Chart of the Week : Global central bank liquidity
Head of Macro Analysis
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.
Click here to download this week's full edition of Macro Chartmania.
Today, we look at the evolution of liquidity injections by central banks. At Saxo, 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 the appropriate investing decisions. The below chart tracks the evolution of total liquidity injection by the twenty two biggest global central banks expressed in percentage point 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 and help companies and households overcoming the consequences of the health crisis. Such a flow of liquidity is unprecedented in modern history, with the combined liquidity injection by the G3 central banks (Fed, ECB and BoJ) representing the stunning level of 9.6 percentage points of global GDP in Q3 this year according to our calculations – a level that has not even been reached during the GFC. The current central bank liquidity impulse is three times bigger than during the Great Recession. So far, the Federal Reserve has been the most important contributor to global central bank liquidity, with a level of injection climbing to 9.3 percentage points of global GDP since the outbreak, followed up by the ECB. This amount of central bank liquidity that has flowed into financial markets is the main explanation behind the strong performance of the equity market over the past few months. With more positive vaccine news in sight, especially the likely FDA’s approval of the Pfizer vaccine on 10 Dec, and more monetary stimulus to come in the next two to three weeks, investors have all reasons to wear rose-colored glasses right now, and get prepared for an ultimate year-end rally in the stock market. When looking a bit forward, we expect central bank liquidity injection will recede next year, as economic recovery will start to materialize, but central banks will continue to act appropriately and will remain accommodative on the long run, thereby avoiding that the level of debt becomes a problem or that interest rates rise too sharply. Among the measures that may be taken, we anticipate additional forward guidance on QE by the Fed and the ECB and the extension of the corporate financing support program by the BoJ.
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.