A Tricky Three Months

Understanding Latest Global Liquidity Trends

Global Liquidity measures the flow of cash savings and credit through the World’s financial system. In is a major driver of asset performance (3-9 months ahead) and ultimately real business activity (12-15 months ahead). Latest weekly Global Liquidity data show a new peak of US$171 trillion. Yet, looking beneath the surface there is a clear slowing down in the pace of expansion. Recent liquidity growth has owed more to improving collateral values, notably the slide lower in bond volatility (e.g. MOVE index), than Central Bank injections. Indeed, the ‘Big 2’  China’s PBoC and the US Fed have lately reduced (albeit temporarily) their liquidity inflows, with the Fed seemingly compromised by the upcoming tax season (when the TGA will swell) and the flat-lining (and latest climb) in the RRP, as Treasury bill issuance subsides in favor of greater coupon issuance.