Global View October 2015: The Collapse of Global Liquidity and the Eclipse of Central Banking

by Michael J. Howell12. October 2015 10:52

In a darkening replay of 2007/08, there is an escalating lack of ‘liquidity’ across global markets. The echo of the Lehman Crisis can be heard in Figure 1, since Eurodollar balances are similarly being pulled back to US banks. Does this warn of funding problems? Bond investors’ most-talked-of fear is a lack of  ‘price and size’. Perhaps, because they sit at the front of the feeding-chain, bond markets are more sensitive to a bigger problem concerning the drying up of the World’s flows of money and credit?

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Global Liquidity Latest, October 2015

by Michael J. Howell12. October 2015 10:50

Liquidity risks remain elevated. Our Global Liquidity Index (GLI) for September 2015 is stuck at low levels of 39.0 (‘normal’ range 0-100) or close to the low August reading. Such poor liquidity underscores a ‘Risk Off’ investment environment characterised by high volatility and by the likelihood that economic activity levels will weaken noticeably over the next 6-12 months. We have already warned that low and falling US liquidity levels already point to a modest economic recession by early 2016.

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Global Liquidity Conditions Major Markets, September 2015

by Michael J. Howell24. September 2015 17:55

Global Liquidity remains sub-par. End-August 2015 saw our monthly GLI™ (Global Liquidity Index) touch 39.2 (‘normal’ range 0-100). This was a small rise from July and occurred only because that reading was revised down.

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Global Liquidity Conditions (Liquidity) Emerging Markets, September 2015

by Michael J. Howell24. September 2015 17:53

China continues to weigh down heavily on EM.The big message we get from our latest data is that China will have to devalue the RMB further. We still predict a 10% drop for 2015.

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Global Liquidity Conditions (Risk) Emerging Markets, September 2015

by Michael J. Howell24. September 2015 17:52

The Emerging Market component of our Global Risk Index dropped to 69.2 in August, compared to 77.8  in July and the recent peak of 90.4 in January.

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Global View September 2015: Where Are US Bonds Heading?

by Michael J. Howell15. September 2015 17:33

Two burning questions are: (a) will a pending US Fed Funds rate hike and (b) continued selling of US dollars and Treasuries by China cause US bond yields to spike higher? Our answer is ‘no’ largely because the safe haven attractions of US Treasuries will keep yields low. A 25 bp rate hike could add 15 bp to 10-year Treasury yields. But another couple of months of capital flight from China could push them down by 50 bp because of lower term premia.

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TSS - Major Markets Report, September 2015

by Michael J. Howell14. September 2015 12:31

In the upcoming weeks, investors will focus on whether the Fed will hike rates and whether Chinese data will deteriorate further? US monetary tightening is inevitable, but in many ways it has already occurred through the Fed’s ‘silent tightening’ as it enacts further reverse repo operations to curtail liquidity in preparation for a likely September interest rate rise.

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TSS - Major Markets Report, September 2015

by Michael J. Howell14. September 2015 12:31

In the upcoming weeks, investors will focus on whether the Fed will hike rates and whether Chinese data will deteriorate further? US monetary tightening is inevitable, but in many ways it has already occurred through the Fed’s ‘silent tightening’ as it enacts further reverse repo operations to curtail liquidity in preparation for a likely September interest rate rise.

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Global View September 2015: Is America Heading for Recession?

by Michael J. Howell10. September 2015 18:27

Could 2016 be a US recession year? Still probably unlikely, but never say never. Latest US liquidity data suggest that the trends still point down. The US Fed is engaging in a ‘silent tightening’ of liquidity ahead of its likely September rate move; net foreign flows are reversing, admittedly more through Americans buying overseas assets, and private sector liquidity is on a downwards trajectory.

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Emerging Markets Latest GLI, September 2015

by Michael J. Howell10. September 2015 18:24

China continues to weigh down heavily on EM. The big message we get from our latest data is that China will have to devalue the RMB further. We still predict a 10% drop for 2015. In August 2015, EM Liquidity remained soft testing a sub-par index level of 32.4 (‘normalised’ range 0-100). Chinese Liquidity, which dominates, hit the lower index level of 25.6.

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