China's Policy Shifts and US Liquidity Struggles: A Bullish Setup for Risk Assets?

China's recent monetary policy shifts aim to bolster long-term economic stability but come with short-term hurdles.

The transition to a "moderately loose" stance, coupled with strategic rate cuts, reflects efforts to stabilize amidst global challenges.

Yet, these small steps may fall short without bolder action.

In the US, the TGA has dipped below $700 billion and could decline further as debt ceiling debates drag on.

Meanwhile, the MOVE Index signals a temporary calm in bond market volatility.

Central banks, including the Federal Reserve, remain cautious, holding off on significant liquidity injections.

The DXY weakened today following rumors of a universal tariff plan, which would be applied to only certain sectors, by Trump—only to partially rebound after he dismissed the claims as "fake news."

Still, the narrative hints at a strategic use of dollar strength in trade negotiations and likely, its strength will "disappear" post-inauguration, when a bunch of deals are already set in place.

This potential "bluff" tactic could very well lead to a bullish environment for risk assets.

Our Global Liquidity Index declined by $0.613T this week, representing a 0.48% drop.

Liquidity momentum remains weak, with the 3-month rate of change still trailing the 12-month rate of change.

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