The composite liquidity indicator fell sharply last week. There was some distortion to the indicator the previous week when the Fed’s SOMA fell due to transactions outside dealer channels, but that was reversed in the latest data. Bank inflows were flat. FCB buying dropped back sharply from a record rise. Bank non-Treasury trading accounts fell and the trend in that segment is becoming more bearish. Bank buying of Treasuries fell, after an up week the week before.
The massive reserve withdrawal from the Fed, the week before, which is a plus on this indicator, was reversed in the most recent week. It has washed itself out, and the distortion it caused is not a concern at this time.
The 39 week MA is still flat. With liquidity flat, one market can generally rally only at the expense of another.
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