Global Liquidity Worsens Amid Mixed Signals: Optimism Ahead for Q1 2025

The Federal Reserve’s tightening pace has slowed for the fourth consecutive week, yet the net liquidity rate of change remains negative.

Notably, the RRP has dropped to levels close to zero, which could potentially push the Fed towards initiating QE.

Our earlier expectation of a significant Treasury General Account drainage around this time, based on historical trends, did not materialize.

However, looking ahead, there is a high likelihood that unresolved debt ceiling negotiations will extend into January 2025. If so, this could lead to substantial TGA drawdowns.

The MOVE index remains at low levels, which supports a favorable collateral multiplier.

Across the globe, China  has made big moves—this time with a negative impact.

The People's Bank of China  drained a net 643.5 billion yuan through 7-day RRP operations, the biggest drain since early November.

Despite this, we expect China to begin its first major easing operations once the DXY retreats from current highs.

Similarly, other central banks appear to be waiting for the US to take the lead before adjusting their policies.

Our Global Liquidity declined by 1.963t, representing a -1.50% drop this week.

With liquidity conditions worsening, the 3-month rate of change has now fallen below the 12-month rate of change, signaling very weak liquidity momentum.

While this could end up being a "false" signal, it's a signal nevertheless.

On the other hand, we remain confident that Q1 2025 is likely to present a more favorable environment for global liquidity and risk-on assets

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