Chart of the Week : Global central bank liquidity
Head of Macroeconomic Research
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance. This week, we look at the evolution of liquidity injections by global central banks.
At Saxo Bank, we believe that in the era of central bank power it is of prime importance to closely monitor the evolution of central bank liquidity to make appropriate investing decisions. The below chart tracks the evolution of total liquidity injection by the twenty two biggest global central banks expressed in percentage points of global GDP. In the wake of the outbreak, central banks all around the world have opened up widely the wave of liquidity to avoid a liquidity crunch. We estimate that global central bank liquidity reached a peak at 12.5 percentage points of global GDP in the pandemic period. This is six times more than the peak reached in the midst of the global financial crisis. Now that inflationary pressures coming from the production side, labor shortage and energy crisis are hitting the world, central banks are starting to reduce the inflow of liquidity. It is still in positive territory. But it is decelerating fast. We estimate liquidity injections by global central banks was around 3 percentage points of global GDP in the third quarter. The European Central Bank was the largest contributor to global central bank liquidity, with a level of injection reaching 1.8 percentage points. The U.S. Federal Reserve was in second position (0.9%) followed by the People’s Bank of China (0.2%). In our view, the massive amount of central bank liquidity that has flowed into financial markets is the main explanation behind the strong performance of the equity markets over the past few months. But with central bank liquidity injections falling fast, expect it will negatively impact global economic activity and financial markets in the medium- and long-term.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.