End October liquidity data

Regular readers of this blog will be aware that the overall liquidity picture is the weakest since just before the Global Financial Crisis - and before then 1989.  The most recent end October data remains at levels which normally herald a recession.  A major factor behind this is, of course, central bank tightening.  Over 70% of central banks are running ‘tight’ policies and only the People’s Bank of China is still officially easing.

 

It’s no surprise that, when the financial tide is running out, marginal borrowers are the first to be exposed.  Hence Emerging Markets economies are weakening faster, while the ‘core’ US remains relatively resilient.

Our friends at CrossBorder who produce this liquidity data also see signs from the bond market that an economic slow-down is on its way.  Yield curves have flattened and for the real technos the position of the curvature peak within them is contracting too.  

 

With this background, perhaps the intriguing question which has not yet been asked is whether we are coming towards the end of the current tightening cycle?  It’s probably a little early but it seems to me most unlikely that even the Federal Reserve is going to be able to follow through on its promised track of interest rate rises.

So, while I confidently expect another leg down in markets, we can also see some seeds of recovery beyond that – albeit probably at the cost of inflation.

 

To learn more about CrossBorder’s research on liquidity please click here