In today’s briefing:
- Crisis, What Crisis! – The Drivers of Global Liquidity and What to Watch Out For?
- Fed Holds Its Nerve, but Banking System Liquidity Issues Persist
- Money Watch: European Bank Loan Books Look Worse than US Peers
Crisis, What Crisis! – The Drivers of Global Liquidity and What to Watch Out For?
- Global Liquidity is the key driver of asset markets. Global Liquidity bottomed in October. Expect a small rise in 2023
- Central Banks, led by the US Fed seem to be restarting a QE program and injecting more liquidity
- Watch the MOVE Index and the daily size of Reverse Repos (RRP) for clues about the direction of Global Liquidity
Fed Holds Its Nerve, but Banking System Liquidity Issues Persist
- High inflation has made it impossible for the Fed to pause or ease policy settings this month despite the onset of banking system concerns, but rate hikes could soon end.
- Futures contracts are discounting the Fed will cut the federal funds rate in H2. The Fed has responded to international banking events by opening dollar liquidity swap lines.
- The experience of the Bank of America and Merrill Lynch merger suggests that UBS could face significant legacy issues following the government-brokered takeover of Credit Suisse.
Money Watch: European Bank Loan Books Look Worse than US Peers
- European liquidity risks are smaller than US liquidity risks due to tighter legislation
- Loan books in European banks are on the other hand much more risky than US peers
- The negative bond yields in Europe led to even more extreme yield seeking from European banks
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