Liquidity Pressures and Election Uncertainty: What Lies Ahead for Markets

All Eyes on the Fed as AE GLI Reflects Risky Liquidity Environment

‍The AE GLI has dropped by -0.619% and is currently at $125.764 trillion.

This occurred in tandem with consistent decline of the 3-month rate of change, which reflects caution ahead.

With uncertainty building around election, expect extreme market volatility.

Historically, Bitcoin has acted as a safe haven amid inflation concerns, which is even more relevant now with fiscal deficits ballooning and bond yields rising post-recent Fed actions.

With inflation risks for 2025 are also increasing. A slowdown in liquidity injections by the Fed would be very undesirable, given high indebtedness levels and the strain this could place on the banking system.

Meanwhile, with the MOVE Index elevated, a post-election decline is to be anticipated, which should positively impact global liquidity.

Markets are also, almost completely, pricing in a 25bp rate cut on Thursday.

As mentioned previously, we expect a substantial liquidity inflow from the West, driven by reductions in the TGA and RRP, an end to QT, and banks utilizing various liquidity facilities.