Smoke and mirrors continue to drive lending and deposit growth in the European banking system. But the reckoning is coming.
Stocks have extended their rally in the face of flattening macro liquidity. That has returned them to being as overextended versus liquidity as they were at the January market peak. So what’s next? Here’s what to look for.
The Fed has shed $192 billion in assets since mid October 2017, just before the first cuts under the Fed’s “bloodletting,” or balance sheet “normalization” program. The screws are tightening.
European bank assets have stagnated since collapsing in 2012-13, and things will get worse when the ECB ends QE. Here’s why that’s bad news for the US.
The only thing that has changed since my last monthly review of the macro liquidity data is that stocks have rallied. That has returned them to their most extended position versus liquidity since the January market peak.
By the end of the year the Fed will have withdrawn $450 billion from the banking system if it sticks to its published schedule. The annual bloodletting will then plateau at $600 billion per year until the balance sheet reaches a tight reserve position. We have seen the effects in the money markets and we’re…
Macroliquidity is flattening as the Fed withdraws money from the banking system and extinguishes it. That means that there is less and less money available to absorb new securities issuance, particularly US Treasuries. Bonds have been pummeled. But sellers of bonds used the liquidity generated by US commercial bank and foreign central bank buying to…
Deposit growth has turned very slow. Watch out for the next outright decline in deposits. There’s a high correlation between European deposit levels and US stock prices. That’s because European institutions are big players on Wall Street.
By the end of the year the Fed will have withdrawn $450 billion from the banking system. The annual bloodletting will then plateau at $600 billion per year until the balance sheet reaches a tight reserve position. But loan demand is increasing. Here’s why that’s bad news.
The macro liquidity picture shows you why this rally should be sold.