Global Liquidity Updates
PBoC’s Aggressive Liquidity Moves Amid Global Easing Signals
Over the past week, the PBoC injected RMB 1.1978 trillion into the financial system through a 7-day reverse repo, with the same amount due this week.
Surprisingly, today, the PBoC added another RMB 471 billion through the 7-day reverse repo, resulting in a net injection of RMB 418.9 billion; good so far.
Additionally, a 1-year MLF operation injected RMB 300 billion, but with RMB 401 billion due, there's a net drain of RMB 101 billion.
Despite this, we're seeing month-over-month increases in MLF injections, showing the PBoC is working to keep the financial system well-watered.
With the DXY taking a dip, it feels like the global financial forecast just predicted rain.
On the other side, the FED's Reserve Bank Credit saw a minor decrease, signaling they’re not ready to fully unleash the money printer.
The USD continues to decline as investors shift to riskier assets following Fed Chair Jerome Powell's dovish speech.
Powell hinted that the economic outlook is nearing the Fed's goals, especially on inflation, leading markets to expect one or two cuts in September.
While the DXY remains in a bearish trend, oversold conditions suggest a potential short-term correction.
Rate cuts and a falling DXY could trigger global easing, turning this financial chess game into a gold grabbing cycle.
When it rains, it pours they say, and you better have more than just a bucket to catch the gold rush.
Our AE Global Liquidity indicator saw a minor decrease of 0.82%. The RoC chart remains bullish, with the 3-month rate still above the 12-month rate.
Tight Monetary Conditions Persist
AE global liquidity heatmap continues to highlight phases of liquidity contraction, indicating tight global monetary conditions. Implying central banks have yet to initiate a new round of QE.
The current limited liquidity is reflected in Bitcoin's recent sideways movement and volatility, as shown in the chart.
Is a Global Shift On the Horizon?
The USD continues to show weakness as collateral values improve. Reserve bank credit is displaying a noteworthy positive RoC compared to last week, and China is adding liquidity as the USD declines.
While signs of increasing liquidity are evident, many central banks still have one foot on the brake. As the U.S. government faces significant deficits, we're in a scenario where the driver of monetary inflation is the government itself.
A key way of monetizing this debt is through issuing more short-term bills—something we're keeping a close eye on.
Liquidity rose by $1.653 trillion last week, marking a 1.3% increase in total. Our RoC indicates a small strength increase in the upward trend.
