Global Liquidity Updates

Not the time to be calling for tops

‍Despite some "headwinds" for Bitcoin, sentiment remains positive and interest from big institutions and countries is likely to continue growing as the coming US administration is very pro-crypto.

The central bank minutes reveal discussions of a five basis point cut on the ON RRP, which could likely be interpreted as a signal for more liquidity in the outlook.

In our view, this indicates that the Fed is signaling a desire to end QT and move back to QE.

While there are concerns about the DXY hovering at high levels, we mentioned in a recent post that its momentum is likely to slow down.

This may be setting up for a pullback to test its previous monthly open at the $103.86 mark - which would potentially drag the MOVE Index lower as well.

That path would be very positive for risk-on assets, even if it turns out to be a temporary path for the DXY.

Looking at the Treasury General Account which is currently floating between the $800bn and $700bn range, we remain positive about a decrease in Q4 and Q1 of next year.

On the macroeconomic outlook there is a high likelihood that both the ECB and the Fed will cut rates before the end of 2024.

TLDR: as we look ahead, we continue to see liquidity rising further into '25.

As a heads up - we have been long since our model turned bullish back in September and with a confirmed bullish Global Liquidity oscillator, our outlook remains positive.Coming to our data, Global Liquidity has seen a decrease of 250bn, which is a decrease of 0.2%.

The 3m RoC remains above the 12m which is a good sign for continued liquidity momentum.

The AE Global Liquidity Oscillator has proven itself as a critical tool for spotting shifts in liquidity trends, which have been reflected in the recent surge of risk-on assets like Bitcoin.

As noted in this week’s liquidity update, the overall liquidity environment continues to stagnate at current levels.

Same stagnation is mirrored in the AE Global Liquidity Oscillator, which shows a progressively weakening score.

This gradual erosion in liquidity-driven momentum could signal a potential turning point.

While Bitcoin’s recent rally has largely been fueled by speculation - evidenced by the flatlining Global Liquidity Index and the weakening Oscillator - bull markets often defy rational explanations.However, if the Oscillator's downward trend persists, this speculative-driven divergence may become unsustainable, raising the likelihood of corrections or heightened volatility until our liquidity model catches up.

For now, it's critical to monitor liquidity signals closely in order to navigate this evolving market landscape.

The AE Global Liquidity Index has seen a 0.5bn increase (+0.4%) over the past week and is currently standing at $130 trillion level, signaling an ongoing stagnation.

However, a noteworthy development to monitor is the behavior of the 3-month RoC.

The 3-month RoC has experienced a noticeable drop, now hovering just above the 12-month RoC. This narrowing gap suggests that the short-term momentum in #liquidity conditions is weakening.

If the current stagnation in GLI persists, the 3M RoC is likely to cross under the 12M RoC which signals a potential bearish shift.

This would indicate a reversal in liquidity momentum and could serve as a bearish signal for risk-on assets.

In the context of AE Global Liquidity Power-Law model, this could imply downward pressure or slower growth for liquidity-sensitive assets like Bitcoin.

Monitoring this transition is critical for anticipating the next major market move.

The ongoing weakness is unsurprising as central banks appear to keep a tight grip over injections.

While the Treasury General Account is beginning to reduce its balance, the Federal Reserve is playing a cautious game.

On a positive note, the MOVE index is back towards its 'normal' range (as highlighted in our recent post discussing the ±1 standard deviation range).

Additionally, the DXY, after hitting a new two-year high, appears to be losing upward momentum which could potentially be the first sign of a weakening dollar in the upcoming weeks.