Global Liquidity Watch: Weekly Update

Global Liquidity Continues to Edge Higher

Global liquidity levels are steadily rising but there is still cause for concern. For the moment, two positive factors are shaping the upturn. One is the weakening US dollar. The other is the improvement in Central Bank liquidity growth, notably the US Federal Reserve (Fed) and the People’s Bank of China (PBoC). The wildcard here is the Fed. The stealth liquidity boost that came from, what we dub, ‘Not-QE, QE’ and ‘Not-YCC, YCC’ (Yield Curve Control) in 2024 is fading. This together with the seasonal rise in tax receipts (liquidity drain) next quarter could undo the recent positive developments in Fed liquidity. Liquidity is a leading indicator. The current loss of momentum in liquidity-sensitive assets such as Bitcoin and equities reflects the slowdown in liquidity growth in Q4 2024. Certainly, liquidity levels have picked up in Q1 so far but if they falter from here, liquidity-sensitive assets will struggle to regain momentum.