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The SS Fed Sails Into Uncharted and Probably Stormy Liquidity Seas

Macro Liquidity Composite

The composite liquidity indicator edged to a new high this week, barely above the range of the past 5 months. Even with that pause, the trend is in much the same longer term path it has been on since 2012. Primary Dealer cash, the largest component, continues to grow due to the Fed’s MBS purchases. Other components have popped in recent weeks particular foreign central bank purchases of Treasuries, and bank purchases. However, bank non Treasury trading accounts are nose-diving and their non Treasury investment accounts are flat. Those are yellow flags, indicating weakening underlying sentiment.

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Macro Liquidity Composite
Macro Liquidity Composite – Click to view chart

Chart Updated weekly in the Professional Edition Money- Macro Liquidity Report.

So far the QE programs of the BoJ and ECB in the absence of the Fed have not resulted in growing US macro liquidity although the move up in the past several weeks could be a residual effect of those programs. If anything it is surprising that they have not had greater impact. It suggests that there are negative undercurrents, aka selling, driven by a change in the level of confidence among the world’s major investment and trading firms.

This report reviews and illustrates the individual components of the Macro Liquidity Composite, and additional contributing drivers, to give you a better handle on the context underlying and driving the technical market and economic trends.

Fed Money and Liquidity Pro subscribers (Professional Edition), click here to download complete report in pdf format.

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