Liquidity Trader – Macro Liquidity- Fed and Banking

Analysis of the major forces of macro liquidity that drive markets, including the Fed, foreign central banks, and the US and European banking systems. Resulting market strategy recommendations. Click here to subscribe. Now published at Lee Adler’s Liquidity Trader.

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The Fed’s Rate Hike Hoax- There Is No Short Term Money Market

The Fed has “raised interest rates” (wink-wink). Its primary tools in this make believe policy are interest on excess reserves (IOER) and the interest paid on reverse repos (RRP). The new Fed Funs target rate is now 25-50 bp. Fed Funs were reported to be trading at a weighted average rate of 36 bp on December 22.

Cash Destruction Not Yet Showing Up In Banking Indicators, But It Will

The macroliquidity indicators this week do not show any sign that a significant change is at hand. Yet, we know that plunging commodities, emerging markets, and leveraged junk bond markets are destroying cash. That should begin to show up in these indicators, particularly in bank deposits, in the weeks ahead.

Fed’s Balance Sheet Liabilities Little Changed, Treasury Cash Falls

The Fed’s liabilities rose slightly last week mostly due to incidental items, with no material impact overall. The Fed did a 7 day Term Deposit Facility Operation at 1 basis point above the interest rate on excess reserves, which pulled $43.8 billion from regular reserve deposit accounts into term deposits. Follow the money. Find the…

Macroliquidity Measures Steady As She Goes

Macroliquidity increased slightly last week. The trend is stable so there’s no reason to expect any material change in the market. Follow the money. Find the profits!Liquidity is money. Regardless of where in the world that money originates, eventually it flows to and through Wall Street. So if you want to know the direction of…

The Kuroda Draghi Miracle of Levitation

I was expecting a Wile E. Coyote moment if the market did not buckle in the wake of the $100 billion in Treasury supply settling on November 27 and 30. It hasn’t happened yet. Instead the market rallied on December 1. It forces us to consider the idea that the money printing by the ECB…

Waiting for Quid Pro Quo

This week’s Fed H41 data reflects the Treasury’s return to the market in November to claw back the cash it had injected into dealer and other accounts over the past couple of months. It has recovered all that and then some, driving Treasury cash to record levels. Conversely, that cash has been withdrawn from bank…

Bulls Are Overeating The Thanksgiving Turkey, But They’ll Be Puking Next Week

The recovery rally in stocks in October was a direct result of Treasury paydowns, which was a temporary effect. That has been reversed as the debt ceiling was raised and the Treasury returned to the market with a vengeance, pounding it with $310 billion in net new supply since the end of October. $100 billion…

Treasury Clawbacks Begin To Show Up In Fed’s Balance Sheet, And The Markets

This week’s Fed H41 data began to reflect the Treasury returning to the market to claw back big chunks of the cash it had injected into dealer and other accounts over the past couple of months. The effects of the clawbacks had already shown up in the Treasury market, and now they’re starting to be…

Fed Balance Sheet Semi Tight as Treasury Pulls Cash From Markets

With Treasury paydowns ending that week, and the Treasury returning to the market to claw back big chunks of the cash it had injected into dealer and other accounts over the past couple of months, next week’s Fed H41 data should start to reflect that. The Treasury account balance should grow, and bank reserve accounts…

Macroliquidity Pulls Back But Still Trending Up

Macroliquidity declined last week, but the trend is still positive, although at a much shallower angle than during the years when the Fed was doing QE. The recovery rally in stocks has been a direct result of Treasury paydowns, which was a temporary effect that will now be reversed as the debt ceiling has been…