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Liquidity Stagnant as Fed Sits on Hands, US Market Health Dependent On European Bank Diarrhea

Liquidity indications were mixed last week, with the Fed still not doing much while foreign central banks were net sellers (see Treasury update). Commercial banks started dumping Treasuries again, but their non-Treasury/non-GSE trading accounts did uptick against a bearish trend. The big plus was again bank inflows which surged massively.

Meanwhile the FOMC statement was “steady as she goes.” There was no hint that the Fed is considering printing/pumping any time soon. The status quo continues. The health of the US markets remains wholly dependent on the continuation of the European bank runs pumping cash into the US branch of the system. This will not end well.

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