Global Liquidity Updates

There we have it! China couldn't wait for the FED and is flooding the market with fresh air.

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Today, China rolled out a significant economic stimulus package to jumpstart its economy, featuring substantial cuts to both the reserve requirement ratio (RRR) and mortgage rates for existing homes; each by 50 basis points. This move by the People's Bank of China (PBOC) is also paired with an injection of 1 trillion yuan to enhance liquidity and stimulate economic activity.

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By lowering the RRR, commercial banks will have less cash tied up in reserves, which frees up more capital for lending. At the same time, reducing mortgage rates will lighten the financial load on 50 million households, saving them an estimated 150 billion yuan in interest payments annually. This relief is expected to boost consumer spending and invigorate investment throughout the country.

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Additionally, the PBOC is ready to step up with more support if needed. This includes helping real estate companies secure loans to purchase land, which could alleviate some of the financial strain facing the sector. As mentioned in our weekly update yesterday, it's game on for the big 2; USA and China.

Global liquidity continues to rise, with a notable increase of $1.426T over the past week, bringing the total value to an astounding $131.6T.

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The RoC metric has crossed into positive territory, and all of our liquidity charts are currently showing positive signals; a trend that shows no signs of slowing down.

These developments align closely with our current expectations.

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A key factor in the rise of global liquidity has been the drop in the MOVE Index. Less uncertainty in bond markets leads to fewer haircuts on collateral, resulting in more lending, which in turn boosts our Liquidity Index.

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Even though today, China cut its 14-day RRR rate from 1.95% to 1.85%, they have continued injecting higher amounts of liquidity, especially since the FED cut its fund rate.

A 50bps reduction in funds rate is a clear sign that the FED wants to ease.

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It’s game on for the two big central banks, and we’re just at the start of the easing cycle.

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Bitcoin and other risk assets are responding positively to this liquidity flood.

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Looking ahead, September remains a promising month for liquidity-driven market optimism. While the 'bearish September narrative' caught many off guard, our AE Global Liquidity Seasonality Indicator points toward continued favorable conditions through the end of the year.

Our GLI RoC Oscillator just hit the nail on the head again. Last week we shared an intra week signal, and it has now strengthen even further.

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With September continuing to show rising liquidity conditions, it aligns perfectly with our Liquidity Seasonality chart.

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Since we shared the GLI RoC Oscillator signal, Bitcoin has seen a 10% increase. Upcoming weeks will be crucial data-wise.