that they are mainly driven by implicit liquidity and asset allocation factors. We conclude that the US is exceptional, but for non-fundamental reasons explained by demographics and pension industry effects.     See our latest published research, Global View - Explaining US Exceptionalism - December 2021    

The Coming Bear Market In US Money   The scale of the American policy response to COVID is not only unprecedented in scale, but, unlike their counterparts elsewhere, US policy-makers appear slow to withdraw their support. We argue here that the Fed is both ‘behind the curve’ and ‘behind the crowd’. Some policy catch-up looks inevitable, but, like in the 1970s, we believe the current Fed lacks the necessary fortitude to tackle the inflation problem. Consequently, inflation will persist, with the US dollar potentially in the firing-line. We recognise that Chair Powell is probably not a Paul Volcker on inflation, but we also worry that President Biden is a Jimmy Carter for the dollar.       See our latest published research, Global View - The Coming Bear Market In US Money - December 2021    

US Dollar Prospects Dull in 2022   Is it time to bet against the crowd? Fuelled by increasingly uncertain market prospects, there is a tight consensus that the US dollar will be strong by default in 2022. But a year ago an equally robust consensus predicted a weak US dollar in 2021 and has since been proved wrong. Currencies are dominated by capital flows: capital flows are liquidity phenomena that largely rest on US Fed policy; on the strength of the World economy and on the underlying demand for 'safe assets'. Here we are concerned by two factors that may undermine the US unit in 2022: First, the Fed is already playing 'catch-up' with other policy-makers and, despite a more aggressive taper, it may fall 'behind the curve'. Second, the past decade has already seen huge inflows into US 'safe assets'. This perfect storm into the US dollar may be abating?     See our latest published research, Global View - US Dollar Prospects Dull in...