back
Details Cookies
Hong Kong S.A.R
Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

Central bank liquidity is turning… Central bank liquidity is turning… Central bank liquidity is turning…

Central bank liquidity is turning…

Macro
CD
Christopher Dembik

Head of Macro Analysis

Summary:  This is a preliminary version of a more extended piece that we will publish soon on one of the most important topics for the end of the year: global liquidity.


In the chart below, you have the evolution of liquidity injection by the 22 biggest global central banks expressed in percentage point of global GDP. After years of massive central bank asset purchases and monetary expansion, central bank liquidity has started to contract since Q2 2018. The amplitude of the contraction was quite elevated, reaching at lowest level at minus 3.2 p.p. of global GDP early this year.

As the money flood started to recede on the back of QT, the macroeconomic and market outlook started to look less favorable, sentiment deteriorated, and many investors started to wonder whether stocks are not too highly valued. On the top of that, trade war friction and global trade recession contributed to higher risk sentiment and, ultimately, to stronger USD, which can be considered as counter-intuitive as Fed QT should normally have a deeper impact inside the US than outside. But, as we all know, the USD is a problem for everyone, except for the United States in the current international monetary system.

Based on the latest data, we notice an emerging interesting trend: central bank liquidity is slowly turning. It is still deeply in contraction territory, with the negative consequences it implies for the market, but it is moving upwards, currently at minus 2.5 p.p. of global GDP. For now, the bulk of the improvement is related to positive liquidity injection from the BoJ. However, this improvement may be short-lived in the coming two or three months as central bank liquidity could move downward again as reserve scarcity in the US financial system accelerates.

But – and this is the important point – when looking a bit forward, there are early signals that central bank liquidity conditions could considerably improve into Q1-Q2 2020 due to more accommodative stance from central banks and especially restart of ECB QE anytime soon and Fed rate cut of 50 bps by the end of the year. If it is confirmed - and this is still an early call - it could open more positive perspectives for 2020. Interestingly, we also start to have a slight improvement of our favorite macro gauge, the global credit impulse, that points out to a potential global GDP growth rebound in H1 2020, mostly driven by the US.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.