Global Liquidity Watch: Weekly Update

Global Liquidity ... Getting Better

Global liquidity levels have stabilised at US$169.7tr, comfortably above the US$166.6tr weekly average recorded in 2023 and also above the peak US$168.7tr when the Fed stepped into support financial markets at the time of the SVB crisis.

Source: CrossBorder Capital, US Federal Reserve, People’s Bank of China, ECB, Bank of Japan, Bank of England

The chart below plots our weekly measure of Global Liquidity growth derived from Central Bank balance sheet data. The pace of expansion has accelerated coming into the New Year. Latest data record a +12.3% 3m annualised rate. The chart further illustrates that QT de facto ended in October 2022. At that point, global liquidity hit a cycle low of US$158.8tr. Still, global liquidity levels are just 7% above that cycle low.

Two factors have held it in check. First, the divergence of Central Banks. While the US Federal Reserve and the People’s Bank of China have been injecting liquidity into money markets, the ECB and Bank of England have been tightening. The other major, the Bank of Japan, has kept liquidity levels stable since last April. Second, increased volatility in bond markets which has negatively affected collateral values and hence liquidity levels.

The two are interlinked. More Central Bank liquidity will quell volatility in bond markets and underpin collateral values. We expect liquidity levels to continue to rise through this year and next before peaking in late-2025.